We are aware that HMRC is increasingly challenging retailers in the flooring, kitchen, and bathroom sectors where customers are referred to third-party contractors for installation services. HMRC often argues that the retailer is making a single composite supply of both goods and fitting services. Where the contractors engaged are not VAT-registered, this can result in HMRC seeking additional VAT on the basis that the supply is made by the VAT-registered retailer.

In a recent First Tier Tribunal case, United Carpets (Franchisor) Limited v HMRC, the Tribunal determined that the retailer was not responsible for supplying fitting services. This conclusion was reached because clear in-store signage stated that the retailer did not offer fitting services. The retailer’s role was limited to an ‘introductory’ one, simply putting the customer in touch with an independent fitter. Contracts for the fitting of flooring were agreed directly between the customer and the fitter, with payment obligations resting solely with the customer.

To reduce the risk of HMRC challenge, both the contractual framework and the commercial and economic substance of the arrangements must demonstrate that the supply of goods and the supply of fitting services are two separate and distinct transactions, carried out by two different parties.