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Where Taxpayers and Advisers Meet

VAT on new utilities connections

Zebra12
Posts:3
Joined:Mon Oct 14, 2019 2:03 pm
VAT on new utilities connections

Postby Zebra12 » Mon Oct 14, 2019 2:57 pm

Background: I have full planning to convert a barn (never been lived in; non-residential) and build a new extension to it.

The mixed conversion/new build nature of the project notwithstanding; it is unclear (surprise, surprise!) whether new utilities connections should attract a zero or a reduced rating.

Buildings and construction (VAT Notice 708) (2.1) makes a clear distinction in terms of 'construction services':
  • Conversion (other than for housing associations) of a non-residential building into a qualifying dwelling or communal residential building and conversions of residential buildings to a different residential use 5%
[...]
  • First time gas and electricity connections 0%

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https://www.gov.uk/guidance/buildings-and-construction-vat-notice-708#section2
Later on, at 3.3.7, matters are confused:
3.3.7 Connecting utilities to existing buildings

The connection of utilities to an existing building is normally standard-rated. But in some cases, the first time connection of gas or electricity may be reduce-rated.
So, whereas a blanket application of zero-rating to 'First time gas and electricity connections' was given at 2.1, now 'connection of utilities to an existing building' may be reduce-rated (5%) in line with what you'd expect for a vanilla barn conversion.

Reference is made at both 2.1 and 3.3.7 to Fuel and power (VAT Notice 701/19). At 2.6 it states:
2.6 Connecting dwellings and certain other buildings to mains power

With effect from 1 January 2012 the treatment of one-off charges for the first time connection to gas and electricity is as follows:

  • if the supply of the connection and provision of the utility is made by the same person (or by members of the same VAT group) the connection charge will follow the treatment of the utility and be reduced rated
  • if the supplies are not made by the same person or if at the time of connection, the supplier of the utility has not been determined, the connection charge will continue to be standard-rated (irrespective of who eventually provides the utility)
  • the first time connection of a new dwelling or relevant residential or relevant charitable building to the gas or electricity mains supply is zero rated under Group 5 of Schedule 8 to the VAT Act 1994 if the connection is made as part of the construction of the building see Notice 708 Buildings and construction for further details
  • works in connection with the means of providing fuel and power as part of the renovation or alteration of empty residential premises, or of the conversion of premises to a different residential use may be reduced , rated under Group 6 and Group 7 of Schedule 7A to the VAT Act 1994, if performed on the immediate site of the premises see Notice 708 Buildings and construction for further details

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https://www.gov.uk/guidance/vat-on-fuel-and-power-notice-70119#vat-liability-of-fuel-and-power
This again confuses matters given that my barn and extension will amount to a 'new dwelling' and the project does not involve 'conversion of premises to a different residential use' seeing as the barn was used for agricultural purposes.

As for water, the HMRC internal manual 'VAT Water and Sewerage Services', at VWASS5200 states:
Supplies made in connection with water and sewerage services: connection charges supplied with water

Where a customer contracts with a water supplier to provide mains water and that necessitates a first time connection to that water supply, the connection will be ancillary to the zero-rate supply of water providing the supplier of the water and connection are made by the same taxable person (or within the same VAT group) to the same customer.

However, if the customer is involved in a relevant industrial activity, the supply of the water and any connection will be standard rated.

First time connection of water pipe-work is standard rated if at the time of connection, no water supplier had been identified. The zero-rate only applies if in order to supply mains water for the first time, the supplier needs to carry out the connection (it is ancillary to the supply of water). However, where the connection is carried out for the first time without any reference to a water supplier, such work cannot be ancillary to the water supplier’s supply. In such cases, the water connection will be a separate taxable supply from the supply of water.

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https://www.gov.uk/hmrc-internal-manuals/vat-water-and-sewerage-services/vwass5200
Again, it would appear on the face of it that, whether the construction project is a conversion or a new build (or elements of both, just like mine and many often are), provided the same water supplier lays the mains, a new water connection is zero-rated.

Can anyone provide any clarification, advice or past experience on this matter, please?

robbob
Posts:3228
Joined:Wed Aug 06, 2008 4:01 pm

Re: VAT on new utilities connections

Postby robbob » Tue Oct 15, 2019 9:57 am

Nice clean technical question - the answer is clear as mud - that won't stop me speculating though- i would start by ringing vat helpline though.

