|HMRC Reference:Notice 701/19 (August 2012)||View Change History|
This notice cancels and replaces the August 2010 edition of Notice 701/19.
This Notice explains how suppliers and users should treat supplies of fuel and power for VAT purposes.
It also tells you how to treat a number of other supplies connected with fuel and power.
The VAT Act 1994, Schedule 4, Paragraph 3 defines any supply of heat, power, refrigeration or ventilation as a supply of goods.
Supplies of fuel and power are subject to the standard rate of VAT unless there is a provision for the reduced rate for qualifying use (see Section 3) or zero rate for supplies to foreign-going ships or aircraft (see paragraph 6.3) to apply.
The legal provisions for the reduced rate are in the VAT Act 1994, Section 29A.
The legal provisions for the zero rates are in the VAT Act 1994, Section 30.
You can find further information about the current rates of VAT in Notice 700 The VAT Guide.
The reduced rate of VAT applies to supplies of fuel and power for qualifying use (see Section 3).
The following supplies are charged at the reduced rate:
Any of the charges listed below are part of the payment for a supply of fuel and power, provided they are:
If the supply is for qualifying use (see Section 3) the reduced rate applies.
Any of the above supplies are standard-rated when supplied by a contractor other than the supplier of fuel and power.
If a supplier instructs a contractor to send a bill direct to a consumer for work that would have been at the reduced rate if invoiced by the supplier, the contractor must charge the consumer VAT at the standard rate.
Supplies from sub-contractors to suppliers of fuel and power are not taxed at the reduced rate.
The following supplies are standard-rated:
The following charges are outside the scope of VAT:
Where less than 60 per cent of the supply is qualifying use (see paragraph 3.4) and the rest is for other purposes. (The qualifying use element is reduced-rated the other use is standard-rated.)
On 1 April 1994, the zero-rate ceased to apply to the supply of gas and electricity, so a concession was introduced to make sure that first time connection charges made by the supplier of fuel and power for a qualifying use would remain zero-rated.The concession did not impact on any other supplies, meaning that any connection charges made by someone other than the utility provider to an existing building would remain.standard-rated.The concession was withdrawn with effect from 1 January 2012. From that date, the treatment of one-off charges for the first time connection to gas and electricity is as follows:
All other connections are standard rated.
The value of a supply for VAT purposes will include CCL where appropriate.
The levy is chargeable on the industrial and commercial supply of taxable commodities for lighting, heating and power by consumers in the following sectors of business:
Taxable commodities are:
The levy does not apply to taxable commodities used by domestic consumers, or by charities for non-business use. Supplies of small amounts of energy (de minimis) are also excluded.
For CCL purposes, 'domestic use' and 'charity non-business use' have the same meanings as in paragraphs 3.2 and 3.3 respectively.
You can find further information on the scope and application of CCL in Notice CCL 1 A general guide to climate change levy.
Qualifying use means:
Supplies of certain small quantities of fuel and power - known as de minimis - are always treated as being made for domestic use, even when the supply is to a business customer. These limits are explained in Sections 4 (gases), 5 (electricity), 6 (oils), and 7 (solid fuels). Supplies within the limits should be taxed at the reduced rate. You do not need a certificate to apply the reduced rate to such supplies (see paragraph 3.5).
Supplies of fuel and power that exceed the de minimis limits are for domestic use only if they are for use in a dwelling or certain types of residential accommodation (excluding hospitals, prisons or similar institutions, hotels or inns or similar establishments). Examples are:
The following are treated as part of the same residential unit:
If a charity does not make a charge, its activities are generally non-business. Supplies of fuel and power for use in such non-business activities are taxed at the reduced rate. You can find further information about charities and their business/non-business activities, in Notice 700 The VAT Guide and Notice 701/1 Charities.
If you supply fuel and power to a charity that carries out business and non-business activities on the same premises you may need to apportion your supply between qualifying use (see Section 3) and non-qualifying use. There is more about this in paragraph 3.4.
