HM Revenue and Customs Brief43/11
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VAT: withdrawal of Extra Statutory Concession 3:16 - first
time connection to the gas or electricity mains supply
On 13 December 2010, HM Revenue & Customs (HMRC)
announced its intention to withdraw Extra
Statutory Class Concession 3:16 relating to first time
connection charges to the gas or electricity mains supply, with effect
from 1 January 2012 (see - Technical
note on Withdrawal of extra statutory concessions (PDF 70K)).
The purpose of this Brief is to remind taxpayers about the
forthcoming change and to clarify the effect of the timing of invoices
and payments on whether the concession applies.
Gas and electricity suppliers, independent connection
To be aware of the withdrawal of the concession and the
related time of supply issues.
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 is reviewing its
concessions in light of this decision. The majority can remain as they
are, but those that go beyond the scope of HMRC's discretion will be
either legislated to preserve their effect or withdrawn.
After taking legal advice, HMRC has concluded that concession
3:16 is 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effect of the concession; therefore it needs to be withdrawn.
Background to the concession
Before 1 April 1994, the supply of gas and electricity for
domestic or non-business charity use was zero-rated. The zero-rating
also applied to any connection charge made by the supplier (or someone
in the same VAT group) who provided the utility, as this was ancillary
to the supply of the utility. Any connection charge made in isolation
from the supply of fuel of power to an existing building was
On 1 April 1994, the zero rate ceased to apply to the supply
of gas and electricity. Without the concession, connection fees would
now be reduced-rated if supplied by the supplier of the utility for
domestic or non-business charity use to an existing building.
The concession ensured that supplies made by the supplier of
the utility used for a qualifying use would remain zero-rated. The
concession did not impact on any other supplies, meaning that any
connection charges for supplies made independently of the utility to an
existing building would remain standard rated.
Scope of the concession
The precise text of concession 3:16 is as follows:
'Connection to the gas or electricity mains supply, which
would have been a zero-rated supply before 1 April 1994 by virtue of
Group 7 of Schedule 5 to the Value Added Tax 1983, may continue to be
treated as a zero-rated supply provided that:
(a) It is the first connection to the gas or electricity mains
supply (as the case may be) of:
- a building, or part of a building, which consists of a
dwelling or number of dwellings
- a building, or part of a building used solely for a
relevant residential purpose (within the meaning of Note 4 to Group 7)
- a building, or part of a building, used by a charity
otherwise than in the course or furtherance of a business
- a residential caravan (that is to say a caravan on a site
in respect of which there is no covenant, statutory planning consent or
similar permission precluding occupation throughout the year), or
- a houseboat (within the meaning of Group 6 to Note 7), and
(b) the person receiving the supply does not do so for the
purpose of any business carried on by him.'
VAT liability of connection charges from 1 January 2012
From 1 January 2012, the concession will be withdrawn. From
that date, the treatment of one-off charges for the first time
connection to gas and electricity will be 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.
708 Buildings and construction for further details).
- Grant-funded connection or reconnection to a mains gas
supply relating to a qualifying person's sole or main residence is
reduced-rated under Item 4 to Group 3 of Schedule 7A to the VAT Act
1994 (see Notice
708/6 Energy-saving materials for further details).
All other connections are standard rated.
Timing of invoices and payments
HMRC will allow the treatment detailed in the table below 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 made before 1 January 2012
||Concession can be used, regardless of when invoiced or
|Connection made on or after 1 January 2012
||Concession can be used if invoiced or paid for before 1
January 2012, otherwise concession does not apply
Further information about VAT on fuel and power can be found
701/19 Fuel and Power which will be amended in due course.
For further details on how the withdrawal of the concession affects
caravan sites - see Revenue & Customs Brief 37/11.
About the Author
© Crown Copyright 2011.
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Article Published/Sorted/Amended on Scopulus 2011-12-10 13:20:00 in Tax Articles