In a significant victory for our client and potentially many other Caravan and Lodge Park owners, Armstrong Watson has gained HMRC’s agreement of our unique methodology for valuing the removable contents sold as parts of caravans and lodges.
Where a caravan or lodge is sold, the “structure” is subject to VAT at 5% or 0% depending on a number of factors, but the removable contents are mandatorily subject to VAT at 20%.
To date, HMRC has advised that taxpayers should value these items at the point of sale at the same extent as they represented on purchase, for example, if the contents were 15% of the purchase cost of the unit, they should represent 15% of the sales value on which VAT must be accounted for at 20%.
Whilst this may seem reasonable in theory, where vans or lodges are sold at reasonable or significant mark ups, this methodology reveals its unfairness. For example, if a lodge was sold for £200,000 having been purchased for £75,000, what HMRC’s approach suggests is that the fridge, sofa and so on inside that unit have become almost three times as valuable in the time between purchase and sale.
We do not believe that this is reasonable and have therefore spent a number of years devising a methodology of valuing these removable contents in a much fairer way - which ultimately reduces the amount of VAT that must be accounted for at 20% upon sale.
This has been an extremely involved and complex process, but we have now received HMRC’s confirmation that it is acceptable.
Follow on from this decision, the opportunity now exists for sellers of caravans and lodges to submit retrospective claims for overpaid VAT, as well as applying these efficiencies moving forwards.