If you supply fuel or power to premises that is partly for qualifying use (see paragraph 3.1) and partly for non-qualifying use, you should charge your customer VAT at the relevant rate on the supplies you make.
If 60 per cent or more of the fuel or power is for qualifying use, you should treat the whole supply as for qualifying use and charge tax at the reduced rate.
If less than 60 per cent of the fuel or power is for qualifying use, you should charge VAT:
If you supply fuel and power for mixed use, you should obtain a certificate from your customer that declares what percentage of the fuel and power that you supply to each premises is - or will be - put to a qualifying use (see Section 3). Your customer must provide a separate certificate for each supply of fuel and power to separate premises.
The following information should be shown on the certificate:
Your customer should retain a copy of the certificate and related calculations, schedules and any other relevant documents, so that we can see these if required. Anyone providing an incorrect certificate may be liable to a financial penalty.
If you apply the reduced rate to supplies of fuel and power incorrectly and cannot satisfy us that you have taken reasonable steps on these points, you may have to pay any VAT that you have undercharged.
If you supply the following gases for a qualifying use (see Section 3), they are liable to VAT at the reduced rate:
unless you supply them as road fuel.
The following are examples of gases that are liable to the reduced rate:
All other gases, whether combustible or not, are standard-rated.
The following supplies are taxed at the reduced rate:
Supplies of gas for non-qualifying use are standard-rated, unless the quantity supplied does not exceed the de minimis limit referred to in paragraph 4.2.
The following are examples of gases that are standard-rated, regardless of the use to which they are put:
But some gases for medical use - including anaesthetics and oxygen in certain circumstances - may be zero-rated or exempt from VAT under the arrangements described in Notice 701/1 Charities or Notice 701/31 Health Institutions.
Supplies of gases for use as road fuel are always standard-rated. VAT is due on the total value, including the excise duty.
When you first sell a refillable cylinder containing gas at the reduced rate, you must account for VAT at the standard rate on the cylinder, which becomes your customer’s property. If you have charged a single price for the cylinder and gas, you must apportion the price between the two supplies. You can find information about how to in Notice 700 The VAT Guide. The price of the cylinder is the difference between the tax-exclusive price of the filled cylinder and your charge for refilling a customer’s own cylinder.
When, for convenience, you exchange a filled cylinder for an empty one of the same size owned by your customer, your refill charge is treated as being wholly for the supply of gas. You can ignore any normal charge made for inspection or maintenance.
On first supply of gas in a rented cylinder, you must account for VAT at the standard rate on any charge you make for the hire of the cylinder. When you take an empty cylinder in exchange for a full cylinder of the same size, you can apply the reduced rate to any refill charge you make, including any nominal charge for inspection or maintenance.
Any charge you make if the cylinder is lost or damaged is outside the scope of VAT. But if you make a separate charge for the retention of a cylinder, it is payment for an additional supply and is standard-rated.
When gas is supplied in disposable cartridges at an inclusive price covering both the gas and the cartridge, the supply is standard-rated throughout the supply chain until the point of final sale. The reduced rate applies to the supply of disposable cartridges at the point of final sale.
Where large containers are installed on customers’ premises the installation normally remains the property of the supplier. It may be a permanent pressure vessel, to be refilled by road tanker or, where either a permanent pressure vessel cannot be installed or a road tanker cannot be used, a large-capacity portable cylinder which has to be exchanged by the supplier. The gas consumed and rental of the tank qualify for the reduced rate, subject to the qualifying use rules. Any supply of repair or maintenance of equipment is standard-rated.
Electricity supplied for a qualifying use (see Section 3) is subject to the reduced rate.
Supplies of not more than an average rate of 33 kilowatt hours per day - 1,000 kilowatt hours per month - of electricity to one customer at any one of the customer’s premises are subject to VAT at the reduced rate. This applies whether the bill is based on a meter reading - by either you or your customer - or on an estimate.
