19174
ZERO RATING – Equipment for handicapped persons – Supply of air filtration system for Appellant's personal and domestic use – Appellant suffering from dystonia – Air conditioner combined with air filters to Appellant's specifications to produce environmental control system – Whether system "designed solely for use by a handicapped person" – Yes – VATA 1994, Sch 8, Gp 12, Item 2(g)
LONDON TRIBUNAL CENTRE
BETTINE SYMONS Appellant
HER MAJESTY'S REVENUE AND CUSTOMS Respondents
Tribunal: ANGUS NICOL (Chairman)
ROSALIND RUDD
Sitting in public in London on 16 May 2005
The Appellant in person (by telephone link)
Christina Forrest, instructed by the Solicitor for the Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2005
DECISION
- This was an unusual appeal, in that it was the first ever to be heard by means of a telephone link. This was necessitated by the fact that the Appellant has the misfortune to suffer from dystonia exacerbated by multiple allergies which effectively prohibit her leaving her house, and therefore make it impossible for her to attend the Tribunal. The system appeared to us to work well. It appeared to cause no difficulty to the Appellant herself, who presented a well reasoned and well expressed case.
- The decision the subject of the appeal was the Commissioners' ruling that the supply to the Appellant of an air purification plant was not eligible for zero rating, on the ground that it did not come within Item 2 of Group 12 of Schedule 8 to the Value Added Tax Act 1994, and, specifically, did not come within the category of "equipment and appliances not included in paragraphs (a) to (f) above designed solely for use by a handicapped person" (Item 2(g)).
The facts
- There was no dispute as to the facts in this appeal, with a single exception, and we find them to be as will appear in the following paragraphs. The single exception is the issue which we have to decide, namely whether as a matter of fact the air purifying apparatus was "designed solely for use by a handicapped person". That is, of course, the essence of the appeal.
- It is accepted by the Commissioners that the Appellant's medical condition is such that she falls within the definition of a handicapped person for the purpose of the 1994 Act. The Commissioners also accepted that the system which she purchased was for her personal and domestic use. They also accepted that any adaptations made to any standard product in order to meet the Appellant's specific needs, and any repairs and maintenance to the adaptations, are properly zero rated.
- The Appellant told us that her basic need is the filtering out of pesticides, especially in the summer. It has nothing to do with temperature. In the summer it is necessary to ventilate her house by opening windows. She has portable air filters in three rooms. One of these is set of by printing ink. In her bedroom, the filter eliminates dust mites. The Appellant lives next to a parking area, and exhaust fumes can enter her house if the windows are open. There are also arable fields nearby, which are sprayed with pesticides which is often caught on a breeze and enters through the windows. Portable air conditioners clean the air in about one hour, which is too long. The need is, therefore, for air filtering before the air enters. The air conditioning system has to be combined with air filtering.
- Aircon World specifically designed a fully integrated system which efficiently filters the air as it is drawn into the house, without any necessity of opening windows. The air filtering system is such that the Appellant is not exposed to fumes and gases either by day or night. There is no pill or other medication treatment which will stop the muscular spasms to which the Appellant is prone; the only way to control them is by conditioning the environment. She added that if she could live on top of a high Welsh hill she would do so. She had told Aircon World that it was essential for pesticides, smoke, and traffic fumes to be filtered out. They said that special HEPA filters would be incorporated, and that plastic ducting would be replaced by metal ducting. Aircon World wrote to Tewkesbury Borough Council on 5 March 2003 in connexion with the proposed installation, saying:
"...we now submit our proposals re the installation of a combined air conditioning- filtration system.
We propose the installation of a ducted heat pump system to serve three rooms. All ductwork would be of steel construction. The main plant would be mounted in the spare bedroom together with a wall mounted master controller wall mounted in the lounge. Please note a ducted system will not give individual temperature control in each room.
The system will incorporate a fresh air bleed to draw a percentage of fresh air from outside, this air would pass through a three stage filter system to filter-
Dust & smoke
Pesticides
Diesel and petrol fumes."
The purpose was to filter out harmful substances, not to condition the air. There was no mention of temperature or cooling, since that was not the main purpose. It was up to the designer at Aircon World to produce this system. What Aircon World designed was an integrated system, without ducting. It was quite different from the Plasma system (the subject of a previous appeal, we understood). The system would not work if there were no heat exchanger, nor without a device to draw the air in from outside and to push it out. The heat exchanger was to make sure that the air was at a reasonable temperature all the year round.
