In Colaingrove Ltd v HMRC3 , the Court of Appeal considered the correct VAT treatment of fuel and power provided in holiday accommodation.
The appeal concerned the supply of fuel and power in holiday accommodation. Customers paid a sum for the caravan accommodation and use of the facilities, including electricity. The amount paid for the use of electricity was a small part of the overall costs.
The supply of the accommodation is subject to VAT at the standard rate of 20%, whereas the supply of domestic fuel and power is subject to the reduced rate of 5% under Schedule 7A of VATA.
HMRC argued that the reduced rate of VAT did not apply as the electricity was supplied as part of a holiday let and accordingly, VAT was payable at the standard rate on the whole of the fee charged to customers (ie the sum for the caravan accommodation and use of the facilities, including electricity).
The taxpayer disagreed, arguing that CJEU jurisprudence had recognised that a single supply can be taxed at two separate rates (Talacre Beach Caravan Sales Ltd and European Commission v France4 ). On this basis, the taxpayer said the reduced rate of VAT should apply to the charge for electricity.
The First-tier Tribunal (FTT) agreed with the taxpayer that the reduced rate of VAT applied to the charge for the provision of electricity, even though it was found to be part of the consideration for a complex single supply (a link to our blog on the FTT’s decision is available to view here).
The Upper Tribunal allowed HMRC’s appeal and held that the charge for the electricity could not be ‘carved out’ from the supply of the accommodation. The whole charge for the accommodation, including the amount for the electricity, was therefore standard rated.
The taxpayer appealed to the Court of Appeal.
Court of Appeal’s decision
The Court of Appeal dismissed the taxpayer’s appeal.
The Court agreed with Mr Justice Vos’ comments in WM Morrison Supermarkets plc v HMRC5 , that there would have to be specific wording in order for the legislation to apply to a composite supply.
Section 29A, VATA, applies the reduced rate to supplies which are “of a description” specified in Schedule 7A. The court concluded that the fuel charge is defined not on “use”, as the taxpayer contended, but by reference to the supplies.
It was acknowledged that within Schedules 7A and 8, there are a number of provisions for apportionment, but none apply where the fuel is part of a composite supply of fuel and other goods or services. If Parliament had intended the reduced rate to apply to an element of a supply, it would have inserted similar provisions in relation to apportionment.
In the court’s view, there was no reason why Parliament should have applied the fuel charge to composite transactions. Its purpose may have been limited to helping people in their homes rather than subsidising the prices of self-catering accommodation for holidaymakers. Such a distinction was rational and enables a purposive interpretation of the relevant statutory language.
Finally, the court accepted HMRC’s submission that the doctrine of fiscal neutrality was not infringed. The supply of holiday accommodation is a different transaction from the supply of fuel to the owner of a caravan parked on a pitch owned by the taxpayer.
Many supplies consist of a number of different elements and there has been a slowly developing body of case law which considers the correct analysis to be applied. This latest judgment from the Court of Appeal confirms that it is still necessary to determine first whether there was a composite supply according to the principles established in Card Protection Plan6 . Once you have identified the nature of the overall supply, you move on to consider whether there is express wording in the legislation to apply a reduced rate to a “concrete and specific” aspect of that single composite supply.
A copy of the judgment is available to view here.