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TAX NEWS: Is a caravan and its contents a single supply for VAT purposes? By Nichola Ross Martin

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14th Jul 2006
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VAT is charged according to the nature of the supply made. Some supplies though contain elements that may be both zero and standard rated, and over the years the legislation has been amended to ensure that these are taxed either as one single supply, or as separate supplies of their component parts.

This provides problems for some manufacturers and suppliers, if their main supply is zero rated, it is far more beneficial for them to try and zero rate the entire supply, even where it contains some standard rated elements. The problem as far as caravans are concerned is that the VAT rules changed in 1991. As caravan sales are 'big business' in the UK, one supplier thought it necessary to test UK legislative changes though the courts to see if they were compatible with EU law.

In the case of Talacre Beach Caravan Sales Ltd v Customs & Excise Commissioners (Case C-252/05) [2006] All ER (D) 66 (Jul) The taxpayer operated holiday home parks in the UK. Part of its income was derived, from the sale of new fitted caravans. The fitted caravans included bathroom suites and floor coverings. In the caravan manufacturer's invoices to the taxpayer, the price of the caravan without VAT and the price of the contents with VAT at the standard rate were shown separately.

Talacre Beach considered that the sale of a caravan and its contents were a single indivisible supply, and should be subject to a single rate of tax, namely that appropriate to the principal element of that supply which was the caravan itself, which zero-rated (s 30 VATA 1994, and Group 9, para 1 of Sch 8 to the Act).

Such an exemption had applied to caravans up to 1 January 1991 the date on which the removable contents were specifically excluded from the exemption. Article 28(2)(a) of the EU Sixth Directive provides, that "Exemptions with refund of the tax paid...which were in force on 1 January 1991 and which are in accordance with Community law...may be maintained."

A VAT tribunal found that the zero-rate was applicable only to the caravans themselves, and VAT should be applied to the contents, in accordance with the change on 1st Janauary 1991. The High Court dismissed the taxpayer's appeal. The taxpayer appealed to the Court of Appeal, which stayed the proceedings, and referred a question to the Court of Justice of the European Communities for preliminary ruling.

The court had to determine whether the fact that specific goods were counted as a single supply, including both a principal item in-line with UK legislation, subject to an exemption with refund of the tax paid within the meaning of art 28(2)(a) of Council Directive 77/388/EEC (the Sixth Directive), and items which national legislation excluded from the scope of that exemption, precluded the member state from levying VAT at the standard rate on the supply of the excluded items.

The Court ruled:
The fact that specific goods were counted as a single supply, including both a principal item which was by virtue of a member state's legislation subject to an exemption with refund of the tax paid within the meaning of art 28(2)(a), and items which that legislation excluded from the scope of that exemption, did not prevent the member state concerned from levying VAT at the standard rate on the supply of the excluded items.

An exemption with refund of the tax paid in respect of the excluded items would extend the scope of the exemption laid down for the supply of the caravans themselves. That would counter the point of the UK's legislation.

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