VAT- ZERO RATED SUPPLY – PERSON WITH DISABILITY – supply of French doors and windows- whether designed solely for use by handicapped person – no- whether parts and accessories designed solely for use in or with goods – no – whether a supply to a handicapped person of services of adapting goods to suit her condition – no – whether a supply to a handicapped person of a service of constructing ramps or widening doorways or passages- no – Appeal dismissed except decision adjourned on whether French doors and windows to the dining room were incorporated in the restoration( paragraph 6.5 VAT Notice 701/7).
LONDON TRIBUNAL CENTRE
MR LEE ASHLEY DENNISON Appellant
- and -
THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents
Tribunal: Michael Tildesley (Chairman)
Keith Dugdale FCA (Member)
Sitting in public in Lowestoft on 23 March 2004
The Appellant appeared in person
Andrew O'Conner Counsel, for the Respondents
© CROWN COPYRIGHT 2004
DECISION
The Appeal
- The Appellant is appealing against the Respondents' rulings dated 26 November 2002, 31 January 2003 and 20 March 2003 that the supply by Harmony Home Improvements Limited of two pairs of French doors, a wide front door and three windows adjoining to the said doors did not qualify for VAT relief and would be subject to the standard rate of VAT.
- The grounds of Appeal were set out in the Notice of Appeal dated 20 March 2003 which were:
"the point of law relating to my wife's disability facilities grant is being misunderstood and also because the contractor concerned has explained fully that the design of the products installed were for my disabled wife. Example: the level access en-suite shower-room at the end of my wife's bedroom has been calculated by Customs and Excise as being VAT zero-rated yet the individual items within it ie the shower, toilet etc have not been constructed for a disabled person. It is therefore the design of the room and the needs of the disabled person which must be the deciding factor".
- The Respondents have conceded that the supply of the new front door should be zero-rated. Counsel for the Respondents queried whether that concession should have been made because the front door was not fitted in the original doorway. However, Counsel accepted that the Respondents would not retract their concession in respect of the new front door.
The Legislation
- The legislation refers to people with disabilities as "handicapped". The Tribunal acknowledges that the term "handicapped" is not now in general usage and can cause offence. The Tribunal will only use the word "handicapped" when it is necessary to reflect the actual wording of the law.
- Section 30 of the VATA 1994 holds that goods and services specified in Schedule 8 are zero-rated.
- Group 12 of Schedule 8 deals with supplies of goods and services for the handicapped, which is defined by Note 3 to Group 12 as "chronically sick or disabled".
- Supplies of goods and services to a person with disabilities are only zero rated under Group 12 , Schedule 8 when all of the following conditions are met:
• The person with disabilities fulfils the definition of "handicapped" as set out in Note 3 to Group 12.
• The supply is for the personal or domestic use of the person with disabilities
• The goods and services are eligible to be supplied at the zero rate for VAT.
- The eligible goods and services are set out in Group 12 of Schedule 8. The relevant ones for the purpose of this Appeal are as follows:
Item No 2(g): "equipment and appliances not included in paragraphs (a) to (f) above designed solely for use by a handicapped person".
Item No 2 (h): "parts and accessories designed solely for use in or with goods described in paragraphs (a) to (g) above.
Item No 3: "The supply to a handicapped person of services of adapting goods to suit his condition".
Item No 8: "The supply to a handicapped person of a service of constructing ramps or widening doorways or passages for the purpose of facilitating his entry to or movement within his private residence".
- VAT Notice 701/7 "VAT Reliefs for Disabled People" issued August 2002 paragraph 6.5 states that
"Where economy and feasibility dictate that you have constructed or extended in the course of a zero-rated supply, and have occupied space which was previously part of another room then you may also zero-rate the service of restoring that room elsewhere in the building to its original size. This is because the work is essential to providing the service to your disabled customer".
Mr O'Conner, Counsel for the Respondents, could find no statutory footing for paragraph 6.5 of the VAT Notice 701/7. However, he accepted that if the facts of this Appeal met the circumstances as outlined in paragraph 6.5 the Respondents would agree to the zero-rating of the supply.
The Authorities
- We were referred to the following decision of the VAT and Duties Tribunal:
Princess Louise Scottish Hospital v Commissioners of Customs and Excise [1983] VATTR 191.
