Withdrawal of concessions to affect caravan sites

Readers will have seen the HMRC Brief 37/11 (http://www.hmrc.gov.uk/briefs/vat/brief3711.htm) which explains the forthcoming changes affecting operators of Caravan Sites.  These changes take effect from 1 Jan 2012.

Under previous practice, Local Authority Rates were effectively treated as a disbursement. Operators apportioned the total charge between their tenants, but, with HMRC acquiescence, did not charge VAT. HMRC highlighted during 2010 that this concession (amongst others) would be withdrawn. The Brief confirms this.

Of course, where site rents are exempt, there is no great problem, although the amount attributed to Rates will become exempt, affecting any Partial Exemption calculation.

More often, site rents are taxable.  The addition of VAT to the Rates element will mean a significant overall increase for tenants.

The concession relating to water and sewerage will have a similar effect. Again common practice was to treat the rates (apportioned) as disbursements. HMRC have said that, where supplies are metered to individual pitches, then the zero rate will apply. I suggest that few caravan site operators have such meters in place, the costs being prohibitive. Thus, the standard rate will apply to the apportioned rates.

The situation for electricity and gas is a little different, as many operators have meters, which allows the reduced rate (5%) to be applied to these supplies.

I note that HMRC disapprove of pre-invoicing to avoid the change. However, if the tenant pays up-front, then a tax point is created, and the higher VAT charge avoided.

While on the subject, note that the sale of second hand caravans can be brought within the margin scheme, and VAT paid on 1/10th of the margin. This provision is absent from the usual Caravans and Houseboats Notice. Go to: (http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_CL_000112&propertyType=document) and go to Administrative Agreement number 10.

(Perhaps this is an opportunity to offer your Caravan site operators an extra review to ensure changes have been properly put in place?)