When is a Conservatory Roof Not a Roof for VAT Purposes?

A RECENT legal tax appeal case has reset the judgement on whether conservatory roof upgrades should be regarded as insulation products, attracting the lower rate of value added tax (VAT).

HMRC had refused to allow replacement conservatory roofing companies to charge customers the lower rate of 5% VAT, arguing that the roofs are not primarily insulation systems but new roofs.

A conservatory roofing company, Conservatory Roofing Ltd lost its appeal to HMRC’s decision in 2020, when the First Tier Tribunal (FTT) service considered the case. The company then appealed the FTT decision, which has been considered again by the Upper Tribunal (Tax and Chancery Chamber).

The challenge to the FTT decision which upheld HMRC imposing 20% VAT on conservatory roof upgrades was on two points of law. The first was that the decision was insufficiently explained, because it “displayed a lack of reasons, thereby failing to attain the standard of a properly and fully reasoned judgment.”

The second grounds were that the FTT failed to correctly apply a test from case law (Mesto Zamberk v Finanani Feciltelstvi v Hradci Kralove) (Case C-18/12) (Mesto). The Mesto case test dealt with how a single VAT supply with multiple elements was to be treated for VAT purposes. The test was that the predominant element of a supply had to be established from the perspective of a typical consumer and that this was done having regard to objective factors.

Conservatory Roof

In other words, the appeal largely rested on whether these types of conservatory roof installation are generally regarded as primarily ones of insulation or are a whole new roof.

Conservatory Roofing Ltd argued that because, in most installations, they do not replace the roofing structure but instead add an ‘insulation product for roofs’, these types of conservatory roofs are primarily for consumers to keep them warmer in winter, cooler in summer.

HMRC counter-argued that the ‘predominant element of supply’ typically was an ‘insulating composite roofing system’ and in the company’s own marketing it refers to ‘roof replacements’.

The Upper Tribunal (Tax and Chancery Chamber) judgement on the FTT case was given on 11 July 2022. The Upper Tribunal says that the FTT case had relied on evidence cited by HMRC of Conservation Roofing Ltd’s marketing material without fully and equally considering the company’s own evidence.

It said that there were inadequate findings of fact and points to the 6 paragraphs the FTT devotes to the Company’s evidence in contrast to the 24 paragraphs it cites from HMRC, stating: “in this case, the disparity, when coupled with reasoning which, as we will see, simply adopted the winning party’s extensive submissions in their entirety with little further comment, flags up that something may have gone awry in the FTT’s decision-making process. Simply as a matter of impression, it risks leaving the party who lost with the perception that their submissions did not receive fair consideration as compared with their opponent’s.”

The Upper Tribunal also said that on the second ground of appeal, considering whether a conservatory roof is predominately an insulating product in the eyes of a typical consumer there was the same insufficient attention to evidence from sources other than those supplied by HMRC.

The appeal case will now return to the First Tier Tribunal to be heard again.

>> Read more legal cases in the news