VAT – Supply – Value Added Tax Act 1994 – Electricity – Appellant 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 – Appeal dismissed
The appellant ran a business providing serviced chalets and sited caravans in 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 respondents 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.
The first-tier tribunal (FTT) reversed that decision, finding 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.
However, the Upper Tribunal subsequently reinstated the respondents’ decision: see [2015] UKUT 80 (TCC); [2015] PLSCS 93. The appellant appealed.
Held: The appeal was dismissed.
On the plain meaning of the 1994 Act, the reduced rate of VAT for fuel did not apply where the supply was a composite supply of some other service. While every supply had to be for residential use in order for the reduced fuel rate to apply, not every provision of fuel for domestic purposes would be within the reduced rate. Section 29A of the 1994 Act applied the reduced rate to supplies which were “of a description” specified in Schedule 7A. Under Schedule 7A, the reduced rate for fuel depended on there being a supply of fuel. In the absence of specific wording, it did not apply to a composite supply.
While Schedules 7A and 8 contained a number of provisions for apportionment, none of them applied where the fuel was part of a composite supply of fuel and some other goods or services. The provisions for apportionment therefore did not indicate an intention that the reduced rate for fuel should apply where there was a composite supply of which fuel was the minor part. Had parliament intended that the reduced rate should apply to an element of the supply, it would have inserted some similar apportionment provision.
Further, there was no necessary reason why parliament should have applied the fuel charge to composite transactions. Its purpose might have been limited to helping people in their homes rather than subsidising the prices of self-catering accommodation for holidaymakers. That was a rational distinction which enabled the provision to be purposively interpreted on the basis of the language used in it.
The doctrine of fiscal neutrality did not mandate any different result in the instant case. The supply of holiday accommodation was a different transaction from the supply of fuel to the owner of a caravan parked on a pitch owned by the appellant.
Roderick Cordara QC (instructed by PwC Legal) appeared for the appellant; Jeremy Hyam (instructed by the legal department of HMRC) appeared for the respondents.
Sally Dobson, barrister
Click here to read transcript: Commissioners for HM Revenue and Customs v Colaingrove Ltd