Supplies of electricity for non-qualifying use are standard-rated, unless the quantity supplied does not exceed the de minimis limit referred to in paragraph 5.2.
The supply of electricity for qualifying use is taxed at the reduced rate. Where a price includes a charge for electricity and standing and/or other charges, the whole supply is taxed at the reduced rate. This will be the case even if you have incurred costs in making that supply that were taxed at the standard rate.
If you make a charge to allow the use of transmission or distribution lines, transformers, meters, or make other similar supplies of services, without any supply of electricity, such supplies are always standard-rated.
If you supply electricity via the use of a mobile generator, the liability of the supply will depend on whether you are hiring out the machine or supplying the electricity yourself.
If you charge for power supplied for a qualifying use (see Section 3) and operate the equipment yourself, your total supply is liable to VAT at the reduced rate.
The hire of a generator for operation by your customer is standard-rated.
The supply of the installation of stand-by equipment is standard-rated.
Supplies of batteries by sale or on hire, recharging of batteries or exchanging charged batteries for discharged ones are not supplies of electricity and are standard-rated.
These arrangements have replaced the pool system. Generators, suppliers, and non-physical traders now negotiate bilateral and multilateral contracts 'over-the-counter'. These contracts are for wholesale supplies of electricity and are standard-rated.
The arrangements provide a mechanism for the settlement of imbalances between physical and contractual positions. The following elements arising from the balancing mechanism are standard-rated:
The information imbalance charges are outside the scope of VAT.
Supplies of fuel oil, gas oil or kerosene for a qualifying use (see Section 3) are subject to the reduced rate, provided:
Kerosene includes paraffin, JET A1 and AVTUR.
Although supplies of fuel oil, gas oil or kerosene for a qualifying use are subject to the reduced rate, all supplies of not more than 2,300 litres of fuel oil, gas oil or kerosene are subject to the reduced rate regardless of use.
In general, we will regard a supply as comprising all deliveries to one site on one day - this will be the case even if you raise separate delivery notes or invoices. Deliveries that take place on different days, or to different sites, will usually be regarded as separate supplies - even if you issue a single invoice for more than one delivery. There will be some exceptions to this.
The following examples should help to explain these general principles:
(a) A customer has two tanks on the same site. You fill both tanks on the same day and raise a separate invoice for each 'drop'. The amount supplied is the total amount delivered to both tanks. If this amount is above the de minimis limits, your supply is standard-rated.
(b) A customer places an order for 2,000 litres of gas oil but two days later - before it is delivered - orders a further 1,000 litres for delivery to a different tank on the same site at the same time. The amount supplied is the total amount delivered to both tanks. Your supply is standard-rated.
(c) You deliver oil to a group of farmers who share a common tank. Each farmer’s part of the delivery is regarded as a separate supply and invoiced separately. Any supply to a farmer below the de minimis limits will attract the reduced rate.
(d) You deliver 2,000 litres of aviation turbine fuel to a small aircraft. The aircraft makes a domestic flight - see paragraph 6.3 if you supply fuel for foreign-going aircraft - and returns to the same airfield. You then deliver a further 2,000 litres to the same aircraft on the same day. The deliveries are separate supplies because the second delivery is replacing the fuel consumed since the first delivery. Both supplies are taxed at the reduced rate.
(e) A customer places an order for 2,000 litres of gas oil. Later the same day the customer contacts you again and asks for a further delivery of 1,000 litres to a different tank on the same site. If both deliveries are made on the same day, the total amount of 3,000 litres is regarded as a single supply and is standard-rated. If the orders are actually delivered on two different days the reduced rate could apply to both deliveries.
(f) On Monday a customer orders 2,000 litres for delivery to tank A on the following Monday. On Tuesday the same customer orders 1,500 litres for delivery to tank B - which is on the same site - on the following Tuesday. The supplier actually delivers both orders on the Tuesday using the same vehicle. The amount supplied is the total amount delivered to both tanks. Your supply is standard-rated.
