Key takeaway
HMRC has suffered a second significant defeat in the ongoing battle over the VAT treatment of installation services. In Tapi Carpets Ltd, the First-tier Tribunal (FTT) overturned VAT assessments exceeding £13 million and confirmed that independent fitters supplied installation services directly to customers, with Tapi acting only as an intermediary arranging those services. Coming less than a year after the Tribunal’s decision in United Carpets (Franchisor) Ltd, the two cases provide important guidance on the VAT distinction between acting as an agent and acting as a principal, with implications for a wide range of retailers, platforms and referral businesses.
What was the dispute?
Tapi sells carpets and other flooring products through a nationwide retail network. Customers can either arrange installation themselves or pay Tapi a separate fee to arrange installation through a vetted pool of independent fitters. The customers then paid the fitter directly for carrying out the installation work.
HMRC argued that Tapi’s extensive involvement in the customer journey, including selecting fitters, arranging appointments, handling complaints and providing guarantees, meant that the fitters were effectively supplying their services to Tapi and that Tapi was making an onward supply of fitting services to customers. On that basis, HMRC assessed Tapi for VAT of more than £13 million on fitting charges collected by the independent fitters.
Tapi disagreed. It maintained that it supplied only a fitting arrangement service for which it charged a specific fee, while the fitters supplied the installation services themselves. Ultimately, the FTT agreed with Tapi.
Why did Tapi win?
The FTT considered both the contractual arrangements and the economic reality of the relationship between Tapi, its customers and the independent fitters. Several factors proved decisive.
Customers paid fitters directly
The FTT attached significant weight to the fact that customers paid the fitters directly and that fitters bore the risk of non-payment. Because fitters received payment directly and carried the risk of customer default, the economic reality was consistent with the fitters supplying the installation services as principal. This factor featured prominently in both Tapi and United Carpets.
Fitters operated as genuinely independent businesses
The fitters were not employees. They supplied their own tools, worked for other retailers, chose whether to accept work and controlled how they carried out installations.
Tapi did not fix the fitting fee
Although Tapi provided customers with an estimated fitting price, the FTT accepted evidence that fitters could renegotiate fees where the actual job differed from the original specification.
Tapi provided a separate fitting arrangement service
Customers paid Tapi a specific fee for identifying, introducing and coordinating an appropriate fitter from their pool of vetted fitters. The FTT concluded that many of the activities relied upon by HMRC, such as scheduling appointments and liaising with installers, simply formed part of that fitting arrangement service.
HMRC’s arguments were not enough
HMRC relied on a number of factors frequently seen in agency versus principal disputes. These included:
- Tapi maintaining a vetted pool of fitters.
- Tapi selecting fitters for customers.
- Tapi providing fitting quotations.
- Tapi managing customer complaints.
- Tapi offering a ten-year fitting guarantee.
- Tapi’s customer communications referring to “our fitters” and “we’ll arrange fitting”.
The FTT accepted that these factors demonstrated a strong commercial interest in the quality of customer outcomes. However, it concluded that they were consistent with Tapi protecting its reputation and goodwill rather than assuming responsibility as the supplier of the fitting service itself.
Why the decision matters beyond the flooring sector
Although the case concerns carpet fitting, its implications are much wider. Many businesses operate models where they connect customers with independent service providers. Examples include:
- Property maintenance platforms
- Home improvement businesses
- Repair and installation networks
- Professional service referral businesses
- Gig economy and platform operators.
The Tapi decision demonstrates that a business can play an active role in:
- vetting providers
- coordinating appointments
- handling complaints
- monitoring quality
- offering customer assurances
without necessarily becoming the principal supplier for VAT purposes. The critical question remains: who is actually supplying the service to the customer?
The importance of the earlier United Carpets decision
The FTT’s analysis in Tapi closely mirrors the reasoning adopted in the earlier decision involving United Carpets (Franchisor) Ltd. In that case, the FTT similarly found that independent fitters supplied installation services directly to customers rather than to the retailer. In particular, both cases focused on:
- direct payment from customer to fitter
- independent contractor status
- the absence of a contractual obligation on the retailer to pay the fitter
- the fitter’s responsibility for performing the work
- the retailer’s separate role in arranging the service.
As a result, HMRC now faces two FTT defeats involving substantially similar retail installation models. Although First-tier Tribunal decisions are not binding precedents, businesses involved in comparable agency and installation arrangements are likely to rely heavily on both decisions as persuasive authority in future disputes with HMRC.
Practical lessons from Tapi and United Carpets
Businesses that operate similar models should review their arrangements carefully. The FTT placed considerable importance on:
Clear contractual documentation
The written terms clearly and consistently showed that fitting services were supplied by independent fitters and paid for directly by customers.
Commercial reality matching the contracts
Both Tribunals emphasised that contractual wording alone is not enough. The decisive factor was that the practical arrangements, including direct payment, fitter independence and allocation of commercial risk, matched the contractual position.
Genuine independence
The fitters retained meaningful commercial independence and were not operating as subcontractors of Tapi.
Businesses whose operational arrangements do not mirror their written contractual terms may be exposed to HMRC challenge. The key lesson from both Tapi and United Carpets is that courts will look beyond labels and examine the substance of the arrangements. Clear documentation remains essential, but it must be supported by genuine commercial independence, consistent customer communications and operating practices that reflect the contractual position.
Final thoughts
The Tapi decision represents another significant recent UK VAT case on the distinction between acting as an agent and acting as a principal for VAT purposes. Alongside the United Carpets (Franchisor) Ltd FTT decision, it provides useful authority for businesses whose role is to arrange services rather than provide them directly. While each case will turn on its own facts, both decisions underline the principle that active involvement in arranging, monitoring and supporting a service does not automatically make a business the principal supplier for VAT purposes. The key question remains who is legally and commercially supplying the service to the customer.
For businesses operating in a similar way, now is an excellent time to review contractual documentation, customer communications and commercial practices to ensure that the legal position and economic reality remain aligned. Although First-tier Tribunal decisions are not binding precedents, HMRC must now contend with two detailed Tribunal decisions reaching the same conclusion on substantially similar installation models. Businesses facing similar disputes are therefore likely to cite both decisions as persuasive authority.
In addition, similar businesses might consider it prudent to obtain insurance cover to protect them against potential retrospective HMRC assessments for VAT, interest and penalties and the associated litigation costs.
VAT agent vs principal FAQs
If you would like assistance reviewing your VAT position, please contact Mark Ellis or your usual PKF Littlejohn VAT adviser.
