Revenue & Customs Brief 37/11

VAT: Reminder of forthcoming withdrawal of three Extra Statutory Concessions relating to caravan sites

This Brief is for caravan site owners.

Background

On 13 December 2010, HM Revenue & Customs (HMRC) announced its intention to withdraw three Extra Statutory Concessions relating to caravan sites with effect from 1 January 2012 (see Withdrawal of extra statutory concessions PDF 70K), which will result in changes to the VAT treatment of:

  • recharges of business rates at holiday/leisure caravan sites
  • recharges of non-metered water/sewerage rates at caravan sites
  • one off charges for the first time connection to gas, electricity, water and sewerage

The purpose of this Brief is to remind caravan site owners and their customers about the forthcoming changes and to clarify the effect of the timing of invoices and payments on whether the concessions apply.

Reason for withdrawal

The House of Lords' decision in the Wilkinson case clarified the scope of HMRC's administrative discretion to make concessions that depart from the strict statutory position. HMRC has been reviewing its concessions in light of this decision. Although it is likely that the majority can remain as they are, some are thought to be beyond the scope of HMRC's discretion. Of these, some can be legislated to preserve their effect, others will need to be withdrawn.

After taking legal advice, HMRC has concluded that the three concessions that are subject of this Brief are beyond the scope of its discretion to make concessions. EU law does not permit the UK to introduce new legislation to preserve the effect of these concessions; therefore they need to be withdrawn.

Footnote 1: R v HM Commissioners of Inland Revenue ex p Wilkinson [2005] UKHL 30

VAT treatment with effect from 1 January 2012

From 1 January 2012, the concessions will be withdrawn and the following VAT treatment will apply:

  • recharges of business rates will follow the VAT liability of the pitch fee (standard rated in the case of holiday/leisure sites)
  • recharges of water/sewerage costs which are not metered to the individual customer at their pitch will follow the VAT liability of the pitch fee (generally standard rated, in the case of holiday/leisure sites; exempt, in the case of residential sites)
  • one off charges for the first time connection to gas, electricity, water and sewerage will follow the liability of the pitch (exempt or standard rated) unless the site owner identifies and charges for individual consumption (that is, through metering to the individual pitch), in which case the charge will follow the liability of the utility (reduced rated for electricity and gas, zero rated for water and sewerage)

Effect of timing of invoices, payments etc on VAT treatment

HMRC has been asked to clarify the effect of the timing of invoices and payments and, for example, how to determine the VAT treatment when charges are made in 2011 that relate to services provided in 2012.

HMRC will allow the following treatment to apply. However, HMRC reserves the right to withdraw or restrict the application of this table where an attempt is made to use it for tax avoidance (for example, if a business raises an advance invoice in 2011 when it is not their normal practice to do so, HMRC may challenge this. HMRC will not challenge invoicing arrangements that are in accordance with a business's normal practice).

Type of supply

Connection charges

VAT treatment

Connection made before 1/1/12

Concession can be used, regardless of when invoiced or paid for

Connection made on or after 1/1/12

Concession can be used if invoiced or paid for before 1/1/12, otherwise concession does not apply

Type of supply

Business rates recharges

VAT treatment

Business rates recharges invoiced before 31/12/11

Concession can be used (subject to the conditions in paragraph 4.4, Notice 701/20 Caravans and houseboats)

Business rate recharges invoiced after 1/1/12

Concession does not apply

Type of supply

Water/sewerage charges

VAT treatment

Water/sewerage recharges invoiced before 31 December 2011

Concession can be used (subject to the conditions in paragraph 4.3, Notice 701/20 Caravans and houseboats)

Water/sewage charges invoiced after 1/1/12

Concession does not apply

Further details about the concessions

Recharges of business rates at holiday/leisure caravan sites

Background

Owners of holiday/leisure caravan sites are generally liable to pay non-domestic (business) rates to their Local Authority. It is common for such site owners to attribute and recharge a proportion of the rates to individual caravan owners using the official apportionment made by the Valuation Office (under a Regulation 4 Notice). Under the terms of paragraph 4.4, Notice 701/20 Caravans and Houseboats, HMRC currently allows such recharges to be treated as outside the scope of VAT. This treatment amounts to a 'concession' because it has no legal basis.

Effect of withdrawal

From 1 January 2012, where caravan site owners recharge a proportion of their business rates to individual caravan owners, the recharge will follow the same VAT liability as the pitch fee (usually standard rated, in the case of holiday/leisure sites).

Recharge of water and sewerage rates at caravan sites

Background

When a caravan site owner can identify the actual consumption of water and sewerage for individual pitches (that is, through metering at the individual pitch) and charges according to consumption, there is a separate zero rated supply of water and sewerage. In other circumstances, that is, where individual consumption cannot be identified, any charges for water and sewerage form part of the fee for occupation of the pitch and should follow the same VAT liability as the pitch (generally standard rated, in the case of holiday/leisure sites; exempt, in the case of residential sites). By concession, HMRC allows such charges to be treated as zero rated if the site owner's costs are apportioned on a fair and reasonable basis (paragraph 4.3, Notice 701/20 Caravans and houseboats).

Effect of withdrawal

From 1 January 2012, charges made by caravan site owners for water and sewerage will remain zero rated if actual consumption can be identified (that is, through metering at the individual pitch). In other circumstances, charges will follow the VAT liability of the caravan pitch (generally standard rated, in the case of holiday/leisure sites; exempt, in the case of residential sites).

ESC 3.16 VAT: Connection to the gas or electricity mains supply

Background

ESC 3.16 allows zero rating for, amongst other things, the first time connection to the gas or electricity mains supply of residential caravans. Under the terms of Notice 701/20 Caravans and houseboats, HMRC additionally allows concessionary zero rating for first time connection of holiday/leisure caravans to the gas or mains supply and for first time connection of caravans to water and sewerage, where the relevant charge is made by the caravan site owner.

Effect of withdrawal

After the concession is withdrawn, charges made by caravan site owners for first time connection to electricity, gas, water and sewerage will be subject to the same VAT liability as the pitch (generally standard rated, in the case of holiday/leisure sites; exempt, in the case of residential sites) unless the site owner identifies and charges for the actual consumption of users (that is, through metering at the pitch), in which case, the connection charge will be subject to the same VAT liability as the supply of the utility (reduced rated for electricity and gas, zero rated for water and sewerage).

Further information

Further information about VAT and caravans can be found in Notice 701/20 Caravans and houseboats.

Issued 25 October 2011