Water and sewerage services

HMRC Reference:Notice 701/16 (March 2002) View Change History
 

Contents

Foreword

Other notices on this or related subjects

1. Introduction

1.1 What is this notice about?

1.2 Who should read this notice?

1.3 What law covers this notice?

2. Water

2.1 What is the VAT liability of water supplied for industrial use?

2.2 Who decides the use of the water?

2.3 What are ‘industrial activities’?

2.4 What is the VAT liability of water supplied for non-industrial use?

2.5 Mixed use – the ‘predominant activity’ test

2.6 Supplies to offices of industrial customers

2.7 Eligibility declarations

3. Sewerage services

3.1 What is the liability of sewerage services?

4. Supplies of hot water and steam for heating, laundry or other purposes

4.1 Heated water

4.2 Steam

4.3 Natural hot springs

4.4 Supplies for domestic or charity non-business use

5. Supplies in connection with water and sewerage services

5.1 Standard rated supplies

5.2 Civil engineering

5.3 Infrastructure charges

5.4 Water meters

Do you have any comments?

Update 1 issued August 2004

 

Foreword

This notice cancels and replaces Notice 701/16 (February 1999). Details of any changes to the previous version can be found in paragraph 1.1 of this notice.

Further help and advice

If you need general advice or more copies of Customs and Excise notices, please ring the National Advice Service on 0300 200 3700. You can call between 8.00 am and 8.00 pm, Monday to Friday.

If you have hearing difficulties, please ring the Textphone service on 0300 200 3719.

If you would like to speak to someone in Welsh, please ring 0300 200 3705, between 8.00 am and 6.00 pm, Monday to Friday.

All calls are charged at the local rate within the UK. Charges may differ for mobile phones.

Other notices on this or related subjects

700 The VAT Guide

701/14 Food

701/19 Fuel and Power

708 Buildings and Construction

1. Introduction

1.1 What is this notice about?

This notice explains the VAT liability of:

  • water supplies – see section 2;
  • sewerage services – see section 3;
  • hot water and steam – see section 4; and
  • other related supplies – see sections 5.

It has been restructured to improve readability, but technical content has not changed from the February 1999 edition.

This notice and others mentioned are available both on paper from our National Advice Service and on our Internet website at www.hmce.gov.uk.

1.2 Who should read this notice?

You should read this notice if you supply or buy water, or sewerage services.

1.3 What law covers this notice?

The VAT Act 1994, section 30 holds that goods and services specified in Schedule 8 to the Act are zero-rated. Schedule 8, Group 2 (as amended by SI 1996/1661) specifies when sewerage services and water are zero-rated.

The VAT Act 1994, section 29A (as inserted by the Finance Act 2001) holds that goods and services specified in Schedule 7A are reduced-rated. Schedule 7A, Group 1 specifies when supplies of domestic fuel or power are reduced-rated.

You can find further information about the current rates of VAT in Notice 700 The VAT Guide.

2. Water

2.1 What is the VAT liability of water supplied for industrial use?

Subject to paragraph 2.5 below on mixed use, water supplied to a customer for use in connection with an industrial activity is always standard-rated – the liability of water supplied for non-industrial use is explained at paragraph 2.4.

Your ‘customer’ is the person to whom you address your invoice. That remains the case whatever the corporate structure of the business to which the customer belongs; or whether or not the customer is part of, or the representative member of, a VAT group.

2.2 Who decides the use of the water?

The supplier is responsible for deciding whether his customer uses water in connection with an industrial activity. The same applies to VAT-registered persons who receive water for onward supply to others.

2.3 What are ‘industrial activities’?

An ‘industrial activity’ is any activity described in any of Divisions 1 to 5 of the 1980 edition of the Standard Industrial Classification. In brief, those Divisions are:

Division


Title


1


Energy and water supply industries.


2


Extraction of minerals and ores other than fuels; manufacture of metal, mineral products and chemicals.


3


Metal goods, engineering and vehicle industries.


4


Other manufacturing industries.


5


Construction.


Note, although a new Standard Industrial Classification was issued in 1992, the legal basis for decisions remains the 1980 classification.

