A fixed charge for electricity in chalets and caravans was an element of a single complex supply of serviced accommodation taxed at the standard rate

This Upper Tribunal (UT) case examines a long running argument in a series of cases that elements of a complex standard rated supply may be taxable at a reduced rate. The issue was whether the provision of electricity to holiday makers should be taxed at a reduced rate of VAT (under Group 1 Schedule 7A VATA 1994), notwithstanding that the charge for electricity was an element of a single complex supply of serviced accommodation taxed at the standard rate.

Interestingly, this decision follows an earlier decision in 2015 involving the same company (Colaingrove Limited v HMRC [2015] UKUT 0002), in which the UT part allowed an appeal finding that supplies of verandas together with static caravans were zero-rated for VAT.

In 2013 the First Tier Tribunal (FTT) had considered whether national legislation provided for separate VAT rates regardless of whether there was a single supply and concluded that, in very limited circumstances, a composite supply can be liable to VAT at two separate rates. The UT decision overturned the FTT ruling. However in the UT case, Colaingrove Limited (“Colaingrove”) argued that the sale of a caravan and its contents was a single indivisible supply which should thus be subject to a single rate of VAT - the appropriate rate being the zero rate.

The UT used the generally accepted principles set out in the Card Protection Plan (CPP) EU decision (Card Protection Plan (C-349/96)) that at the point of sale a caravan with a veranda was a single supply. The tribunal held that the CPP principles generally applied in determining the nature of a supply i.e. whether a composite transaction is a single supply or multiple supplies.

Background and key arguments

Colaingrove provided serviced chalets and static caravans at holiday parks. The issue arose in relation to a popular newspaper promotion under which readers collect tokens in return for cheap chalet or caravan holidays provided by Colaingrove.

The charge for accommodation was collected by the newspaper (and later paid on to Colaingrove less commission), but a fixed daily charge for electricity was paid direct to Colaingrove in order for the booking to be accepted. The dispute concerned the amounts a customer pays in the form of a separate daily charge in advance for gas and electricity. The charge, which is not optional, does not correlate to actual use.

The issue was whether the provision of electricity by Colaingrove to holiday makers should be taxed at a reduced rate of VAT (under Group 1 Schedule 7A VATA 1994), notwithstanding that the charge for electricity was an element of a single complex supply of serviced accommodation taxed at the standard rate.

HMRC argued that the UK legislation only applies the reduced rate to standalone supplies of power. There is nothing within the legislation which specifically applies the reduced rate to domestic fuel and power when supplied as part of a wider single supply.

The FTT dismissed the taxpayer’s argument that there were two separate supplies; one of electricity and one of accommodation. However, the FTT said the supply of electricity should be treated as a ‘concrete and specific’ aspect of its transactions with, and supply to, the newspaper readers, and that the relevant UK legislation provided for a reduced rate of VAT to that aspect of the supplies.

The FTT had relied on the case of European Commission v France (C94/09) (‘French Undertakers’). The FTT said the French Undertakers case was authority for the entitlement of a Member State to legislate that a reduced rate of VAT should apply to the provision of electricity even where, if by virtue of CPP, that provision would be characterised as merely an element in a larger single complex supply. It said that Parliament had so legislated in section 29A and Group 1 Schedule 7A VATA 1994.

HMRC appealed the FTT decision.

Decision

Before the UT hearing, the FTT decision in Colaingrove was considered by the UT in WM Morrison Supermarkets PLC (“Morrisons”) [2013] UKUT 0247 (TCC). In that case, the taxpayer was unsuccessful in seeking a reduced rate for the charcoal element of disposable barbeques. The principle in CPP was overriding, and the French Undertakers case could only have any application where the national legislation made specific provision for a reduced rate to apply to a concrete and specific element of a specified category of a complex supply.

In the UT appeal Colaingrove argued that UK domestic legislation does provide for a reduced rate to apply to the supply of electricity where that supply forms a concrete and separate part of a wider supply.

Although the issues were not as clear cut in this case as in the Morrisons case, the UT found for HMRC and decided that the provision of the electricity by Colaingrove could not qualify for the reduced rate of VAT.

The UT said it was persuaded by Vos J’s analysis in Morrisons that the French Undertakers case did not ‘trump’ or oust the CPP analysis. Applying CPP meant there was a single complex supply of serviced accommodation. This meant that for the purposes of section 29A VATA 1994, the supply made by Colaingrove was not a supply specified in schedule 7A, even though a supply on its own of electricity to chalets and caravans would be.

Colaingrove had argued that the position for holidays provided to newspaper readers should not be different to that for its other customers who paid for their electricity by reference to meter readings and benefited from the reduced rate of VAT. However, looking at it objectively the Judge said that Parliament may have wanted to draw a distinction between provision of electricity for domestic use in a verifiable amount and a fixed charge irrespective of use or its amount.

The UT cited a number of other cases in reaching its decision including the decision in AN Checker & Service Engineers (“AN Checker”) [2013] UKFTT 506. That case concerned the supply of installed residential energy saving-materials that would, if supplied on their own, be subject to VAT at the reduced rate, which were supplied with the wider non qualifying supply of the installation of a boiler.

The UT wondered why Parliament would only give a tax break to those holiday makers that received their electricity by means of a single supply. It considered, however, that Parliament may have wanted to draw a distinction between the provision of electricity in a verifiable amount and the provision of a fixed charge irrespective of use.

Agreeing with AN Checker, the UT concluded that the ‘stumbling block’ was the combined effect of the CPP decision and the provision in section 29A VATA 1994 that a reduced rate of VAT may only be charged on a ‘supply that is of a description for the time being specified in schedule 7A’. Neither French Undertakers nor Talacre (C-251/05) usurped the CPP analysis. The supply was not a supply specified in schedule 7A and section 29A applied only to the single complex supply and not to elements of that supply.

Applying that same reasoning in the current case the UT noted there was nothing in the VAT Act applying the reduced rate to domestic fuel and power when supplied as part of a wider different supply. Therefore, if by applying CPP principles the supply is a single one of standard rate holiday accommodation this does not fall under the reduced rates provided for in schedule 7A. Despite, the FTT recognising there was at least some doubt as to the Government’s intention around the scope of the fuel and power reduced rate and whilst having some sympathy for the taxpayer, HMRC’s appeal was allowed.

The full judgement in this case is available from http://www.tribunals.gov.uk/financeandtax/