My speculation which may be correct or may not be.
If i had to guess i would say it sounds like the zero rating only applies if its part of a zero rating construction - so if the project is a 5% conversion i would guess the supply is at 5%.
708 as you say seems to defer to 701/19 and that only confirms zero rating under the following circumstances.

2.6 which mentions zero rating.
the first time connection of a new dwelling or relevant residential or relevant charitable building to the gas or electricity mains supply is zero rated under Group 5 of Schedule 8 to the VAT Act 1994 if the connection is made as part of the construction of the building see Notice 708 Buildings and construction for further details
Note it looks like there was an extra concession prior to 1/1/2012 - this may explain the somewhat confusing wording in the leaflets
https://www.gov.uk/hmrc-internal-manuals/vat-fuel-and-power/vfup3000
VFUP3200/VFUP3250

Zebra12
Posts:3
Joined:Mon Oct 14, 2019 2:03 pm

Re: VAT on new utilities connections

Postby Zebra12 » Tue Oct 15, 2019 2:04 pm

Thank you for your response, 'robbob'. As you say: 'clear as mud'.
i would start by ringing vat helpline though.

I did do that and the advice was that 3.3.7:

3.3.7 Connecting utilities to existing buildings

The connection of utilities to an existing building is normally standard-rated. But in some cases, the first time connection of gas or electricity may be reduce-rated.

Was the guidance to follow in my particular set of circumstances.

The VAT Helpline advisors (I called several times with the same question to ascertain whether HMRC had a 'stance' on this) were generally polite and helpful, but, alas, did not give me the degree of certainty I was seeking. Not their fault; goes with the territory.

If i had to guess i would say it sounds like the zero rating only applies if its part of a zero rating construction - so if the project is a 5% conversion i would guess the supply is at 5%.
708 as you say seems to defer to 701/19 and that only confirms zero rating under the following circumstances.

This is the approach I think I'll be taking. I'll assume HMRC approves of 5%, and this is the rate provisionally agreed with the electricity connection company. If there's a quibble in the future when it comes to reclaiming VAT on completion, I'll have still saved 15% VAT.

Water would appear to be a separate case, though; and I am awaiting my water connection company's response. I relied on the 'VAT Water and Sewerage Services' guidance, VWASS5200, quoted above (which seems quite - ahem - clear) in my submission, so we'll see. Again, if it's 5%, I think the pragmatic approach would be just to pay it and count my blessings.

Note it looks like there was an extra concession prior to 1/1/2012 - this may explain the somewhat confusing wording in the leaflets
https://www.gov.uk/hmrc-internal-manuals/vat-fuel-and-power/vfup3000VFUP3200/VFUP3250 [sic]

Thanks for the link to VFUP3250

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https://www.gov.uk/hmrc-internal-manuals/vat-fuel-and-power/vfup3250

That would seem to be definitive-ish but it is contradicted, if that is the right word, by both Buildings and construction (VAT Notice 708) (2.1) and Fuel and power (VAT Notice 701/19) (2.6).

I discovered that the ESC referred to therein refers to 'extra-statutory concessions'; not news to VAT professionals but interesting for a layman like myself. Tellingly, being a member of the Single Market and under the ultimate jurisdiction of the ECJ meant that that particular pre-2012 'concession' had to be withdrawn.

Thanks for your advice and assistance, 'robbob'!

Zebra12
Posts:3
Joined:Mon Oct 14, 2019 2:03 pm

Re: VAT on new utilities connections

Postby Zebra12 » Tue Oct 15, 2019 10:03 pm

Update: I have received a response from my water connection company based on my submission of VAT Water and Sewerage Services, at VWASS5200

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https://www.gov.uk/hmrc-internal-manuals/vat-water-and-sewerage-services/vwass5200

as an argument for zero-rating a new first-time water connection. They have agreed to charge me 5% VAT.

I won't be on mains sewerage and have already agreed a 5% VAT rate on installation of a water treatment plant.

If anyone else has a similar experience or can shed more light on this issue, I'd be grateful.


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