- There was also exhibited a copy of the Aircon World website, and the Appellant directed our attention to the following passages:
"Aircon World specialise in the supply, design and installation of air conditioning, ventilation systems, dust and fume extraction, and comfort coolers to the domestic, leisure, commercial, industrial and public market sectors.
We pursue the concept of commercial design awareness allied to quality installation providing our clients with a quality air conditioning or comfort cooling product...."
The system concerned was a specific design for the purpose of filtering out specific things for a specific person's needs, to protect the Appellant from further deterioration in her health. A standard air conditioning system would not filter out the pesticides and exhaust fumes.
- The invoice stated that the supply had been "combined air-conditioning and filteration system as our quotation". It was followed by an offer of maintenance and servicing and filter replacement. The Appellant said that she was responsible for the maintenance. She said that she had been advised to have six-monthly services and filter replacements, which should be carried out by Aircon World as installers. A letter from Aircon World explained that the "three-stage filter system" was supplied by Filtermax Ltd, and gave the particulars of the three filters used. It added that they should be changed on each annual service.
- In answer to a letter from the Appellant, the Complaints Co-ordinator at the Cardiff National Advice Service of Customs said:
"The equipment that you are describing would fall within our definition of 'air purification products', designed for allergy relief, and do not qualify for zero rating regardless of who it is supplied to. The goods are not deemed to be specifically designed 'solely' for use by disabled people.... Air purification products, as your letter confirms, are now a popular addition to offices and schools, and are therefore not produced 'solely' for use by the disabled."
- The Appellant submitted a declaration by Brian Roberts, managing director of Aircon World, in which he said:
- This firm installed an air conditioning/filtering system in the home of Mrs B. Symons, at 10 Old Forge Cottages, Didbrook, Glos. GL54 5PF
- This firm adapter and designed our normal air conditioning system, at Mrs Symond's request, to include special filters that would filter out pesticides and other harmful chemicals.
- The adaptations that Mrs B Symons requested were for medical reasons, in order to relieve her disability.
- The adaptations that were designed by this firm to comply with Mrs. Symons's requests consisted of the following:
• The normal filter in the air conditioning unit was taken out.
• A panel was installed in its place containing a metal duct leading to the outside via a box.
• The box was constructed by this firm to contain a bank of three HEPA filters. These particular filters are designed to filter out pesticides and other harmful chemicals from the outside air.
• Bedsides this, Mrs Symons asked for the normal plastic ducting to be substituted by metal ducting, so as to ensure there would be no outgassing of chemicals from the plastic.
• These additions and substitutions were attached to our normal air conditioning unit and became part of an integral system that would both filter the outside air and automatically provide temperature-controlled air conditioning
• If any one part of this system were missing, it would not be possible to filter the outside air according to Mrs Symons's request.
- If this firm had not been able to design and fit the system according to Mrs Symons's medical needs, she would have been forced to deal with a firm that could."
The Appellant said that she had told Aircon World of her requirements, and had asked them for an air filtering system, and they had fulfilled her specifications.
- No other evidence was called,
The Appellant's contentions
- Referring to the Tribunal decision in Cheltenham Old People's Housing Society v Customs and Excise Commissioners (2004) (Decision No 18795), at paragraph 30, the Appellant contended that the expression "designed solely for use by a handicapped person" means "designed with the sole purpose of use by a handicapped person" and not "designed for the sole use of a handicapped person", following Foxer Industries Ltd v Customs and Excise Commissioners (Decision No 13817). The Tribunal accepted that that was the proper construction (paragraph 43). The Appellant contended that that construction applied exactly to her system, which had been designed solely for her use for her disability. The Appellant distinguished the decision in Simmons v Customs and Excise Commissioners (1991) (Decision No 6622), in which a handicapped person had claimed zero rating in respect of portable air conditioners, and the Tribunal held that they did not fall within Item 2(f). The facts in that case were, she submitted, quite unlike the present case.
- The Appellant contended that the circumstances in Boys' and Girls' Welfare Society v Customs and Excise Commissioners (1997) (Decision No 15274) were the same as in this case. Radiators and a hydrotherapy pool were constructed for the appellant, in circumstances described in paragraph 12 of the Tribunal decision as follows:
"... The pool was designed as a separate structural entity, constructed within the envelope of the new building. Mrs Mulroy had liaised with Mr Howarth in order to explain the Appellant's requirements for the pool to him; he had relayed those to Penguin, by way of general layout drawings and a 'design specification' setting out performance requirements, ensuring that Penguin fully understood those requirements; and all aspects of the construction of the pool were then left entirely to Penguin."
