A recent tribunal ruling on carpet sales and fitting services highlights how VAT liability hinges on contractual clarity and the real economic substance of supply arrangements, says Autumn Murphy
WHILE much of the world of Contract Flooring Journal relates solely to commercial work, there are quite a number of firms that undertake domestic AND commercial work. For them, a recent VAT case involving the supply and fitting of flooring will make for interesting reading.
When a customer walks into a carpet shop, they’re usually assumed to be after one end result: a fully fitted carpet. But what happens if you don’t carry out the fitting with your own staff, but instead help the customer to find an independent fitter? What seems like a simple sale has raised a complex VAT question: when should the carpet shop charge VAT on the fitting services?
That very question sat at the heart of a recent first-tier tribunal case, United Carpets (Franchisor) Ltd v HMRC [2025] UKFTT 00895 (TC). In the sections that follow, we’ll unpack what happened, why the decision matters, and how you can protect your business from a similar VAT challenge.
Single or separate supplies
From a VAT perspective, if the carpet shop and the fitter are separate businesses, most businesses would generally expect there to be two distinct separate supplies for VAT; one made by the carpet shop for the sale of the carpet, and another by the fitter for the installation work.
However, in this case, HMRC argued there was a single supply of a fitted carpet made by the carpet shop, meaning that United Carpets should have accounted for VAT on both the carpet and the fitting services.
Background: How United Carpets operates
United Carpets (Franchisor) Ltd is the franchise company behind the well-known United Carpets brand. Its franchisees sell carpets, vinyl, laminate, underlay and other flooring products across the UK.
A key feature of their business model is that customers can choose to have their new carpet fitted by an independent, self-employed fitter. The stores don’t offer fitting themselves. The stores simply introduce the customer to a fitter from a local pool. Around three-quarters of customers who buy carpet at their stores choose the fitting service.
United Carpets considered that the fitting services were separately supplied to customers by the fitters and accounted for VAT only on its sales of carpet.
HMRC’s View: ‘It’s a single supply’
HMRC saw things differently.
They argued that United Carpets was supplying a single product: a fitted carpet. In HMRC’s view, this meant United Carpets should have accounted for VAT on both the carpet and the fitting, because it was effectively supplying both.
HMRC said United Carpets was using fitters as subcontractors – with the fitters delivering part of the overall supply to the customer on the company’s behalf. This argument rested on the idea that customers came to United Carpets for a finished, fitted carpet.
The tribunal’s decision: United Carpets wins
The tribunal sided firmly with United Carpets, confirming that the stores were only supplying unfitted carpet. There were two entirely separate supplies – the supply of goods (carpets, underlay, etc), by United Carpets to the customer, and the supply of fitting services by the independent fitter to the customer.
This means United Carpets only needs to charge VAT on the carpet, while the fitter is responsible for any VAT on the fitting services.
Why the tribunal ruled in United Carpets’ favour: Key findings
There were a number of reasons why the tribunal accepted United Carpets’ position.
First, customers had the freedom to choose whether to use a fitter in the store’s ‘pool’; there was no obligation to do so when purchasing carpet.
Next, fitters were self-employed, not subcontractors or employees of United Carpets. They were under no obligation to accept work.
Also, contracts and the commercial and economic reality confirmed that United Carpets did not provide fitting services. In particular, terms and conditions explicitly stated that United Carpets did not provide or guarantee fitting services and only facilitated introductions to fitters.
Also, terms and conditions, invoices, and in-store notices clarified that fitting services were separate contracts between the customer and the fitter. And invoices listed fitting costs only as estimates and weren’t included in the total payable to United Carpets.
Also relevant was that fitters set their own final prices, and United Carpets never received any fitting fees. Customers paid fitters directly, and United Carpets received no financial benefit from the fitting services.
Last, any additional work or adjustments to fitting costs were arranged directly between the customer and the fitter, without involvement from the store.
The ‘free fitting’
One aspect that did complicate matters was that United Carpet sometimes advertised offers of ‘free fitting’.
The commercial reality was that ‘free fitting’ was simply a discount on the carpet. United Carpets did not pay for the fitting.
