Wearside Civil Engineering Ltd v Revenue & Customs (VALUE ADDED TAX - zero rating)

Factual and Procedural Background

This appeal concerns a dispute between the Appellant, a company trading under the name of Company A in The City, and the Respondents, the Commissioners for Her Majesty's Revenue & Customs (HMRC), regarding the correct VAT treatment of certain sales of hydrotherapy pools. The Appellant had zero-rated these sales under Item 2(g) Group 12 Schedule 8 of the Value Added Tax Act 1994, claiming the pools were appliances designed solely for use by disabled persons. HMRC disputed this classification, asserting that the pools should be standard rated as they were standard models not specifically designed for disabled users.

The procedural history began with a 2009 HMRC visit querying the zero-rating of certain sales. Following this, the Appellant took steps to ensure customers met disability criteria, providing doctor's letters and detailed invoices. Further HMRC inquiries occurred in 2014 and 2015, including visits and correspondence requesting detailed information about the sales and adaptations made to the pools.

HMRC ultimately issued a VAT assessment charging additional VAT, which the Appellant requested to be reviewed. After the review upheld the assessment, the Appellant appealed to the First-tier Tribunal (Tax Chamber).

Legal Issues Presented

1. Whether the hydrotherapy pools supplied by the Appellant qualify for zero-rating under Item 2(g) Group 12 Schedule 8 of the Value Added Tax Act 1994 as "equipment and appliances designed solely for use by a disabled person".
2. Whether the supply constituted a single overarching supply of a hydrotherapy suite designed solely for disabled persons or multiple separate supplies of standard pools and adaptations.

Arguments of the Parties

Appellant's Arguments

• The Appellant contended that the hydrotherapy pools were bespoke suites designed specifically for disabled customers, incorporating features tailored to individual needs.
• The Appellant emphasized compliance with VAT Notice 701/7 as it stood at the time of sales and argued against retrospective denial of zero-rating.
• The Appellant provided detailed reports, doctor's letters, and invoices evidencing the nature of the disabilities and the adaptations made.
• The Appellant argued that the pools were not mere containers of water but included environmental control systems and other features necessary for disabled users.

Respondents' Arguments

• HMRC argued that the pools supplied were standard models usable by anyone and were not specifically designed solely for disabled persons.
• There was no evidence that the Appellant made adaptations to the pools qualifying under Item 3 of the relevant VAT Notice.
• HMRC maintained that issues of fairness or retrospective application were not matters for the Tribunal.
• HMRC cited precedent cases to support their position that the supplies did not meet the criteria for zero-rating.

Table of Precedents Cited

Court's Reasoning and Analysis

The Tribunal carefully examined the evidence, including the Appellant's reports, invoices, and testimony. It found that the Appellant did not merely supply standard pools but bespoke hydrotherapy suites designed specifically for disabled customers, incorporating features such as environmental control systems to maintain water and ambient temperatures suitable for medical needs.

The court acknowledged that not all features listed in VAT Notice 701/7 paragraph 4.11.1 were present in each case but emphasized that the necessity of features depends on the individual customer's disability. The Tribunal rejected HMRC's position that the pools were standard and usable by anyone, highlighting that the Appellant worked with architects to design suites tailored to disabled users.

Furthermore, the Tribunal determined that the supply constituted a single, overarching supply of a complete hydrotherapy suite rather than separate supplies of standard pools and adaptations. This integrated supply was found to be "equipment designed solely for use by a disabled person" within the meaning of Item 2(g) of Group 12 Schedule 8 VATA 1994.

The Tribunal also reviewed the cited precedents and found them supportive of this conclusion, particularly the cases of David Lewis Centre and Boys' and Girls' Welfare Society, which recognized zero-rating for hydrotherapy pools with appropriate features and environmental controls.

Holding and Implications

The Tribunal held that the supplies made by the Appellant were correctly zero-rated under Item 2(g) Group 12 Schedule 8 of the Value Added Tax Act 1994 as equipment designed solely for use by disabled persons.

The assessment issued by HMRC charging additional VAT is hereby cancelled and the appeal allowed.

The direct effect is the removal of the VAT charge on the disputed sales. The decision does not establish new legal precedent but applies existing principles to the facts of this case, affirming the correct application of zero-rating to bespoke hydrotherapy suites designed for disabled persons.