(Mrs Mulroy was the superintendent physiotherapist of the appellant; Mr Howarth was the architect; Penguin Swimming Pools Ltd was the installer of the pool.) The paragraph continued:
"This was more than just a heating system; the requirement was for a more comprehensive system than usual, to provide not just the right water and air temperatures but also for air and water handling, including a combination of chemical water treatment and providing for a turn-round of water to take account of difficulties of incontinence that might be experienced by users of the pool. The plant room accordingly housed what we think might properly be described as an environmental control system for the pool."
The Appellant adopted the expression "environmental control system" as being apt to describe the system installed in her own house.
- The Tribunal took the view that (see paragraphs 17 to 21) several of the features incorporated into the pool would not have been included but for the requirement to provide for handicapped people; that the pool was specifically for handicapped people in that high air and water temperatures and humidity control that were part of the system were higher than what would normally be expected in an indoor pool for the able-bodied; and that the environmental control system was an integral piece of equipment for use by the handicapped. The pool could not function, the Tribunal found, within its design requirements without the environmental control system. The Tribunal held that the other details of design and construction of the pool which might or might not be found in a pool for use by the able-bodied did not detract from the conclusion that the pool itself (as distinct from the building in which it was housed) was designed exclusively for use by the handicapped:
"In other words, there is no call, as we see it, to distinguish between attributes of the pool that tend to that conclusion and those that do not: it is the pool as a pool that falls to be considered, not its component parts."
That decision, the Appellant contended, reinforced her case: it was her air conditioning and filtration system as a whole that should be considered, not its component parts.
- The Appellant said that zero rating should be held not to apply only where goods do not clearly comply with the regulations. She acknowledged that exemptions were to be construed strictly, but that each case should be considered on its merits. Zero rating had been refused because this piece of equipment had not been written into the regulations. It was a system which had been designed for her own personal use in her own home. By analogy, a car was a standard piece of equipment, but if adapted for use by a handicapped person the whole cost of supply of the car was zero-rated. The Appellant suggested that possibly a system such as hers had not come the way of Customs before.
The Commissioners' contentions
- Miss Forrest, for the Commissioners, provided a skeleton argument. Unfortunately, the copy sent to the Appellant had not reached her, and attempts to send it by facsimile transmission failed. She was content to continue with the hearing, however, and we gave her leave to make further submissions in writing, after receipt of the skeleton argument through the post, if she wished to do so.
- It was the Commissioners' case that the supplies to the Appellant should not be zero rated because the system installed was not "designed solely for use by a handicapped person" and therefore did not fall within Item 2(g) of Group 12. The evidence did not disclose the subjective intention of the designer, but the manner in which the product was marketed allowed the Tribunal to infer the purpose for which it was designed. Miss Forrest relied upon the manufacturer's promotional materiel which stated that "the plasma filter was primarily developed for hospital applications", and that considerable interest had been shewn in the product by office buildings, clubs and schools. She also contended that Mr Roberts's declaration (paragraph 10 above) supported the Commissioners' case, in particular the second and fifth indents under paragraph 4 of the declaration. The second, she contended, shewed that the original system had been adapted, and there was no question of redesigning. The fifth mentioned only additions and substitutions. The correct inference from the evidence, Miss Forrest contended, was that the system was not designed solely for use by a handicapped person. What was installed was in the first place a normal air conditioning system. The adaptations mentioned by Mr Roberts did not materially change the system so that one could say that it had been redesigned. The normal air conditioning unit was originally designed for use in a hospital, but that did not mean that it was designed expressly and solely for chronically sick or disabled people: Princess Louise Scottish Hospital v Customs and Excise Commissioners [1983] VATTR 191. There were many benefits in a system such as the Appellant's for everyone who was employed by or treated in a hospital. It may be assumed, Miss Forrest contended, that the varying needs of both patients, disabled or otherwise, and hospital staff were considered. The system was for general purpose use, and was analogous to the air conditioning units in Simmons (supra). Not everyone in a hospital is disabled, and the system was therefore not designed solely to relieve disability. The decision in Neen Designs Ltd v Customs and Excise Commissioners (1994) (Decision No 11782) was to be distinguished from the present case on the basis that the early models of the equipment under consideration in that case were designed solely for use by chronic pain sufferers.
