In Tapi Carpets Limited v HMRC [2026] UKFTT 1128 (TC), Judges Harriet Morgan and Noel Barrett allowed the appeal in full. Tapi sold floor coverings across a national store network. Customers who wanted fitting could arrange it themselves or pay Tapi a separate fitting arrangement fee. Tapi introduced an independent fitter from a large vetted pool. The customer paid the fitter directly on the day. Tapi charged standard-rate VAT on the arrangement fee (and on a delivery and care package). Many fitters sat under the registration threshold and did not charge VAT on the fitting fee.
HMRC assessed about £13,555,315 across periods 06/19 to 12/23 under the Value Added Tax Act 1994, arguing fitters supplied Tapi under an implied subcontract and Tapi on-supplied fitting — so output tax was due on the full fitting fees.
The Tribunal disagreed. Contractual documentation was the starting point. Those contracts, read against economic and commercial reality, showed two supplies: Tapi’s taxable arrangement (and related) services as principal, and the fitters’ fitting services as principal to the customer. The assessments were cancelled.
If you run multi-site retail, home-improvement, platform installation or PE “goods plus fit” models, this is a VAT-file event — not a carpets-only curiosity.
Full text: National Archives judgment. Professional notes: Tax Journal (16 September 2026), Crowe, Academy of Tax Law case summary, and the paired retail framing in Cowgills on Tapi and United Carpets.
What actually happened
The commercial pattern is familiar:
1. Customer buys flooring from Tapi (Tapi as principal — not in dispute).
2. Customer either self-arranges fitting or buys Tapi’s fitting arrangement service plus delivery and care package.
3. Where arrangement is bought, Tapi matches a vetted fitter, schedules attendance, prepares stock and may help with complaints.
4. Customer pays the fitter on the day. Tapi finance options do not extend to fitting — its FAQ said installation is by independent fitters paid directly.
5. In about 1.2% of orders (“invoiced fitting”), the customer asked Tapi to collect the fitting fee. Tapi treated those as its own supply and charged VAT. That strip was not under appeal.
Around 60% of customers took the arrangement path. Tapi did not book those fitting fees as turnover. HMRC estimated from square-metre volumes and industry rates.
HMRC leaned on operational colour: indicative quotes, no customer pick-list of fitters, quality monitoring, complaints handling, “we/our” website language, and a 10-year fitting guarantee. In HMRC’s story, those features collapsed agency into principal supply.
The legal engine: contracts first, then reality
The Tribunal applied ordinary construction principles (Wood v Capita). For the arrangement fee, Tapi agreed to arrange a suitable fitter at an estimated price subject to negotiation. The fitter contracted with the customer on the day and bore non-payment risk.
Key findings that matter for every CFO file:
- Standardised “we/us” marketing did not rewrite the contracts. A reasonable reader could still see Tapi acting with “fitting partners.”
- Indicative prices, matching without customer pick-lists, standards monitoring, complaint support and the guarantee were treated as part of the arrangement service and brand protection — not proof that Tapi supplied the fitting itself.
- There was no implied subcontract under which fitters supplied Tapi. HMRC’s “wholesale fitting fee / retail margin” story had no commercial footing.
- Treating one customer payment as consideration for two supplies between different parties, with “non-monetary consideration” flowing back to Tapi, was commercially and legally unrealistic.
Prior authorities — Adecco, Secret Hotels2, WHA, A1 Lofts, Lewis Carpets, and United Carpets (Franchisor) Ltd v HMRC [2025] UKFTT 895 (TC) — illustrate principles on different facts. United Carpets had already allowed a pure introduction model. Tapi shows the same architecture can survive a heavier operational wrapper when payment risk, contracting and fee flow stay with the fitter.
Why HMRC’s brand-control theory failed
HMRC’s playbook is familiar across staff bureaux, platform labour, installation networks and “we organise everything” retail:
- If you set the customer experience, you own the supply.
- If you guarantee quality, you own the supply.
- If the third party is invisible to the customer’s brand journey, you own the supply.
Tapi does not say brand control is irrelevant. It says brand control is not enough when the contracts and money say otherwise. Residual guarantee rectification did not recharacterise the ordinary day-one fitting supply.
