Appeal over £2.5 million VAT bill on insulated roofing panels dismissed
The Upper Tax Tribunal (UTT) has dismissed an appeal against a £2.5 million VAT bill on insulated roofing panels after finding that the appellant was not entitled to the reduced rate of VAT.
The latest case follows the decision of the First Tier Tribunal (FTT), which dismissed the appeal of the roofing company Greenspace Limited.
In a previous hearing, it had ruled that the supply and installation of conservatory roof insulation in the form of insulated roof panels are a standard-rated supply for VAT.
UK-based Greenspace Limited is a specialist in the supply of conservatory roof insulation, which is constructed from a thick layer of ‘close cell extruded polystyrene foam’ with a thin coating of aluminium on the top and bottom, finished with a powder coating.
Having reviewed tax legislation, Greenspace believed that VAT should be charged on the supplies at the reduced rate of 5% because the roofing panels could be considered insulating materials.
The point of these insulated roof panels is to contain the heat in its customer’s conservatories in the winter and to release it in the summer.
Greenspace considered that VAT should be charged on the supplies at the reduced rate of five per cent because the supplies of roofing panels should be treated as the supply of ‘energy-saving materials’ under section 7a of the Value Added Tax Act (VAT) 1994. This definition covers insulation for walls, floors, ceilings, roofs or lofts or water tanks, pipes or other plumbing fittings.
However, HMRC said that the supplies of roofing panels made between July 2014 and November 2017 were standard rated supplies and that the company, therefore, owed £2,581,092.10.
In its appeals, Greenspace said that HMRC’s assessments weren’t based on the fact that the predominant purpose of the supply of roofing panels was the supply of insulation for roofs.
HMRC disagreed with this argument and said that there must be a clear distinction between insulation material for a roof and the roof itself, that there was no sliding scale on what is the ‘predominant purpose’ of the panels.
It said that the reduced rate did not extend to the roof or a replacement to a roof, as this would not be considered ‘energy-saving materials’ under the Act.
It pointed to the earlier tribunal cases of Pinevale [2014] and Wetheralds Construction Ltd [2018] where the UTT found that replacement roof panels, whether for insulation or not, should be standard-rated.
Nevertheless, Greenspace’s argument in favour of the reduced rating was based upon the substance of its product, which was 95 per cent insulating material and was sold as an insulating product.
Considering the first appeal, the FTT said: “The critical question is whether the supply is of something which is for a roof, not the supply of a roof itself. No amount of difference in substance, i.e., that what Greenspace has supplied is 95 per cent insulation (by volume), can alter this approach.
“The answer to any perversity in a case like this is to argue for a change in the legislation to include the type of insulated conservatory roof panels which have been supplied by Greenspace, rather than use perversity as the basis for interpreting legislation to override its clear wording.”
Greenspace appealed the decision arguing that the FTT misapplied the law, but the UTT said that it did not consider that it ‘erred in law’ when the First Tier Tribunal’s decision is read as a whole.
Applying the correct rate of VAT to a product or service can often be a minefield for businesses and so it is always best to seek advice beforehand to avoid a costly re-assessment in future. To find out how we can help you with this, please get in touch.
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