- On the evidence, Miss Forrest contended, adaptations were made to the normal system, the substitution of HEPA filters and metal ducting, which were analogous to those made in Posturite (UK) Ltd v Customs and Excise Commissioners (1992) (Decision No 7848). That was a case in which a designer had designed a sloping writing board intended for use by office workers. But the designer discovered that it could, with modification, would be of use to handicapped people, and he redesigned it to have a steeper angle. The Chairman said:
"Whilst I accept [the designer's] evidence that the Posturite Board in its present form after he had altered it to enable it to meet their special needs was in his mind intended solely for the use of the disabled in the sense that that was where he saw his market, I cannot accept that something which is so designed and constructed as to be of use for a wide range of persons and not just the handicapped can be regarded as designed solely for use by a chronically sick or disable person."
It was the Commissioners' case that the Appellant's system fell within a similar category.
The Appellant's rebuttal
- We received the Appellant's written submissions in rebuttal a few days after the hearing. Having acknowledged, by reference to VAT Notice 701/7/94, that goods may be zero rated if they are designed solely for use by a disabled person and the supply is made to a disabled person for domestic or personal use, but with the caution that "many goods which are of benefit to people with particular disabilities may not qualify for relief because they are designed for wider use". The Appellant referred to the fact that in the case of a car which is adapted for a disabled person the whole car is eligible for zero rating because it is recognised that the adapted car is a system which would not do what was required if any part were missing. By analogy, the Appellant said, the same was true of the air filtering system supplied to her. Further, it had been designed solely for her specific use.
- The Appellant compared her case with the earlier Tribunal decisions. In Boys' and Girls' Welfare Society, the therapeutic swimming pool was a pool which had been modified to make it safe for children, and was recognised as a system; part of it was termed "an environmental control system", and the Tribunal held that "it is the pool as a pool that falls to be considered, not its component parts". The Appellant contended that her air filtration system was an environmental control system the purpose of the design as a whole being solely to filter the air. The Appellant contrasted the case of Simmons, in which the taxpayer's need was to keep the temperature cool by means of a portable and a semi-portable air conditioner. The Appellant herself did not need air conditioning, but air filtering. She compared her domestic system with that in a clinic in the United States, an article about which was included in the evidence before us, which was described as "an environmentally controlled apartment specifically designed as a counterpoint to the normal chemical-filled home". She mentioned that she had had to instal special "non-outgassing" floor tiles set in non-outgassing cement, and had paint on the walls, furniture and bedclothes also which were non-chemical and containing no synthetic material: all such things were very expensive and, she acknowledged, did not attract VAT relief. The difference between the Appellant's system and the Plasma systems, the Appellant said, was that the latter were installed in hospitals for the purpose of filtering germs out of the indoor air, whereas the Appellant's system was not for the filtering out of germs but to filter out pesticides, smoke, and vehicle fumes before they entered her house, in order to alleviate her specific disability. The Appellant accepted that she was obliged to pay VAT in respect of the purchase of indoor portable air conditioners.
- The Appellant contended that the decision in Neen Designs Ltd assisted her case. She did not need that kind of relief from pain, but she did need protection from polluants that cause pain and disability; in the same way that the designer of the TENS equipment in Neen, Aircon World's purpose was to design a filtering system that would relieve the Appellant's specific disability.
- The Appellant explained briefly that dystonia is a syndrome and not a disease, and it was that syndrome which disabled her by causing uncontrollable muscular spasms which prevented her from reading, cooking, sleeping and even walking. It was sometimes accompanied, she said, by blepharospasm which rendered her functionally blind. There was, she said, no one manufacturer which designed and marketed an air filtering system that specifically filters out pesticides, smoke, and vehicle fumes for the disabled market.
- The Appellant referred to a number of passages in the decision in Cheltenham Old Peoples Housing Society. In paragraph 43, the Tribunal said:
"Both parties accept, as do we, that the expression 'designed solely for use by a handicapped person' means that the equipment must have been designed with the sole purpose of being used by a handicapped person - it is not a requirement that the equipment should have been designed for the sole use of handicapped persons, so that, if it is capable of being used by persons other than handicapped persons, that is not fatal, provided that the person who designed it did so with the sole aim that it should be used by a handicapped person. This is established in the Foxer Industries case, and see also the Boys' and Girl's Welfare Society case and the Joulesave Emes Ltd case."
And the Appellant relied also upon the following passage from paragraph 42:
"The appellant, taking its cue from the Tribunal decision in the David Lewis Centre case, argues that it is the heating system, as an entirety, and not its individual component parts of LST radiators and pipework, which is the equipment which should be considered for this purpose, and the Commissioners do not demur from this approach. That being so, the relevant issue between the parties is whether the heating system was 'designed solely for the use by a handicapped person'."
The Appellant contended that that was the proper approach which should be adopted.
