VAT and Retailers: The Risks of Third-Party Fitting Services

HMRC is continuing to scrutinise the VAT treatment of retailers who sell goods such as flooring, kitchens, and bathrooms, and then refer customers to third-party contractors for fitting services.

The concern from HMRC is that these arrangements may represent a single supply of goods and services made by the retailer, rather than two separate supplies. If this argument is accepted, retailers could find themselves liable for additional VAT – particularly in cases where the third-party fitters are not VAT-registered.

Tribunal Case: United Carpets (Franchisor) Limited v HMRC

In a recent First Tier Tribunal case, HMRC argued that the retailer in question was supplying both goods and fitting services. However, the Tribunal disagreed.

The decision hinged on the clear separation of responsibilities:

• In-store signage explicitly stated that the retailer did not provide fitting services.

• The retailer’s role was purely introductory, connecting customers with independent fitters.

• Contracts for fitting were made directly between the customer and the fitter, with payment also being the customer’s responsibility.
  

As a result, the Tribunal concluded that the retailer supplied only the goods, while the fitters supplied the services.

What Retailers Should Do

To reduce the risk of an HMRC challenge, retailers should ensure that both the contractual position and the commercial reality reflect two distinct supplies. Practical steps include:

• Making it clear (for example, through signage and contracts) that the retailer does not provide fitting services.

• Ensuring customers contract and pay directly with the fitter.

• Keeping documentary evidence to support the separation of supply.

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At SJC, we help retailers and contractors navigate VAT complexities, protecting your business from unexpected challenges.

If you’d like advice on structuring your arrangements or defending against HMRC enquiries, get in touch with our VAT specialists today.