2.4 What is the VAT liability of water supplied for non-industrial use?

The following table summarises the VAT liability of supplies of water to domestic and other non-industrial customers:

Supply


VAT rate


Supplies of water and ice (except heated water, distilled water, or mineral waters etc.)


zero-rated


Supplies of hot water or steam


reduced-rated or standard-rated (see section 4)


The provision of water against payment of an unmeasured charge, standing charge or other availability charge for those supplies


zero-rated


Charges for the abstraction of water by licence


zero-rated


Specific charges for the supply of water for hosepipes, swimming pools and garden ponds, sprinklers and sprinkler licence fees


zero-rated


Disconnection and reconnection charges arising as a result of the non-payment of the bill


zero-rated


Opening and closing of stopcocks at the request of the water supplier


zero-rated


Distilled or deionised water and water of similar purity


standard-rated


Mineral, table and spa waters in bottles or similar containers held out for sale as a beverage


standard-rated (see Notice 701/14 Food)


Ordinary water, of a kind usually supplied by water mains, supplied in bottles as a drought alleviation or other emergency measure


zero-rated


2.5 Mixed use – the ‘predominant activity’ test

2.5.1 General rule

Where water supplied to a customer is used for both relevant industrial activities and other purposes, the liability of the supply depends on the predominant activity of the customer.

For example:

  • where a customer has both relevant industrial activities and other business activities; and
  • the predominant activity is one or more relevant industrial activities;

the whole supply is standard-rated.

Where a decision has to be made about what constitutes the predominant activity, any reasonable basis may be used. These could include, for example:

  • turnover; or
  • the number of employees engaged in the respective activities.

Where you supply water to a customer who has both domestic (or other non-business) and relevant industrial use of water, the predominant activity of that person - for this purpose - is the use to which most of the water is put. The same approach would apply in the case of mixed domestic, relevant industrial and other business use.

You should establish the ‘predominant activity’ of each of your customers, and tax the water supplied accordingly.

There is no apportionment in cases of mixed relevant industrial and other use. In such cases a supply of water is either wholly standard-rated or wholly zero-rated.

2.5.2 Exception to general rule

There is one exception to this general approach.

Where:

  • a relevant industrial customer has two or more business activities; and
  • one of those activities is non-industrial and exempt for UK VAT purposes; and
  • that exempt activity is not the predominant activity; and
  • the water supplied to the exempt business activity is separately identified and separately invoiced;

the water so invoiced may be treated as separately supplied and zero-rated.

This avoids putting a customer with separate non-industrial, VAT-exempt, activities and industrial activities at a disadvantage, compared to a customer who has only non-industrial exempt activities.

2.6 Supplies to offices of industrial customers

Water (for drinking, washing, flushing toilets, etc.) supplied to an office of a manufacturing company whose predominant activity is covered by SIC Codes 1-5 is standard-rated, as it is used in connection with that industrial activity, even though no actual manufacturing is carried on in that office.

2.7 Eligibility declarations

You may find it difficult to decide whether your customer is an industrial or non-industrial user of water. An acceptable way to make sure that the liability of your supply is correct is through the use of a written declaration by your customer. A non-industrial user would issue a declaration to you confirming that its activities do not fall within Divisions 1 to 5 of the 1980 Standard Industrial Classification.

Note, there are penalties for making false declarations and for fraudulent evasion of VAT.

3. Sewerage services

3.1 What is the liability of sewerage services?

The following table summarises the liability of sewerage services:

Supply


Supplied to an industrial user (see paragraph 2.3)


Supplied to a non industrial user


The reception, disposal or treatment of foul water or sewerage against payment of:


  • an unmeasured charge;
  • standing charge;
  • other availability charge;
  • or a specific charge, such as by reference to the quantity and/or the nature of the effluent

zero-rated


zero-rated


The cleaning, maintenance, unblocking etc. of sewers and drains


standard-rated


standard-rated


The emptying of cesspools, septic tanks or similar receptacles


standard-rated


zero-rated


The reception, treatment or disposal of the contents of cesspools, septic tanks or similar receptacles


zero-rated


zero-rated


Note, other than those services listed above, the removal, treatment and disposal of industrial, farm, hospital, domestic or other waste is standard

4. Supplies of hot water and steam for heating, laundry or other purposes

4.1 Heated water

Where water is heated and supplied to a customer at a temperature higher than it was before it was heated, it is not taxed like other supplies of water. Instead, it is taxed as a supply of heat. It does not matter if the water was heated by one person and supplied to the final customer by another, or heated and supplied by the same person. In either case, the water will have been heated and the supply is treated, not as a supply of water, but as a supply of heat.

4.2 Steam

Steam is the gaseous form of heated water, and for these purposes is treated as heated water.

4.3 Natural hot springs

Naturally occurring hot water (arising from hot springs etc) is zero-rated. However, water deliberately heated by geo-thermal, solar or other similar methods is treated as ‘heated water’ because it has been deliberately heated.

