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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 providers.


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they are, but those that go beyond the scope of HMRC's discretion will be either legislated to preserve their effect or withdrawn.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does not permit the UK to introduce new legislation to preserve the effect of the concession; therefore it needs to be withdrawn.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 standard-rated.

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. (See Notice 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 VAT treatment
Connection charges
Connection made before 1 January 2012 Concession can be used, regardless of when invoiced or paid for
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

Further information about VAT on fuel and power can be found in Notice 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.

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Crown Copyright 2011.

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Article Published/Sorted/Amended on Scopulus 2011-12-10 13:20:00 in Tax Articles

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