Bruce and Hull v Commissioners of Customs and Excise (LON/86/315).
Posturite (UK Ltd v Commissioners of Customs and Excise (LON/91/2723Z).
GD Searle & Co Ltd v Commissioners of Customs and Excise (LON/94/1290A).
Softley Ltd v Commissioners of Customs and Excise (LON/96/1810).
- The decision in Princess Louise Scottish Hospital considered the meaning of the words: "designed solely for use" which occurs in Item 2(g) of Group 12 Schedule 8:
"We asked ourselves: does the appearance and method of operation of this table suggest to us, using the words with their ordinary and natural meaning, that it was designed "solely for use" by a chronically disabled person? We can only say that the table struck us as eminently practicable and convenient for all sorts of hospital patients and was not designed with a particular class in mind".
- GD Searle & Co Ltd built upon the approach adopted in Princess Louise:
"The approach of the Tribunals has been to construe the words "designed solely for the use of" as involving a subjective test namely what was the intention of the designer………It seems to us that provided the sole purpose in the designer's mind is that the equipment or appliance be used by handicapped persons, it matters not that it is capable of use by others. It would clearly be absurd if the designer has to seek to ensure that it was unsuitable for others. If however the designer intends a general purpose then the word "solely" prevents the test from being satisfied. ……… "Subjective tests regularly produce evidential difficulties. Where there is no evidence from the designer, the intentions of the designer have to be inferred".
The Issues to be determined
- The Appellant lived his wife at Crumb Cottage, Cake Street, Old Buckenham, Norfolk. Mrs Dennison suffered from a chronic kidney complaint and Scoliosis (curvature of the spine) and was wheelchair bound. Mrs Dennison received a disability facilities grant from Breckland District Council to carry out major building alterations to Crumb Cottage to provide her with a quality of life and access throughout the cottage including the garden and the car. The alterations involved amongst other things the building of a downstairs bedroom with an en-suite shower room, the enlargement of the dining room and the building of an internal passage from the house to the garage. Access to the cottage was gained by a new front door. The design of the alterations formed a practicable area in which all main services could be located with direct wheelchair access to the kitchen, dining room, bedroom and en-suite bathroom. This gave Mrs Dennison a self-contained area where she could perform the majority of household functions unaided.
- New French patio doors with adjoining windows were installed in the reconstructed dining room and new bedroom giving Mrs Dennison access from these living areas into the garden. A new external window was put in the passage between the living area and the garage.
- The alterations were largely funded from the disabilities facilities grant, however, Mr Dennison contributed about £6,000 of his own money towards the building works.
- Mr Dennison corresponded with the Respondents regarding the VAT treatment of the building alterations. The Respondents indicated that they normally only give liability rulings to the VAT registered supplier but they were prepared to make an exception in Mr Dennison's case because of his dispute with the builders. The Respondents advised Mr Dennison that a range of the building alterations qualified for VAT zero rating.
- The sole matter in dispute related to the VAT treatment of the two French doors with adjoining windows and the new external window near to the front door in the passage between the house and the garage. The Respondents accepted that Mrs Dennison was a handicapped person within the meaning of Note 3 Group 12 Schedule 8 of the VATA 1994 and that the supply of the doors and windows were for the personal or domestic use of Mrs Dennison. Thus the issue to be determined by the Tribunal was whether the goods or services supplied met the requirements for a zero-rated supply as defined in Group 12 of Schedule 8 of the VATA 1994.
The Evidence
- The Tribunal heard evidence from Mr Dennison as the Appellant and Mrs Bennewith and Mr Dutton for the Respondents. A bundle of documents was presented to the Tribunal which included photographs of the French doors and windows.
- Mr Dennison purchased the French doors and windows from Harmony Home Improvements Ltd based in Hethersett, Norwich. The company was recommended to Mr Dennison by a friend who had windows installed by Harmony Home Improvements Ltd. Mr Dennison was initially attracted by the quality of workmanship. The company used virgin plastic which did not discolour. The security system installed in its windows and doors was robust. Harmony Home Improvements offered Mr Dennison a competitive price. The Directors of the Company were also prepared to modify its windows and doors to meet the specific needs of Mrs Dennison.