Examples (b), (e) and (f) could involve a consolidation of deliveries by the distribution point - this may occur after the original orders have generated two invoices showing VAT at the reduced rate. In circumstances such as these, we will not insist that you reissue the invoices showing the standard rate of VAT. But this treatment will only apply where consolidation occurs unexpectedly or on an ad hoc basis. Where it is systematic or frequent, we will expect you to charge VAT at the standard rate.
If you are in any doubt about how this affects your business, you should contact us to agree the correct VAT treatment.
Supplies of different products - for example, fuel oil and gas oil - are always regarded as separate supplies. But supplies of different types of the same product - for example, different grades of kerosene – must not be broken down into each type when considering whether the de minimis limit has been exceeded.
With effect from 1 November 2008, changes in the application of excise duty meant that the following supplies would not have met the excise duty criterion referred to in the third bullet point of paragraph 6.1 - and would therefore have ceased to be eligible for the reduced rate of VAT - when supplied in de minimis quantities:
(Further information about the relevant declarations can be found in Notice 554 Fuel used in private pleasure craft and for private pleasure-flying.)
In order that these supplies could continue to be subject to the reduced rate, an amendment to the VAT legislation was made which removed the excise duty criterion for these specific supplies. Their VAT liability is therefore unchanged in spite of the change in the duty position.
Oils described as fuel oil, gas oil or kerosene that do not meet the requirements set out in paragraph 6.1 are standard-rated (but see paragraph 6.1.5 for exceptions), as are all other oils such as crude oil, all other heavy hydrocarbon oils and all light hydrocarbon oils, lubricating oils and lubricants. The following are examples of oils that are always standard-rated:
VAT is due on the total value, including any excise duty.
The excise duty liability of oil is determined at the time of its delivery for home use or at importation, except for gas oil or kerosene that is marked or granted a marking waiver at remote marking premises. Rebate of duty may be claimed at the time of marking or delivery to an authorised person.
Supplies between or within approved bonded warehouses under duty suspension are disregarded for VAT purposes. You will find more details about this in Notice 179 Motor & heating fuels: General information and accounting for Excise Duty & VAT.
Supplies of other oil fuels for non-qualifying use are standard-rated, unless the quantity supplied does not exceed the de minimis limit referred to in paragraph 6.1.1.
Any heavy oil used as a road fuel is standard-rated. VAT is due on the total value, including any excise duty.
Fuel supplied for use in a foreign-going ship or aircraft is zero-rated. You can find out more about this in Notice 703 Exports and removals of goods from the United Kingdom.
The reduced VAT rate applies to supplies of coal, coke and other solid combustible materials for a qualifying use (see Section 3) provided:
A supply of one tonne or less of domestic grade coal or coke that you hold out for sale as domestic fuel is taxed at the reduced rate. The weight limit of one tonne applies to the total delivered weight of all types of such coal or coke you supply at any one time, not to the weight of supplies of individual products, such as lignite, anthracite.
A supply of wood, peat or charcoal that you hold out for sale solely as fuel qualifies for the reduced rate provided that your customer does not intend to resell it. This applies regardless of the amount you supply.
Ready-cut pieces of wood of a size suitable for use as fuel - such as logs, short waste ends or damaged timber - are standard-rated if not held out for sale specifically as firewood.
'Held out for sale' as fuel means that you advertise and otherwise describe the product at its point of sale as fuel or firewood, and that this is consistent with the packaging and wrapping in which you supply it.
The reduced rate applies to the following examples of solid fuels provided they are supplied for a qualifying use and are held out for sale solely as fuel, for example, supplied under a recognised trade description such as singles, 'coalite' or 'phurnacite':
We will accept that you are selling coke if the solid fuel is a light porous substance of the residue of coal, lignite or peat. It may go under any of these brand names: Coalite, Thermabrite, Coalite Nuts, Beacon Beans, Sunbrite Small Nuts or Blazeglow (this is not an exhaustive list).
