TC09596 - [2025] UKFTT 00895 (TC)

In January 2020, the Appellant became aware that HMRC were looking at one of its franchisees in Mansfield, which trades under the name “Thompsons Carpets”.

On 30 June 2020, HMRC issued assessments to Thompsons Carpets in relation to VAT on fitting charges, as a result of their check. Thompsons challenged this assessment.

On 7 August 2020, the Appellant’s VAT adviser (Mr Sweeting) wrote to Officer Salam (of HMRC) in relation to the VAT compliance checks that HMRC had been carrying out in respect of Thompsons Carpets. Mr Sweeting proposed that, in order to avoid differing reactions from the various franchisees employing numerous advisors, attempts should be made to clarify, and arrive at, a position which can be explained to the franchisees through the Appellant (as the franchisor), who would then put into place appropriate systems under the franchise agreements for all franchisees to adopt.

The letter also explained that having reviewed the basis of Officer Salam’s assessment on Thompsons Carpets, the Appellant had taken steps to implement a new system to clarify what they consider to be two separate supplies (i.e., the sale of floor coverings by the retailer and the supply of fitting services by an independent fitter). That new system would be adopted by all the franchisees (and in the Appellant’s store). The letter concluded by proposing that the parties meet in order to establish the correct VAT position as regards the existing approach, and the proposed new one, so as to ensure compliance. There were subsequent telephone discussions between Officer Salam and Mr Sweeting. HMRC’s preference was to postpone any discussion about the correct VAT treatment until the statutory review of the assessments issued to Thompsons Carpets had been completed.

On 28 September 2020, Mr Sweeting wrote to Officer Salam stressing the Appellant’s concern about the delay that such a course would involve, and the need for commercial certainty for both the Appellant and its franchisees, as regards the VAT treatment. The letter also repeated the request for a meeting with HMRC. Due to restrictions in place as a result of the COVID-pandemic, a meeting was held via Teams. The purpose of the meeting was for HMRC to establish how the business operates, the business activities, how VAT is treated on activities/costs incurred, and to identify what interaction there is between all entities in the wider corporate group. Officer Hothi (of HMRC) then asked for information regarding the franchise arrangements.

Between 23 and 24 November 2020, the information was provided to Officer Hothi by Mr Sweeting, together with copies of the Appellant’s pro forma Invoices, in-store Notices, staff training confirmation, and Terms and Conditions in relation to the sale of flooring, and the fitter introduction.

On 27 November 2020, the formal meeting between the Appellant and HMRC took place. Present were Mr Bowness (a director of the Appellant since retired), Mr Sweeting, Officer Hothi and Officer Jones, with notes being taken by HMRC. During the meeting, sales processes and fitter referral for retail customers were explained.

Following further exchanges of correspondence, on 24 May 2021, Officer Hothi wrote to Thompsons Carpets to inform them that they had decided to withdraw the VAT assessment that had been raised (in the sum of just under £375,000).

On 9 June 2021, a telephone call took place between Mr Sweeting, Officer Hothi and Officer Hussain in order to discuss HMRC’s ongoing compliance check of the Appellant’s VAT position. The note of the call records that Officer Hothi had said that he would be looking into aspects other than the fitting, but that the whole matter was under consideration and that they were actively working on the situation, which affected the whole sector and not just the Appellant. Mr Sweeting pressed the commercial importance of a timely resolution, and the need for certainty for the Appellant, who was using the contractual documentation on a daily basis. Officer Hothi is recorded as acknowledging the Appellant’s concerns and saying that HMRC needed more time to consider the position and would advise as soon as they had an answer.

On 17 June 2021, Officer Hothi wrote to Mr Sweeting with further questions about the Appellant’s VAT affairs.

On 6 July 2021, Officer Hothi wrote to Mr Sweeting by a letter headed “United Carpets (Franchisor) Ltd (UC) – New contractual arrangements”, stating that HMRC had decided to take no further [action] at that time, but that HMRC would be considering how the sector, more broadly, arranges its supplies. Mr Sweeting responded to Officer Hothi on the same day to mention that the word “action” appeared to be missing from the sentence “has decided to take no further at this time” in Officer Hothi’s letter. Mr Sweeting also wanted to clarify whether Officer Hothi was saying that the Appellant’s contractual documentation was being accepted at this time as indicating that there are two separate supplies (i.e., in line with the Appellant’s VAT treatment) and that any change after HMRC’s review would only be from the date that HMRC clarified the position. Despite Officer Hothi’s promise of a response to Mr Sweeting’s second query, no further response was provided.

On 13 July 2021, Mr Sweeting wrote to Officer Hothi to seek confirmation that any change in HMRC’s position as to the VAT treatment of the supplies would only have prospective effect from the date that HMRC communicated that change.

On 10 November 2021, Officer Hothi emailed Mr Sweeting to say that he would be moving to a new department and that Officer Grain would be taking over the matter and would continue with the review.

On 14 December 2021, a Teams meeting was held at which HMRC stated that they were of the view that the supply of the flooring and the fitting was a single supply, and that they were considering raising assessments.

On 20 December 2021, Officer Grain wrote to the Appellant to say that:

“the case is still under active considerationand currently progressing through the internal governance process before a final decision can be made”.

Officer Grain also asked for the Appellant to provide the quantum of the VAT on fitting fees for the period 1 December 2017 to 30 November 2021.

On 31 January 2022, Officer Grain explained that the information about quantum was:

“considered necessary information and ensures that the submission to the board meets the referral criteria.”

He also stated that the current view of HMRC was that the Appellant makes a single supply of fitted carpets, but that that decision needed to be approved by HMRC’s governance board. In the meantime, “to protect HMRC’s current position”, it was said to be necessary to raise assessments where time limits were approaching. Officer Grain said that HMRC would not seek to enforce any such assessments until after the board had concluded its deliberations.

On 16 February 2022, Mr Sweeting responded to Officer Grain with the information regarding quantum that he had requested.