Subcontractors and VAT on Installation/Fitting

Date posted: 12th Oct 2020

If you are introducing subcontractors to install or fit products that you sell to customers, then you need to take care to ensure that you do not end up with an unwanted VAT bill.

For instance, a carpet retailer may sell a carpet for say £1,000 plus VAT and offer to arrange an introduction to a self employed carpet fitter. It may be that the carpet fitter is not registered for VAT as the business’ turnover is less than the VAT threshold and therefore doesn’t charge VAT on the service of fitting the carpet of say £250.

It is usually the case that there are two different supplies for VAT purposes – one for goods (the actual carpet) and one for services (fitting the carpet) – and therefore the VAT paid by the homeowner is correct i.e. just on the carpet.

However, if the carpet fitters are employed by the carpet retailer or the carpet retailer arranges the fitting and invoices the customer, then there are potential grounds for HMRC to seek VAT on the service of carpet fitting.

A recent VAT tribunal, involving Marshall’s Bathrooms, resulted in a verdict in HMRC’s favour. There were a number of factors that helped the HMRC argument including:

  • Marshall’s website stating “We provide the complete service from initial discussion to …….. work being completed.”
  • Quotations not mentioning the use of subcontractors.
  • Subcontractors chosen by Marshall’s, not the customer.
  • The contractual relationship being between customers and Marshall’s.
  • Complaints and queries directed to Marshall’s.

In this case, Marshall’s ended up paying a five figure VAT bill to HMRC.

Should you have any queries on the above or need further support, please contact our tax team here, who will be happy to assist.

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