Supplies of solid fuels for non-qualifying use are standard-rated, unless the quantity supplied does not exceed the de minimis limit referred to in paragraph 7.1.1.
Generally, solid substances that you do not hold out for sale as a fuel or are unsuitable for use as fuel are standard-rated. Examples are horticultural peat or artists’ charcoal. The following items are always standard-rated:
Supplies of steam and heated water are not eligible for the zero rate applicable to water (see Notice 701/16 Water and sewerage services). Instead they are, for VAT purposes, a form of heat.
Water that has been heated as part of a treatment process but is supplied at the temperature at which it was before it was heated - that is, after it has cooled down - is not 'heated water'. Water that is hot because it is drawn from a hot spring is not treated as heated for these purposes. Water that has been deliberately heated by geo-thermal, solar or other natural heat or energy sources is treated as heated.
Supplies of steam and heated water for qualifying use (see Section 3) are taxed at the reduced rate. This applies to supplies of steam or heated water used for heating, personal or other washing - in the kitchen, laundry, etc - and similar purposes.
There are no provisions for de minimis supplies of steam or heated water being automatically treated as being for domestic use.
Supplies of steam and heated water for non-qualifying use are standard-rated.
Supplies of air-conditioning, refrigeration and quick-freezing for a qualifying use (see Section 3) are taxed at the reduced rate.
Supplies of ventilation, air-conditioning or refrigeration provided from a central plant are taxed at the reduced rate when supplied for a qualifying use (see Section 3).
Where premises are in multiple occupation, any charges to tenants in addition to the rent which are made in respect of the common parts or areas, are treated as further payment for the right to occupy and have the same liability as the main supply. You can find further information in Notice 742 Land and property.
Supplies of fuel and power to educational institutions are taxed at the reduced rate if the institution has charitable status and is receiving the supply for non-business use (see paragraph 3.3).
Fuel and power supplied to separate residential premises for the accommodation of pupils and students is taxed at the reduced rate. Where the residential quarters form part of the main building, the supply partly qualifies for the reduced rate (see paragraph 3.4).
You can find further information about the business status of educational institutions in Notice 701/30 Education and vocational training.
Supplies of fuel and power by wholesalers to retailers are normally standard-rated, unless supplied in small - de minimis - quantities.
There are no special rules for supplies by retailers. In practice most supplies of fuel and power by retail - for example, coal supplied in bags - will be taxed at the reduced rate because the amount supplied will be below the de minimis limits for that fuel.
If you supply fuel or power to a caravan park owner or to the landlord, managing agent or residents’ association of accommodation that is used for qualifying purposes, your supply is taxed at the reduced rate. Fuel and power supplied to hotels, inns or similar establishments is standard-rated. The charge should be apportioned if only part of the premises to which the supply relates is used for qualifying purposes - for example, on-site accommodation for employees or proprietors. In all other cases supplies of fuel and power to landlords are standard-rated.
The supply of accommodation by a local authority is made under a statutory obligation and is a non-business activity for VAT purposes. The VAT liability of any supplies of fuel and power made by local authorities to their domestic tenants as part of the single supply of heated accommodation follows that of the main supply which is one of accommodation. The fuel and power element of the supply - like the rest of the supply - is therefore outside the scope of VAT.
In all cases of separate supplies for domestic use, the supply by a local authority is one of fuel and power and is liable to VAT at the reduced rate. This is only likely to occur with metered supplies.
Where a local authority continues to supply fuel and power to accommodation it previously owned, it is a business activity. The supply is taxed at the reduced rate if it is for a qualifying use (see Section 3).
Where you supply fuel and power to tenants in the form of heated, air-conditioned or refrigerated accommodation this will usually be a single supply of accommodation. This accommodation can be used for any purpose: domestic, charitable or business. In practice, heated and air-conditioned accommodation is usually used for residential or office purposes and cold stores are used for storing perishable goods.
Storage with no specific right over land is normally standard-rated. If you grant the user of a cold store a right over land, then your supply is exempt but with the option to tax. Cold storage is not automatically a supply of refrigeration.
