In Colaingrove Limited v HMRC [2017] EWCA Civ 332 the Court of Appeal held that the reduced rate of VAT could not be applied to electricity supplied as part of a holiday let.
The VAT Act 1994 allows for a reduced rate of 5% to apply on supplies of domestic fuel or power.
- The taxpayer operated a holiday park with static caravans.
- Customers were charged a sum for accommodation and use of facilities, including electricity for lighting, cooking etc.
- Furnished Holiday Letting is a standard rated supply for VAT.
- The taxpayer claimed that the fuel element should be separated out from the overall charge for VAT: this meant that VAT would be charged at the reduced rate for fuel.
In the first appeal, the First-tier Tribunal (FTT) agreed with the taxpayer, finding that composite supplies could be taxed at separate rates where it was clear that this was the intention of Parliament, and that this was the case with the reduced rate of VAT for fuel.
At a subsequent appeal the the Upper Tribunal (UT) subsequently overturned this decision, finding that the legislation did not allow for the reduced rate of VAT to be charged on a single element of a composite supply.
The Court of Appeal have now upheld the decision of the UT, finding that:
- The meaning of the legislation is plain: the reduced rate for fuel does not apply where the supply is a composite supply of some other service.
- If Parliament had intended to allow the reduced rate to apply to an element of a composite supply they would have included apportionment provisions.
- The legislation achieves its purpose of helping people with domestic fuel costs, it does not need to extend to reducing the cost of self-catering holidays.
- This interpretation complies with the principle of fiscal neutrality: the supply of holiday accommodation is a different transaction from the direct supply of fuel to a house or caravan parked on a pitch, and therefore the different VAT treatment is justified.
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Case reference: Colaingrove Limited v HMRC [2017] EWCA Civ 332
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