- Mr Dennison produced a letter from Harmony Home Improvements dated 18 November 2002 signed by W Moore, a Director of the Company. The letter contained the following statements:
"I write to confirm that we did manufacture and installed PVCu double glazed windows and doors (in Crumb Cottage) which were custom made to a specific design for a disabled person.
This comprised of two pairs of extra wide French doors with adjoining opening windows to the rear of the property……. The French doors and all adjoining windows in particular, had special low level special locks and handles to ensure easy use from a wheelchair.
I would add, that the designs of these products are specific for a disabled person and would not be installed into an average home without a need."
- Mr Dennison informed the Tribunal that Harmony Homes had altered the locking system on the doors and windows from finger locks at the bottom and top to a completely new system which enabled the doors and windows to be locked and opened by a person in the wheelchair. The locks for the windows were installed in the handles. The locking mechanism for the doors went the whole length of the doors operated by a key in the handle. A specific feature of the doors was that Mrs Dennison could open them using only one hand from the wheelchair which would be vital in the event of a fire. The right hand door of the French doors opened first with the left hand door providing the security mechanism. The left and right hand doors had their own independent locking system.
- The handles to the windows and the doors were at a height which could be reached with ease by a person in a wheelchair. The French doors had a low threshold enabling a person in a wheelchair to get in and out of the property. There were no pillars in the doors to block access. The windows did not incorporate skylights because Mrs Dennison would not have been able to reach the handles for the skylights. Instead the windows adjoining the French doors consisted of two panels with the upper panel opening via a handle at the bottom of the panel accessible by a person in a wheelchair. The front window was "Georgian" in style consisting of six panels. There were three fixed small panels at the top of the window underneath which were three large panels, the central panel was fixed with the two panels either side able to be opened by a handle half way up the rim next to the central panel and accessible to a person in a wheelchair. This design allowed Mrs Dennison to open the windows for ventilation but it did not have the same level of security offered by opening only through skylights.
- Mr Dennison contended that the French doors and windows were not manufactured to fit predetermined gaps in the extension. They were designed long before the extension was constructed. Mr Dennison acknowledged that the French doors and the three windows were installed in the extension, not in widened doorways and windows of the existing building.
- In cross-examination Mr Dennison accepted that the French doors were not unusually wide. They were about six feet across. Mr Dennison explained that Harmony Home Improvements Ltd could only build doors to a certain width to accommodate the panels that it received. Mr Dennison agreed with the observation of Respondents' Counsel that the handles for the French doors were not at any more than the normal height for door handles. The Directors of Harmony Home Improvements Ltd advised Mr Dennison what they could produce to meet the needs of Mrs Dennison. They were able to make adaptations to the kits provided by their suppliers. The Directors informed Mr Dennison that he was the first customer to have the specific locking arrangement fixed to the doors. Mr Dennison understood that all their customers now have this locking arrangement. He informed the Tribunal that Harmony Home Improvements Ltd did not produce brochures specifically aimed at people with disabilities. We were not provided with copies of marketing literature from Harmony Homes or with the design specifications for the windows and doors.
- The Respondents' first ruling on this dispute was dated 26 November 2002, signed by Lisa Shaw and addressed to Harmony Home Improvements Ltd. Ms Shaw stated that
"Under item 8 of Schedule 12 of the VAT Act 1994 the service of widening an existing doorway in a disabled persons private residence may be VAT zero rated. Therefore the supply and fit of wider doors in place of original doors will qualify for VAT relief. Replacement windows do not qualify and will be subject to the standard rate of VAT.
Unfortunately the construction of new doorways and windows do not qualify for VAT relief, as in the construction of any new extension, doors and windows are built in accordance with the customer's requirements, so you could say that they are all specifically designed for their needs".
- Mrs Harrison, a Senior Officer of the Respondents, was appointed as the reviewing Officer for Ms Shaw's ruling. Mrs Harrison sought further details from Mr Dennison including marketing material published by Harmony Home Improvements Ltd, design specifications for the doors and windows, details of any clinical trials or tests, any medical endorsements and copies of professionally drawn plans for the extension. Mr Dennison considered this request unreasonable and complained to the Respondents' Regional Complaints Team. Mrs Jay dealt with the complaint and wrote on 20 March 2003 explaining Mrs Harrison's reasons for requesting further information, and upholding the ruling that the doors and windows did not qualify for zero rated VAT.