4.4 Supplies for domestic or charity non-business use

In most circumstances heated water will be taxed at the full standard rate. However, if you supply heated water for domestic use or charity non-business use, your supply is taxed at the reduced rate.

You will find more about this in Notice 701/19 Fuel and power.

5. Supplies in connection with water and sewerage services

5.1 Standard rated supplies

There is no general relief from VAT on goods and services simply because they are made by water suppliers, or because of an indirect association with a zero-rated supply of water. For example, all of the following supplies are standard-rated:

  • fluoridation charges;
  • pressure testing of fire sprinkler systems;
  • installation and repair of fire hydrants;
  • reconnection of a water supply (at the customer’s request);
  • testing private pipe work (at the customer’s request);
  • temporary disconnection of supply (at the customer’s request);
  • permanent disconnection of supply (at the customer’s request);
  • the opening or closing of a stopcock (at the customer’s request);
  • re-washering ball valves and taps;
  • hire of standpipes, irrespective of the liability of the water supplied;
  • hire of water bowsers, irrespective of the liability of the water supplied;
  • first time connection of existing dwellings to the water and sewerage mains; and
  • first time connection of buildings converted from a non-residential to residential use to the water and sewerage mains.

5.2 Civil engineering

Civil engineering work is normally standard-rated. But there are some works that can be zero-rated or reduced-rated. In brief, they are works in the course of:

  • constructing a new dwelling, residential building (such as a care home) and certain buildings used by charities;
  • carrying out an approved alteration of a listed dwelling, residential building (such as a care home) and certain listed buildings used by charities;
  • converting a building into a dwelling or residential building (such as a care home);
  • renovating or altering an empty dwelling; and
  • developing a residential caravan park.

You can find out more about this, including the detailed rules, in Notice 708 Buildings and construction.

5.3 Infrastructure charges

The Water Act 1989 allows a water company to make ‘infrastructure charges’. These charges are intended to contribute to the costs that have been or will be incurred on providing the means of supplying water and sewerage services, such as sewers, water mains, etc. and are standard-rated.

5.4 Water meters

The supply and installation of a water meter is normally standard-rated. But, as for paragraph 5.2, you may be able to zero-rate or reduced-rate your supply. You can find out more about this, including the detailed rules, in Notice 708 Buildings and construction.

The following supplies are, however, always standard-rated:

  • the supply of a water meter without installation;
  • meter survey fees;
  • meter-testing fees (at the request of a customer);
  • special meter-reading charges (at the request of a customer); and
  • separate charges for maintenance of meters.

Do you have any comments?

We would be pleased to receive any comments or suggestions you may have about this notice. Please write to:

HM Customs and Excise
Policy, Construction and Utilities Team
4th Floor West
New Kings Beam House
London
SE1 9PJ

If you have a complaint or suggestion

If you have a complaint please try to resolve it on the spot with our officer. If you are unable to do so, or have a suggestion about how we can improve our service, you should contact one of our Regional Complaints Units. You will find the telephone number under ‘Customs and Excise - complaints and suggestions’ in your local telephone book. Ask for a copy of our code of practice ‘Complaints and putting things right’ (Notice 1000). You will find further information on our website at http://www.hmce.gov.uk.

If we are unable to resolve your complaint to your satisfaction you can ask the Adjudicator to look into it. The Adjudicator, whose services are free, is a fair and unbiased referee whose recommendations are independent of Customs and Excise.

You can contact the Adjudicator at:

The Adjudicator's Office
Haymarket House
28 Haymarket
LONDON
SW1Y 4SP

Phone: (020) 7930 2292
Fax: (020) 7930 2298
E-mail: adjudicators@gtnet.gov.uk
Internet: http://www.adjudicatorsoffice.gov.uk/

Update 1 issued August 2004

To confirm the VAT liability of sterile water which had been in doubt and subject to an internal policy review.

Section


Amendments


2
2.4


Water
What is the VAT liability of water supplied for non-industrial use?


Insert new row (8) in table between those rows commencing in ‘distilled’ and ‘mineral’


Sterile water, except where additives alter the nature of the product


zero-rated


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$START-DATA$ title=Water and sewerage services^ summary=VAT Notice 701/16: You should read this notice if you supply or buy water or sewerage services. It explains the VAT liability of water supplies, sewerage services, hot water and steam; and other related supplies. Update 1 (Aug 2004) is included at the end of this notice.^ doctype=PublicNotice^ date=18-Feb-2014^ author=lk125388^ $END-DATA$
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