Neil Warren considers the case of an indoor ski slope which charged VAT at 5% on lift passes, and reminds advisers to consider which other supplies may qualify for this reduced rate of VAT.
The VAT legislation has little nooks and crannies where unexpected supplies of goods or services can be either zero-rated, exempt or, as was relevant in this case, subject to the reduced rate of 5%.
The items subject to 5% VAT are contained in VATA 1994, Sch 7A, and include items such as children’s car seats, contraceptive products and caravans but also a journey in a ‘cable-suspended passenger transport system’ (VATA 1994 Sch 7A, Group 13, Item 1). The reduced rate only applies if each cable car, or chair, is designed or adapted to carry no more than nine passengers.
Snow Factor Ltd (TC06308) sold lift passes to customers at its leisure and adventure complex in Glasgow, which enabled those customers to reach the top of two indoor ski slopes so they can ski down. It all sounds pretty frightening to me – the slopes are apparently quite steep, hence why customers need a lift to get to the top.
The company took advantage of legislation (Sch 7A, Group 13) that was introduced on 1 April 2013 and accounted for 5% VAT on the sale of the lift passes. HMRC disagreed on the basis that “the charge for the ski lift includes an admission charge or right to use the skiing facilities”.
An important challenge with VAT legislation is to look at the exceptions and, in some cases, the exceptions to the exceptions (see bicarbonate of soda zero rating). Group 13 excludes the transport of passengers “to, from or within…..a place of entertainment, recreation or amusement…..by the person, or person connected with that person, who supplies a right of admission to, or a right to use facilities at, such a place”.
The exclusion considered in the previous paragraph was always destined to produce an HMRC victory. If the cable lift journey was provided by an independent operator not connected to Snow Factor Ltd, then it would have been a different story. The court commented: “Although Mr Simpson (the taxpayer’s representative) was ingenious in arguing the case for the legislation, the wording of the legislation provision is very clear.”
There have been some amusing VAT cases over the years about transport and recreation facilities. Blackpool Pleasure Beach contended back in the 1970s that the big dipper was a form of transport and qualified for zero-rating as it carried more than 12 passengers (VATA 1994, Sch 8, Group 8). That argument was rejected but the case report highlighted the important point that the purpose of transport is to get a passenger from A to B….not back to their starting point, as was the case with a ride on the big dipper.
The ‘A to B’ argument proved successful for the taxpayer in the more recent case of Cairngorm Mountain (17679), where a charity operated a funicular railway, which enabled skiers to ascend a mountain by train and ski down it. The court decided that 51% of the fee paid for the ski pass related to zero rated transport under the mixed supply rules, the balance being standard rated as it was linked to the skiing.
The full list of the goods and services which can be subject to the 5% reduced rate is:
Sch 7A group
|1||Supplies of domestic fuel or power|
|2||Installation of energy-saving materials|
|3||Grant-funded installation of heating equipment or security goods or connection of gas supply.|
|4||Women’s sanitary products|
|5||Children’s car seats|
|7||Residential renovations and alterations|
|8||Contraceptive products (from 1 July 2006)|
|9||Welfare advice or information (from 1 July 2006)|
|10||Installation of mobility aids for the elderly (from 1 July 2007)|
|11||Smoking cessation products (from 1 July 2008)|
|12||Caravans (from 6 April 2013)|
|13||Cable-suspended passenger transport systems (from 1 April 2013)|
The areas of Schedule 7A which I get most questions on are Group 6: Residential conversions and Group 7: Residential renovations and alterations, where certain building services qualify for the reduced rate. This includes services linked to the conversion of non-residential buildings into residential dwellings (office to flats etc), or work on residential properties that have not been lived in for at least two years.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.