- Mrs Jay in her letter of 20 March 2003 explained her decision on review:
"The VAT Act 1994, Schedule 8, Group 12, Item 2 particularly addresses the subject of goods which may be zero-rated when supplied to a handicapped person for domestic or personal use. In particular item 2(g) pertains to equipment and appliances designed solely for use by a handicapped person.
There are many products which are useful or even essential to people with disabilities, but they are not necessarily designed solely for use by a handicapped person.
When we talk of design we are referring to what the manufacturer sets out to achieve. It means designed by the person concerned in its manufacture – not the intentions of the installer or user. It does not mean destined for or intended for people with disabilities. …. The fact that an item will in a particular case be useful to a person in coping with their disability is not sufficient. Nor is the fact that the goods were installed in a particular way, or in a particular place, so as to facilitate their use by a person with disabilities.
I have spoken with Mr Moore of Harmony Home Improvements Ltd and he has confirmed to me that whilst the needs of your wife's condition was paramount when installing the products in your home, the goods were not designed or manufactured solely for use by a disabled person and that the product he installed in your home could be of value to people other than those with disabilities.
My conclusion is that the French doors and windows installed in your home do not qualify under Schedule 8, Group 12, Item 2(g) of the VAT Act 1994".
- Mr Dennison explained that the original dining room of Crumb Cottage had a window at its rear and patio doors to the side where the new bedroom had been constructed. Under the extension the enlarged hall took up some of the original dining room space which required the building of new dining room to compensate for the space lost. In a letter dated 18 November 2002 Mrs Bennewith from the Respondent's National Advice Service accepted that the restoration of the dining room to its original size would also qualify for VAT zero rating as part of it was used to extend the hallway, which was considered to be a VAT zero rated supply. Mr Dennison was of the view that the zero rating of the dining room must include the French doors and adjoining windows. Mr Dennison in his closing address to the Tribunal, however, said that the new dining room was longer than it should have been because the builder made a mistake with its size.
- Mrs Bennewith clarified the notations on Mr Dennison's letter to the Respondents dated 28 January 2001 which appeared to indicate that the Respondents were agreeing to zero rating of the French doors. Mrs Bennewith demonstrated that the notation in question referred to the ramp not to the doors. Mr Dutton gave evidence about his wish to visit Crumb Cottage which was disputed by Mr Dennison. The disputed evidence about the proposed visit was not relevant to the issues to be determined in this Appeal.
Reasons for Our Decision
- The issue to be determined by the Tribunal is whether the supply of the French doors and windows met the requirements for a zero-rated supply as defined in Group 12 of Schedule 8 of the VATA 1994. We will examine the evidence against each of the relevant parts of Group 12.
Were the French doors and windows designed solely for use by a handicapped person" (item 2(g) )?
- The operative words of item 2 (g) are "designed solely for use by a handicapped person". The approach of the Tribunal has been to construe the operative words as involving a subjective test namely what was the intention of the designer. In this Appeal we heard no direct evidence from the person who designed the windows. The evidence showed that Harmony Home Improvements Ltd assembled the windows and doors from supplied panels of determinate sizes and installed them in their customers' premises. The Company had some discretion in respect of the design particularly in relation to the position of the handles and the type of locking system but that discretion was limited by the size of the panels. Mr Moore, a Director of Harmony Home Improvements Ltd stated in a letter dated 18 November 2002 that the windows and doors "were custom made to a specific design for a disabled person and would not be installed into an average home without a need." However, that statement must be viewed in the context of Mr Moore's telephone conversation with Mrs Jay where he accepted that "the goods were not designed or manufactured solely for use by a disabled person and that the product he (Mr Moore) installed in your home could be of value to people other than those with disabilities". The content of Mr Moore's telephone conversation was confirmed by Mr Dennison's evidence when he told the Tribunal that the locking system installed in his windows had now become a standard feature of all doors sold by Harmony Home Improvements Ltd .
- Harmony Homes Improvements Ltd did not target its products to people with disabilities. According to Mr Dennison's evidence the Company produced no brochures specifically for people with disabilities. Mr Dennison himself was initially attracted to the Company by its quality of workmanship and competitive price rather than the services provided to people with disabilities.