For example, a customer might pay £2,400 for a carpet with ‘free fitting’. If the fitter’s estimated fee was £240, United Carpets would reduce the carpet price from £2,000 + VAT (£2,400 total) to £1,800 + VAT (£2,160 total). This left the customer paying the fitter directly for the installation of £240.
Invoices issued by United Carpets would include a note about the estimated fitting charge, however this was not an actual cost and its only purpose was to enable the discount calculation.
In some cases, the fitter would charge a higher amount because of issues with moving furniture or staircases. Any extra costs were negotiated between the fitter and customer, with no involvement of United Carpets.
What this means for the trade
The United Carpets decision provides clarity for firms who introduce customers to fitters and who operate with clear separation between the supply of flooring and fitting services. But it also serves as a warning for businesses where the separation is not clear.
If your setup isn’t properly documented, or if you blur the line between ‘selling flooring’ and ‘supplying fitted flooring’, HMRC could still argue you’re making a single supply and hit you with an unexpected VAT bill.
How others could lose in different circumstances
Imagine a carpet shop that advertises ‘we’ll fit your carpet for you’, takes the full payment (for both carpet and fitting) from the customer, and then pays the fitter afterwards.
In that case, the fitter is likely to be considered to be working for the shop not the customer. The shop will be responsible for delivering a fitted carpet. The customer will only deal with the shop, not the fitter. And the shop will be the principal supplier, and the fitter a subcontractor (or in some cases an employee).
In that setup, HMRC would almost certainly argue there’s a single supply and the retailer would owe VAT on the whole amount (carpet and fitting).
Even where fitters are self-employed, if the paperwork and economic and commercial reality suggest the retailer controls the fitting process or guarantees the work, it may still count as a single supply.
The issue extends beyond VAT considerations. If fitters could be deemed to be employees by HMRC, then this may also give rise to PAYE obligations.
How to protect your business
If your business introduces independent fitters to customers, rather than providing fitting services yourself, it is essential to ensure that both your contractual arrangements and the commercial reality are clearly defined and consistent.
Make it clear who does what
Your terms and conditions should clearly explain that you sell flooring materials only, fitting is a separate service supplied by an independent fitter, and you are not responsible for the standard of fitting work and your role is only to introduce the fitter to the customer.
Customers should know that fitting is provided by independent fitters, and the retailer is not responsible for the fitter’s work. United Carpets reinforced this message through instore-notices, staff explanations, and terms and conditions.
Keep contacts separate
There should be two distinct agreements – one between your business and the customer (for the goods), and one between the customer and the fitter (for fitting).
You should not sign or handle the contract for the fitting services – that’s between the fitter and the customer.
Separate the payment
Never collect payment for the fitter. The customer should pay the fitter directly.
If you quote an ‘estimated fitting price’, make sure it’s labelled clearly as an estimate, not an amount you collect.
Commercial and economic reality
Your invoices, receipts, and website should accurately reflect what happens in practice.
For example, if the documentation states that the fitters collect their own fees but, in practice, the store collects these payments, this inconsistency may blur the distinction between the two supplies. As a result, HMRC could argue that you are making a single supply, which would make you liable for VAT on the fitting services.
Both your documentation and what actually happens in practice should show a clear separation between the supply of carpet and the fitting services.
Review your marketing
Phrases such as ‘free fitting’ offers can cause confusion. If you use that phrase, make sure it’s backed by documentation showing it’s really a discount on the flooring, not a bundled service.
Summary
The United Carpets case confirms that retailers can introduce customers to independent fitters without becoming liable for VAT on fitting services, provided the arrangements are genuinely separate in both their contractual terms and their economic and commercial reality.
However, the case also highlights how easily that separation can break down. If the boundaries become blurred — for example, if the retailer collects payment for the fitter, sets the fitter’s prices, or has control over how fitting work is carried out — HMRC is likely to challenge the arrangement and treat the fitting as part of the retailer’s taxable supply.
As the tribunal itself put it, it all comes down to the simple but powerful question:
‘Who is supplying what, and to whom?’
If you can answer that question clearly and your paperwork, invoices, and day-to-day conduct all reflect the same reality your business will be in a strong position to withstand HMRC scrutiny.
Autumn Murphy is an ATT technical officer