From a VAT perspective, operating a residential or holiday park is often a complex undertaking, and many questions we receive from our clients in the sector follow similar themes. Often these questions are “compliance-led” in nature, with clients looking to ensure that they are adopting a stance which is consistent with HMRC’s.
Alongside these more traditional areas of focus, there are also a number of lesser-known but potentially lucrative options for increasing margins or securing cash refunds. These areas of focus can achieve value, whilst remaining compliant with VAT law, and also factor in that HMRC’s published guidance is only its interpretation of established legislation.
This article briefly explores one of the most valuable areas of focus for operators in our experience, which can lead to substantial retrospective refunds and future efficiencies where the fact pattern is conducive and appropriate advice is sought.
As with many things in the VAT regime, few things are simple, and selling caravans and lodges is no exception! Depending on a number of different factors, the sale of a new caravan or lodge may take one of three different VAT liabilities – namely: subject to VAT at the standard rate (20%), the reduced rate (5%) or the zero rate (0%).
A “small” caravan (that is, one not exceeding either 7 metres in length or 2.55 metres in width) is subject to VAT at the standard rate. A structure which exceeds either of these dimensions - but is not manufactured to British Standard 3632:2005 - is subject to VAT at the reduced rate of 5%. One which exceeds either of these dimensions and is manufactured to BS3632:2005, can be zero-rated.
The second hand sale of a caravan may only be zero rated if it: exceeds 7 metres in length or 2.55 metres in width; was occupied before 6 April 2013, and meets BS3632:2005
For completeness, BS3632:2005 specifies design and construction requirements for an ex-works residential park home that is suitable for year-round occupation and can be used as a permanent place of residence.
Whilst the VAT liability of the supply of the “structure” of a caravan or lodge is as outlined above, and whilst any goods supplied as part of this structure which would ordinarily be incorporated into a new dwelling assume the liability of the structure, the same cannot be said for the “removable contents” sold with the caravan. Removable contents include (but are not limited to) free standing furniture, tables, chairs, carpets, washing machines and so on.
Removable contents are always subject to VAT at the standard rate, irrespective of the liability of the structure of the caravan, and therefore must be valued in order to declare an appropriate amount of VAT on the sale. Crucially, this valuation can be made in any way which is ‘fair and reasonable’ and – provided it can be shown to be reasonable – does not need to conform to HMRC’s prescribed view.
HMRC’s ‘suggested’ methodology is to treat removable contents on the sale of a caravan or lodge, as representing the same proportion of the selling price as they did on purchase. Whilst this may appear reasonable, from experience this often results in VAT being declared far above what is appropriate.
Take, for example, two lodges, of the same make and model, with the same removable contents. Both are purchased for the same price from the manufacturer, yet one is sold on a park (for example purposes only) overlooking a lake in the Lake District, and one is sold at an objectively less desirable location. The first lodge could sell for £500,000 and the second for £100,000, and using non-bespoke methodology, VAT would be declared on removable contents at a value five times higher on one sale than the other. However, it surely cannot be fair to declare VAT at 20% on a fridge that the suggested methodology deems is worth £7,000!?!
Over the past few years, we have worked on developing an innovative methodology of fairly valuing removable contents, and have negotiated this with HMRC, resulting in the changes requested for the calculation to be accepted by them as “fair and reasonable”
Having now had this unique methodology agreed, we are keen to use this expertise to benefit other businesses within the sector, with the opportunity to recoup four –years of retrospective refunds, and increased margins on every future unit sale.
In our experience, there are many savings opportunities to be had in approaching the VAT on removable contents in a more bespoke way as opposed to a suggested methodology which does not reflect the true economic reality of the sale.
This article was first published in Holiday Parks Management Magazine.