VAT – Supply – Value Added Tax Act 1994 – Electricity – Respondent providing serviced holiday chalets – Electricity provided on metered supply although certain promotional customers charged fixed daily rate for electricity regardless of consumption – Whether provision of electricity to promotional customers attracting reduced rate of VAT under section 29A of and Group 1 of Schedule 7A to 1994 Act – Whether relevant that electricity forming part of single complex supply of serviced accommodation rather than separate supply in own right – First-tier tribunal applying reduced rate – Appeal allowed
The respondent ran a business providing serviced chalets and sited caravans on its holiday parks. It made a separate charge for the provision of electricity, which was metered in the case of most customers although, for certain users who were holidaying there through a promotional offer in a national newspaper, a fixed daily charge was made in an amount which did not vary according to the amount of power used. The appellants took the view that the supply to the promotional customers was a single complex supply of serviced accommodation, of which the charge for electricity was just one element, and accordingly concluded that the respondent was liable for VAT at the standard rate in respect of the whole supply.
Allowing the respondent’s appeal, the first-tier tribunal found that the charge for electricity was a concrete and specific element of the supply which attracted the reduced VAT rate of 5% under section 29A of the Value Added Tax Act 1994, and Group 1 of Schedule 7A thereto, for supplies of domestic fuel or power. The FTT held that those provisions, on their true construction, allowed for the application of reduced rates of VAT to particular elements of a single supply that would otherwise be taxed at the standard rate.
The appellants appealed. They contended that Directive 2006/112 (the Principal VAT Directive), so far as it permitted member states to apply the reduced rate to certain goods and services which were previously zero-rated, did not permit the application of a reduced rate to something that, from an economic point of view, was merely an element in a larger single complex supply to which a different tax treatment was appropriate.
Held: The appeal was allowed.
The domestic legislation had to be construed in the context of the European legislation permitting member states, by way of exception from the general principle that a standard rate should apply across the EU, to apply reduced rates of VAT to goods and services that were previously zero-rated, and having regard to the principle of fiscal neutrality and the concern not to endanger the functioning of the pan-European VAT system. So far as the provisions of the Principal VAT Directive authorised members stated to adopt particular exemptions or derogations from the general principle, those provisions had to be interpreted strictly. As an aspect of that approach, and consistently with the principle of fiscal neutrality, any exception or exemption had to be limited to a category of supply in respect of which derogation was permitted by the directive, or to a separately identifiable, “concrete and specific” aspect of such supply.
Accordingly, it first had to be decided whether, on the standard approach, there was a single supply from an economic point of view or several distinct supplies: Card Protection Plan Ltd v Customs and Excise Commissioners Case C-349/96 [1999] STC 270 applied. It was then necessary to determine the different question of whether there was some “concrete and specific” element of that single supply, being a supply in a category which could be liable to exemption or exception, which the national legislation identified with sufficient specificity as attracting a lower rate of VAT, notwithstanding that the supply as a whole attracted the standard rate: European Commission v France Case C-94/09 (the “French Undertakers” case) [2012] STC 573 applied. It was therefore necessary to determine the true meaning of the exemptions or exceptions as enacted in the UK national legislation and whether they fell within the ambit of the derogation permitted by European law.
On its true interpretation, Group 1 of Schedule 7A to the 1994 Act did not demonstrate an intention to tax the supply of power at a reduced rate of VAT where, from an objective economic point of view, it was part of a larger supply transaction which was otherwise to be taxed at the standard rate. The construction of section 29A and Schedule 7A had to be uniform and consistent with the European cases, particularly with regard to what constituted a “supply”. Section 29A provided that a reduced rate of VAT could only be charged on a “supply that is of a description for the time being specified in Schedule 7A”. Something that was merely one element of what, on the usual approach, would be treated as a single complex supply, could not itself be a “supply” within the meaning of section 29A. Parliament had been aware of the distinction between a supply and its component or ancillary elements and that the benefit of any doubt had to fall in favour of a strict interpretation. Section 29A therefore fell to be construed as applicable only to the single complex supply identified on the usual approach and not to elements within that supply. It followed that the “supply” made by the respondent was the single complex supply of serviced accommodation, which was not a supply specified in Schedule 7A. The provision of electricity, as an element of that supply, did not attract the reduced rate of VAT, even though it would have done had it qualified as a separate supply: Card Protection Plan and AN Checker Heating & Service Engineers v Commissioners for HM Revenue and Customs [2013] UKFTT 506 (TC) applied; Wm Morrison Supermarkets plc v Commissioners for HM Revenue and Customs [2013] UKUT 247 (TCC); [2013] STC 2176 considered.
Jeremy Hyam (instructed by the legal department of HM Revenue and Customs) appeared for the appellants; Roderick Cordara QC (instructed by PWC Legal LLP) appeared for the respondent.
Sally Dobson, barrister
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