Where a landlord and tenant contract for a single supply of heated, air-conditioned or cooled accommodation, it is a single supply of accommodation and is taxed as such. If you make a fixed charge for supplies of gas or electricity or include an amount in the rent to cover them, the payment will normally be treated as part of the rent and will be liable to VAT in the same way as the rest of the supply of accommodation.
The tax incurred by the landlord on buying in the fuel or power used to heat or cool the accommodation is the landlord’s input tax, but may or may not be recoverable depending on how the partial exemption provisions apply to the landlord. For example, if the rent charged is payment for an exempt supply, the tax the landlord incurs in making that supply is exempt input tax, and exempt input tax is not recoverable. You can find further information in Notice 706 Partial exemption.
The landlord and tenant may contract for two separate supplies, one of heat, air-conditioning or cooling, and the other of accommodation. This is only likely to occur with metered supplies. Where there are two supplies, each supply is dealt with separately.
If tenants have coin-operated gas or electricity meters, the money placed in the coin box is payment for a supply of gas or electricity, which is taxed at the reduced rate when made for qualifying use (see Section 3). This applies whether the gas or electricity is supplied at cost or with a mark-up. If you rent or own a secondary credit meter, your supplies of gas or electricity are liable to VAT at the reduced rate when made for a qualifying use.
Mandatory charges for fuel and power used in common areas - such as corridors and stairwells in blocks of flats - that are included in the service charge made to owners of flats and/or freehold property, form part of the payment for the overall supply. You can find further information about this in Notice 742 Land and property.
Mandatory service charges raised by the Local Authority to leasehold owners are non-business and outside the scope of VAT.
If, under a heating contract, you supply both the fuel and the staff required to operate and maintain the customer’s heating system, the whole of your supply under the contract is liable to VAT at the reduced rate where the heat is for a qualifying use. However, if you only carry out maintenance or repairs or replace the plant, you cannot treat such work as part of the reduced rate supply unless it is:
If you supply labour only for the operation and routine maintenance of a customer’s boiler and distribution system, and your customer obtains fuel from another source, your supply is always standard-rated.
If you have a contract for the installation of a boiler and/or heat distribution system on your customer’s premises, the supplies of equipment and its installation are standard-rated, unless they qualify for zero rating under the provisions explained in Notice 708 Buildings and construction.
The use of washing machines, hot showers and all other facilities - including those for playing sport - which depend on temporary power or light and which are charged for by meter, are not supplies of fuel and power. They are supplies of the particular facility concerned - for example, laundry services - and liable to VAT at the appropriate rate.
Gas and electricity bills include a variable consumption charge and a fixed standing charge. The standing charge represents the upkeep of the pipes and wires required to deliver gas and electricity respectively. But for VAT purposes it is regarded as part of the charge for a supply of gas or electricity, even though it is shown separately on bills.
Where your supply is for qualifying use (see Section 3) the whole bill - including the standing charge - is taxed at the reduced rate.
Where your supply is for non-qualifying use the whole bill - including the standing charge - is standard-rated.
Standing charges for gas and electricity are sometimes made by a third party - such as a local authority - rather than the fuel supplier. In these circumstances the standing charge does not form part of the supply of gas or electricity and is standard-rated, regardless of whom the customer is.
Your Charter explains what you can expect from us and what we can expect from you. For more information go to Your Charter.
If you have any comments or suggestions to make about this notice, please write to:
HM Revenue & Customs
VAT Liability Policy Team
100 Parliament Street
Please note this address is not for general enquiries.
For your general enquiries please phone our Helpline 0300 200 3700.
If you are unhappy with our service, please contact the person or office you have been dealing with. They will try to put things right. If you are still unhappy, they will tell you how to complain.
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We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:
We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HM Revenue & Customs unless the law permits us to do so. For more information go to hmrc.gov.uk and look for Data Protection Act within the Search facility.
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