Cross-check your position against VAT Notice 700 (agents and principals), HMRC’s VTAXPER identifying the supplier and agency factors manuals, and section 47 VATA 1994 where undisclosed agent rules are in play. Tapi was a disclosed-arrangement case with direct customer-fitter payment. Do not drag it onto undisclosed or s47 “to and by” models without a fresh map.
Why CFOs outside flooring still care
- Multi-site retail and trade counters with installation, assembly, commissioning or “book a tradesperson” SKUs.
- PE diligence on home, auto, solar, EV charger, kitchen, glazing and facilities targets where VAT is booked only on arrangement fees while a large unregistered labour pool does the work.
- Platform and franchise models that sell goods as principal and “introduce” independent service providers.
- Audit committees sitting on open HMRC VAT enquiries that treat operational involvement as automatic principal status.
A cancelled £13.6m assessment also changes SPA conversations: “VAT paid” warranties are under-specified when the real issue is principal-versus-agent characterisation across open years.
What every CFO must lock now
1. Supply map, not org chart — For every goods-plus-service journey, list: who contracts with the customer for the service; who invoices; who is paid; who bears non-payment and rework risk; what the retailer/platform actually supplies for its own fee.
2. Payment-flow evidence — Direct customer-to-provider payment was load-bearing in Tapi. If your “agents” are paid by you and you recharge, you are in a different case. Bank the evidence; do not rely on a 2019 memo.
3. Contract pack consistency — Customer T&Cs, fitter/provider terms, FAQs, finance exclusions, complaint scripts and guarantee wording must tell one story. Tapi won because documentation and practice aligned. Marketing “we fit” language is a diligence red flag if the legal pack says otherwise.
4. Guarantee and brand wrappers — Price the guarantee as part of the arrangement product. Record when rectification is a true buy-in subcontract versus original-provider rework. Do not let a rare guarantee claim rewrite the default supply analysis.
5. Registration-threshold exposure — Large fitting value may sit with unregistered fitters. That is a policy tension, not a freestanding legal win. Board it explicitly if the model depends on it.
6. Open assessments and provisions — Re-paper principal-supply assessments on installation models against Tapi and United Carpets. Check HMRC tax tribunal guidance before settling “for certainty.”
7. Diligence and SPA language — Require a principal/agent schedule, sample contracts, payment-flow diagrams and open-enquiry schedule. Price arrangement-fee VAT versus full service-fee VAT across the locked box.
8. Do not over-read the win — Undisclosed agency, true subcontract labour, composite supplies, and models where the retailer invoices and pockets the fitting fee remain high risk. HMRC can still appeal or seek legislation.
Practical next steps this week
- Drop the National Archives Tapi judgment into the tax risk pack and mark the contractual-construction and “no implied subcontract” sections for the audit committee.
- Run a one-page principal/agent test on every live installation, commissioning and “arrange a tradesperson” SKU.
- Align website FAQs and store scripts with the legal pack — or change the legal pack. Inconsistency is how the next assessment is written.
- For PE-owned retailers: tag revenue between goods, arrangement fees, invoiced fitting and pure introductions before the next quarterly close.
- Read the Tax Journal note and Crowe summary against your own ops narrative.
- Keep VAT Notice 700 and the VTAXPER agency manual as baseline.
Bottom line
Tapi is a contractual and commercial-reality win, not a licence to brand every third-party trade as “our service” while booking VAT only on a thin arrangement fee. The FTT cancelled roughly £13.6m of assessments because Tapi’s documents, payment flows and day-of-fitting contracts made the fitter the principal supplier of fitting — and made Tapi the principal supplier of arrangement (and related) services only.
CFOs should lock three things before the next board cycle: a principal/agent supply map for every installation-style journey, payment-flow evidence that matches the contracts, and SPA/diligence language that prices characterisation risk rather than hoping HMRC never reads the website. Brand can still promise peace of mind. Finance has to know who the statute treats as the supplier when the fitter walks through the door.
Mark Hendy is a PE-facing CFO and tax agent through Tanous Limited. This note is general information, not advice on your specific VAT position.