By Alex Nicholson, VAT Director, Armstrong Watson LLP
From a VAT perspective, operating a residential or holiday park is often a complex undertaking and the sale of a new caravan or lodge is no exception.
Depending on a number of different factors, these sales 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 (one not exceeding either 7m in length or 2.55m in width) is subject to VAT at the standard rate. A structure that 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 7m in length or 2.55m 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.
When it comes to the removeable contents sold within the caravan or lodge – such as tables, chairs, carpets and washing machines, there is an opportunity to make substantial VAT savings.
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, cannot be fair to declare VAT at 20% on a fridge that the suggested methodology deems is worth £7,000.
For operators, a focus on this area can lead to substantial retrospective refunds and future efficiencies where the fact pattern is conducive and appropriate advice is sought.
By following an innovative methodology of fairly valuing removeable contents, agreed by HMRC, businesses within the sector, may have the opportunity to recoup four –years of retrospective refunds, and increased margins on every future unit sale.
This methodology, whilst remaining compliant with VAT law, is a bespoke way of approaching the VAT on removeable contents, as opposed to a suggested methodology which does not reflect the true economic reality of the sale. For more information visit armstrongwatson.info/VAT-Reimbursement.
Whilst VAT savings may be available for caravan and lodge sales, it is prudent to seek specialist advice to ensure compliance and avoid falling foul of tax liabilities.
For further information contact firstname.lastname@example.org.