The VAT liability of insulated roofing panels
Jan Garioch CA discusses a recent case Greenspace (UK) Ltd v HMRC where an argument over entitlement to apply reduced rate VAT to insulated roofing panels leaves £2.5million of VAT at stake.
The First Tier Tribunal has given its judgement on Greenspace (UK) Ltd v HMRC. The point at issue was whether or not Greenspace was correct to argue that its supplies of roofing panels are supplies of insulation for roofs which should be treated as the supply of “energy-saving materials” under Note 1(a) Grp 2 of Sch 7A VATA 1994. If not, £2.5million of underpaid output VAT was payable.
The judge’s in-tray prior to the hearing must have been something to behold as it contained a Greenspace roofing panel, a cross-section of a panel and a Pinevale roofing panel which had been the subject of a relevant case. Her pre-hearing homework of watching “YouTube” advertising and installation videos was unusual too.
Examination of the witnesses differed from the norm as well. The witness statement from the HMRC officer was not disputed; hence his statements were accepted and he was not cross-examined. However, the witness for Greenspace not only provided his witness statement but gave oral evidence on screen to the Tribunal and was cross-examined.
HMRC’s argument was that insulation has a specific function that is separate and distinct from materials which can also serve another purpose. Greenspace procured Styrofoam insulation panels which were cut to size and weatherproofed. Old panels were removed and new insulated panels were slotted into the existing framework of their customer’s roof.
The wording of the relief does not apply to insulated roofing panels and HMRC argued they were not being overly restrictive in their approach to the legislation. In HMRC’s view, a conservatory which had only struts and glazing bars could not be described as having a roof. HMRC cited Revenue and Customs Commissioners v Pinevale Ltd where it was established that insulation for roofs does not include the supply of a roof itself with insulating properties.
Greenspace counterargued that HMRC were indeed being restrictive by excluding Greenspace’s panels from the relief merely because they included 2mm of weatherproofing material. If the Styrofoam insulation had been supplied and applied to the customers’ existing roof panels, it would be treated as energy-saving material. It would be perverse to lose the VAT treatment for the supply of an energy-saving material because their supply entails the removal of existing panels and replacing them with insulation plus a thin aluminium weatherproofing coating. Greenspace sought to distinguish Pinevale saying that case did not make it a principle of law that supply of roof panels must be treated as installation of a roof and not insulation for a roof.
The relevant legislation and the decision
The Tribunal focused on Grp2 Sch 7A VATA 1994 and its note;
“Supplies of services of installing energy-saving materials in residential accommodation.
Supplies of energy-saving materials by a person who installs those materials in residential accommodation.”
“For the purposes of this group “energy-saving materials” means any of the following – insulation for walls, floors, ceilings, roofs or lofts or for water tanks, pipes or other plumbing fittings.”
It was clear to the Judge that the legislation was distinguishing between something which is for a roof and something which is a roof. It was also clear to the Judge that the function of the roof panels provided by Greenspace is not confined to insulation because they form part of the conservatory roofs themselves; without the roof panels, there would be no roof. Greenspace is in error of the law to argue about the substance of their supply. The fact that more than 90% of what they supply is insulation does not alter the form-based nature of the exemption.
Greenspace’s appeal was rejected, with the trenchant remark that “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”.