Tapi Carpets – Introduction
In a significant VAT case with implications for any retailer using third-party service providers, the First-tier Tribunal has ruled that Tapi Carpets Ltd was not liable for £13.5 million in VAT on floor-fitting services carried out by independent fitters.
The decision in Tapi Carpets Limited v HMRC [2026] UKFTT 1128 (TC) (also reported as TC09975) turned on a fundamental VAT question… when a customer pays a fitter directly, who is making the supply?
HMRC said Tapi.
The tribunal disagreed.
Tapi Carpets – The Business Model
Tapi Carpets is a national flooring retailer. When customers purchased carpets and other floor coverings, they could arrange fitting through Tapi’s network of independent fitters.
Crucially, while Tapi facilitated the introduction, the fitting fees were paid by customers directly to the fitters… not to Tapi.
HMRC took the view that Tapi was acting as principal in relation to the fitting services. On this analysis, Tapi was making a taxable supply of fitting services to customers and should account for VAT on the fitting fees, even though the money flowed directly from customer to fitter.
HMRC assessed Tapi for over £13.5 million in VAT on this basis.
Principal or Agent?
The distinction between acting as principal and acting as agent is fundamental in VAT.
If a business acts as principal, it makes a supply and must account for VAT on the full value.
If it acts as agent, it merely facilitates a supply between two other parties and only accounts for VAT on any commission it receives.
The relevant question is not merely who handles the money, but the legal and economic reality of the arrangements.
Who is contractually obligated to provide the service?
Who bears the economic risk?
What do the parties understand themselves to be doing?
The Tribunal’s Analysis
The FTT examined the arrangements in detail and found that the independent fitters supplied their services directly to customers as principals.
Tapi’s role was to facilitate introductions, not to take responsibility for the fitting service itself.
Key factors included:
- The fitters were genuinely independent businesses, not subcontractors to Tapi
- Payment flowed directly from customer to fitter
- The customer’s contractual relationship for fitting was with the fitter, not with Tapi
- Tapi did not bear the economic risk if the fitting went wrong
The tribunal concluded that Tapi was not making a supply of fitting services and was therefore not liable to account for VAT on the fitting fees. The £13.5 million assessment was cancelled.
Why This Matters
This decision is significant for any business model where third-party services are arranged alongside the primary supply. Examples include:
- Retailers offering delivery through independent couriers
- Kitchen suppliers facilitating installation by independent fitters
- Car dealers arranging warranty services through third parties
- Online marketplaces connecting buyers with independent service providers
HMRC has historically taken an expansive view of when a business is acting as principal, and many businesses may have been paying VAT on amounts they were not legally required to collect. The Tapi decision provides useful ammunition for challenging such positions.
The Economic Reality Test
The case reinforces that VAT follows economic and legal reality, not just cash flows or documentation. HMRC sometimes argues that if a retailer “arranges” or “facilitates” a service, it must be acting as principal. This case shows that is not necessarily correct.
The tribunal looked at the whole picture: the contractual arrangements, the flow of risk, the parties’ understanding, and the commercial logic of the arrangements. On that holistic analysis, Tapi was facilitating, not supplying.
A Warning Note
Businesses should not assume that Tapi provides a blanket defence against VAT on third-party services. The outcome depends heavily on the specific facts:
- Contractual arrangements — Who is contractually obliged to provide the service? If the retailer’s terms and conditions promise the service, that points towards principal status.
- Pricing and risk — If the retailer sets the price and bears the risk of non-payment or poor service, it looks more like a principal.
- Control — If the retailer exercises significant control over how the service is delivered, that may indicate it is the supplier.
- Customer perception — What does the customer understand? If they think they are buying from the retailer, that matters.
Each case will turn on its own facts. But Tapi provides a valuable framework for analysing these questions.
HMRC’s Likely Response
This decision will not have been welcomed at HMRC. A £13.5 million loss is significant, and the wider implications could be substantial if other businesses with similar models reconsider their VAT position.
HMRC may appeal, though the decision appears to have been carefully reasoned and firmly grounded in the evidence. Even if it doesn’t appeal, the Revenue may seek to distinguish Tapi on its facts in future cases.
Businesses considering restructuring their arrangements in light of this case should proceed carefully and take specialist advice. What worked for Tapi may not work for everyone, and HMRC will be scrutinising any changes closely.
Practical Steps
For businesses with similar arrangements who have been accounting for VAT on third-party services:
- Review your position — Do the Tapi factors apply to your arrangements?
- Consider claims — If you’ve overpaid VAT, claims may be possible (subject to the four-year time limit)
- Document carefully — Ensure contracts and customer communications accurately reflect the reality of your arrangements
- Watch for HMRC guidance — The Revenue may issue guidance on its interpretation of this decision
For HMRC, this case is a reminder that principal/agent status cannot be determined by assertion alone. The facts matter, and tribunals will look at economic reality.
For Tapi, it’s a carpet-quality win. They laid their case before the tribunal, and HMRC’s assessment was well and truly floored.