- The Commissioners had argued that the test to be applied was, as in Joulesave Emes Ltd (2000) (Decision No 17115), encapsulated in a sentence of the Tribunal's decision in paragraph 23:
"But we find that we are not in this case looking at more than one design. Although methods of manufacture have changed, and features of the design have been improved, the design objective and function of the equipment has remained the same throughout."
The Appellant agreed with that approach, on the basis that Aircon World's design objective was to provide an air filtering system that would clean the outside air as it entered the house by filtering out specific substances. Air conditioning was not the initial design objective. The purpose of the system had not changed, she said; it was not an improvement of an air conditioning system since air conditioning was not required.
Conclusions
- The issue which we have to determine is whether the equipment supplied to the Appellant was eligible for zero rating in that it fell within Item 2(g) of Group 12 of Schedule 8 to the 1994 Act, as being "designed solely for use by a handicapped person". It is accepted by the Commissioners that the Appellant is a handicapped person, that the system which she purchased was for her personal and domestic use, and that any adaptations which were made to any standard product in producing the system, and all repairs and maintenance to the system, were properly zero rated. Stated briefly, it was the Commissioners case that the system was an adaptation of standard equipment: it was a normal air conditioning system designed for use in hospitals, with adaptations, and had not been redesigned. Not so, said the Appellant: it was not an air conditioning system but an air filtering system which was designed to filter out of the air, before it entered her house, the noxious things which were the cause of her dystonia. The Commissioners contended that the manner in which the product was marketed allowed the Tribunal to infer that the purpose for which it had been designed was not solely for use by a handicapped person. But the system with which we are concerned was not "marketed" in the ordinary sense of that word; it was made to the Appellant's particular specifications and supplied to her only.
- We have considered the Tribunal decisions which were cited to us by both the parties. There does not appear yet to have been a decision at a higher level, perhaps because this is basically a question of fact. From those decisions, which, while not binding upon us are persuasive, we derive assistance in the approach to this issue. We agree with and adopt the decision in Foxer Industries, that the condition in Item 2(g) should be read as "designed with the sole purpose of use by a handicapped person".
- First, we consider that the proper and logical way to look at the system is to look at it as a whole, and not at particular components of it. A car which has been adapted is quite a useful analogy, though it is no more than an example. But if it is capable of being treated as designed solely for use by a handicapped person, then so is other equipment. But the important thing, in our judgment, is that the equipment should be looked at in its entirety.
- Secondly, one must look at the reality of the system. Another analogy is that of the pool in Boys' and Girls' Welfare Society. The second passage cited in paragraph 14 above shews, in our view, the proper approach. In the present case, what was supplied in the present case was more than just an air conditioning or air filtering system; it was principally for filtering out of the air specific things which were harmful to the Appellant, before they entered her house, and necessarily created for her an environmental control system. In considering the system as a whole, we agree with the Tribunal when it said that there was no call to distinguish between attributes of the system that tend to the conclusion that it was designed solely for use by a handicapped person and those which do not, since it is the system as a whole, not its component parts, which falls to be considered.
- That approach, as we see it, is reinforced by the passages cited in paragraph 24 above from Cheltenham Old People's Housing Society, which depend partly upon the earlier decisions. We took the view that Simmons and Posturite were distinct on their facts, and as to the nature of the equipment concerned, and were not of assistance to either party.
- Applying that approach to the evidence in this case, it appears to us that the Appellant required a system which would eliminate from the air entering her house, and before it entered, those things which were the cause of her disability. She gave instructions to Aircon World, and they set out to produce what she needed. The result was a system that did exactly what was required of it. The system consisted of an air conditioner and heat exchanger and air filters, with metal ducting. It probably contained many other components which could be used for purposes which would benefit people who were not handicapped. That must be true of almost all equipment which does pass the test of Item 2(g). As we have said, the proper approach in our judgment is to look at the system, as supplied, as a whole, and not its components. It was, it appears, a unique system, designed and produced for this Appellant specifically to alleviate her rare condition. As such, there was no general market for it, nor was it a system which was normally (or, probably, ever) supplied to people who were not disabled. It was an environmental control system designed for the Appellant's particular disability. As such, in our view, it falls naturally into Item 2(g).
- For the above reasons, this appeal is allowed. No application was made at the hearing for costs. However, if any dispute should arise as to costs, the parties have liberty to apply to the Tribunal on the matter of costs alone. Any such application should be made not later than 28 days after the date of release of this decision.
ANGUS NICOL
CHAIRMAN
RELEASED: 19 July 2005
LON/04/1141