- Mr Dennison accepted in his evidence that the French doors were not unusually wide and the handles to the doors were not at any more than the normal height for door handles. Mr Dennison relied principally on the locking system as the unique feature of the design for people with disabilities but his assertion should be viewed in the context of his later statement that the locking system had become a standard feature of all doors. Mr Dennison also mentioned that the French doors had a low threshold to allow access by a person in a wheelchair and that the main windows opened rather than the skylights. However, as Counsel for the Respondents pointed out these features could be useful for other groups of people such as people who wished regularly to carry large loads through doors, shorter people or children and those who find it difficult to stretch up without being disabled.
- Where there is no direct evidence from the designer, we are entitled to draw our own inferences about whether the windows and doors were designed solely for use by a handicapped person from observation of the products. We had the benefit of viewing the products by means of digitally produced photographs. We asked ourselves the question: "do the appearance and method of operation of the windows and doors suggest to us that they were designed solely for use by a handicapped person"? We formed the view that the doors and windows were of use to a wide group of people and would not be restricted to people with disabilities.
- We have analysed the evidence about the design of the French doors and windows from a range of perspectives: the comments of a Director of Harmony Home Improvements Ltd, the Company's method of operation, Mr Dennison's own evidence and our own observations of the products. We conclude from the evidence that the French doors and windows were designed for sale to the general public with scope for the assemblers within pre-defined limits to modify the design to meet specific needs of customers who may or may not be people with disabilities. Thus the French doors and windows which are the subject of this Appeal were not designed solely for the use of handicapped people.
Were the windows and doors parts and accessories designed solely for use in or with goods which themselves qualify for VAT relief (item 2h)?
- Mr Dennison contended before the Tribunal that paragraph 4.8 of the Respondents' Notice 701/7 applied to the circumstances of this Appeal. Paragraph 4.8 replicates item 2(h) of Group 12 of Schedule 8. Mr Dennison suggested the windows and doors were designed well before the extension was constructed. They did not just fill a gap in the extension. In his view the doors and windows were parts and accessories of the extension, a part of which was eligible for zero rating for VAT purposes. However, for Mr Dennison's argument to succeed he would have to show that the doors and windows were parts and accessories designed solely for use with the extension and that the extension was zero-rated for VAT purposes under the preceding parts of item 2. Mr Dennison's argument falls on both grounds. The doors and windows were the product. They were not parts and accessories of the extension. Further they were not designed solely for use with the extension which was supported by Mr Dennison's evidence that the doors and windows were designed well before the extension. Finally the extension as a whole was not zero-rated for VAT purposes under the preceding parts of item 2 Group 12 Schedule 8 of the 1994 Act.
Did the windows and doors constitute a supply to a handicapped person of services of adapting goods to suit her condition (item 3)?
- Mr Dennison referred to paragraph 5.3 of the Respondents' Notice 701/7 which is based upon the wording of item 3 of Group 12 of Schedule 8. Essentially Mr Dennison proposed that the doors and windows were adapted to meet the condition of Mrs Dennison, thus should be zero rated under item 3. This exemption, however, is about the supply of the services to adapt the product not the supply of a finished product which has been adapted to meet the specific needs of a person with disabilities. Harmony Homes Improvement Ltd supplied Mr Dennison with the finished product, doors and windows, not the supply of services to adapt the goods. Therefore, Mr Dennison's submission for zero rating under item 3 fails.
Did the supply of doors and windows involve widening doorways or passages for the purpose of facilitating Mrs Dennison's entry to or movement within her private residence (item 8)?
- In this Appeal item 8 applies only to the French doors not the window at the front of the house. The evidence showed that the French doors were installed in new apertures of the extension, not in existing doorways which had to be widened to accommodate the doors. Thus the criterion for claiming zero rating under item 8 was not met by the supply of French doors to Mr Dennison.
Was the supply of the French doors to the dining room covered by the Respondents' acknowledgement that restoration of the dining room constituted a zero rated supply?
- Under paragraph 6.5 of Notice 701/7 where a supplier has constructed or extended in the course of a zero rated supply and by doing so occupied space which was previously part of another room, then the service of restoring that room elsewhere in the building to its original size is itself a zero rated supply. In this Appeal the enlarged hall took up some of the original dining room space which required the building of new dining room to compensate for the space lost. Mr Dennison gave evidence that the old dining room had patio doors on the side now facing the new bedroom and a window at the rear. Mrs Bennewith from the Respondent's National Advice Service in a letter dated 18 November 2002 accepted that the restoration of the dining room to its original size would qualify for VAT zero rating.
