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HMRC internal manual

VAT Construction

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HM Revenue & Customs
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- Zero-rating the construction of buildings: services excluded from zero rating: scaffolding, formwork and falsework

Where goods on hire require erection and dismantling (such as scaffolding, formwork and falsework) then the hire of the goods must be standard-rated but the supply of erection and dismantling is zero-rated when supplied in the course of the construction of a zero-rated building. A fair and reasonable apportionment is required.

In Peter J Guntert t/a The Abingdon Scaffolding Co (VTD 10604) the Chairman observed:

I think that the true position is that Mr Guntert for the price quoted in his quotation expressly agreed to put up the scaffolding and to take it down and also agreed by implication that the scaffolding should remain in position for a reasonable time while the building work was carried out. The fact that he made no separate charge for allowing the contractor to use the scaffolding during that period does not mean that the total price quoted was not consideration for all that, either expressly or impliedly, he had agreed to do.

It was decided in R&M Scaffolding (VTD 18955) that the charge for the use of scaffolding involving erecting, maintaining, modifying and dismantling the goods was zero-rated to the extent of the erection and dismantling elements.

The case turned on the facts of the case and meaning of ‘possession’ in Para 1(1) of Schedule 4. In this regard, the Tribunal said of possession that:

I consider that once the scaffolding had been erected and certified as safe by the Appellant ‘possession’ passed to its customer for the purposes of the relevant charging provisions, in particular Paragraph 1(1) of schedule 4,VATA 1994. Accordingly there should be an apportionment of the price between the erection and dismantling on the one hand, and the use by the customer on the other

The meaning of ‘possession’ was reviewed in Pharaoh Scaffolding (VTD 20741). It was decided on the facts of the case and the company’s dealings with its customers that the company transferred possession of the scaffolding. As a result, the hire element in a package of erection, dismantling and hire is standard-rated. The following passage from the decision is further useful analysis of ‘possession’ in Para 1 of Schedule 4:

As both tribunals in GT and R&M point out, there is no statutory definition of ‘possession’ and both chairmen analysed the concept with great care. Drawing on both, we believe that for possession to pass to the customer, the customer must have acquired an exclusivity of use and at least de facto control. It is our view that once the scaffolding is erected, Pharaoh’s customers acquired just that.

In G T Scaffolding (VTD 18226), the Tribunal reached a different conclusion. It held that, in accordance with the normal terms the company conducts its business, the company doesn’t transfer the possession of the scaffolding and all three elements of the service were potentially eligible for zero-rating.

Amongst the factors that influenced the Tribunal in reaching its decision was that the company retained responsibility for the risks arising from the structure (including the risks of loss and damage and of liability to third parties). It gave a meaning to ‘transfer of possession’ that is shared by the Tribunals in R &M Scaffolding and Pharaoh Scaffolding, but reached the conclusion that there was no transfer of possession on the facts.

HM Revenue & Customs (HMRC) case was confined to the goods being hired but did not develop this further to argue that hiring goods involves the legal concept of ‘bailment’. Under bailment, the bailee (or hiree) enjoys physical and legal possession as well as a right of possession for an agreed term which can fairly be seen as conferring a ‘transfer of possession’ for the agreed term. The Tribunal sidestepped the powers conferred by bailment, by saying that the law does not use the word ‘hire’. It did agree that hire involves issues of bailment that may or may not be relevant to the case. That it did not pursue the relevance of bailment, having acknowledged that it may be relevant to the case, is seen as a flaw in the decision.

The GT decision is distinguishable from the later ones of R&M Scaffolding and Pharaoh Scaffolding where HMRC argued successfully that transfer of possession in the goods had taken place. Our position remains that the provision of scaffolding is apportionable, with only the erection and dismantling elements of an inclusive charge that included leaving the goods on site for a determined period, potentially eligible for zero-rating.

If a person claims to operate on ‘all fours’ with GT Scaffolding and is claiming zero-rating for its complete charge, the Construction Unit of Expertise is to be consulted for advice.