- Counsel for the Respondents dealt with paragraph 6.5 on the basis that the conversion of the dining room did not qualify for relief because the work done to the dining room was more than restoring the former dining room to its original size. We heard evidence from Mrs Bennewith about her correspondence with Mr Dennison on the 14 March 2002 and 22 May 2002 where she indicated that the construction of the dining room would not be covered by the relief from VAT. It would appear that Mrs Bennewith's letter of 18 November 2002 where she indicated that the dining room would qualify for zero rating was overlooked by Counsel.
- The Tribunal is in some difficulty because it is not clear from the evidence whether Mrs Bennewith's advice about the dining room in her letter of 18 November 2002 amounted to a ruling by the Respondents that the restoration of the dining room ranked for zero-rating for VAT. Further Respondents' Counsel informed the Tribunal that paragraph 6.5 of Notice 701/7 has no statutory basis, which poses questions about how its wording should be construed by the Tribunal. In particular does the word "restoration" include the installation of the French doors in the new dining room in place of the patio doors, which were located on a different wall in the former dining room.
- We have decided to issue directions seeking additional information before making our decision on the application of paragraph 6.5 of Notice 701/7 to the facts in this Appeal. Paragraph 6.5 will only apply to the French doors and adjoining windows installed in the dining room. It does not affect the VAT position in respect of the French doors and windows in the bedroom and the window at the front of the cottage.
Our Decision
- We make the following decisions in respect of the VAT treatment of the supply of two French doors and adjoining windows and the front window to Mr Denison for the reasons cited above:
a) The French doors and windows supplied were not designed solely for use by a handicapped person in accordance with item 2(g) Group 12 Schedule 8 of VATA 1994.
b) The French doors and windows supplied were not parts and accessories designed solely for use in or with goods which themselves qualify for VAT relief in accordance with item 2(h) Group 12 Schedule 8 of VATA 1994.
c) The French doors and windows did not constitute a supply to a handicapped person of services of adapting goods to suit her condition in accordance with item 3 Group 12 Schedule 8 of VATA 1994.
d) The French doors and windows supplied did not involve widening doorways or passages for the purpose of facilitating Mrs Dennison's entry to or movement within her private residence in accordance with item 8 Group 12 Schedule 8 of VATA 1994.
- We make the following directions in respect of the impact of paragraph 6.5 of Notice 701/7 upon the VAT treatment of the supply of French doors and adjoining windows for the dining room:
- The Respondents to provide written submissions and arguments on the following points to the Tribunal and to the Appellant by no later than the 1 June 2004:
- The jurisdiction of the Tribunal to deal with issues of liability to VAT decided by the Respondents based upon paragraph 6.5 of Notice 701/7.
- Did the advice of Mrs Bennewith contained in her letter of 18 November 2002 constitute a ruling by the Respondents that the restoration of the dining room in Crumb Cottage was eligible for zero rating for VAT?
- Does the word "restoration" incorporate the installation of French doors and adjoining windows in place of the former patio doors in the dining room?
- The Appellant may submit a written response to the Respondents' submissions to the Tribunal and to the Respondents by no later than 15 June 2004.
- The Tribunal will determine the matter in dispute if required by no later than the 15 July 2004 without the need to re-convene the hearing.
- The effect of our decision is that the supply of the French doors and the adjoining windows and the window at the front will be standard rated for VAT purposes except for the French door and adjoining window in the dining room upon which the Tribunal has adjourned its final decision until the 15 July 2004.
- The Tribunal notes the Respondents' concession regarding zero rating of the supply of the front door to Mr Dennison.
- The quantum of the VAT due on the relevant supplies will be agreed between the parties, in the absence of agreement either party is at liberty to apply to the Tribunal for a determination on the quantum.
- The Appeal is dismissed except for the decision regarding the application of paragraph 6.5 of Notice 701/7 to the French door and window in the dining room which is adjourned until 15 July 2004. There will be no order for costs.
MICHAEL TILDESLEY
CHAIRMAN
RELEASED:
LON/03/399
