Holiday parks have benefitted from a reduced rate of VAT as part of the COVID-19 measures introduced by the government in July 2020, but these measures came to an end on 31 March 2022. So what can a holiday park business do to make sure they are taking full benefit of the current VAT regime?
Running a holiday park comes with its own challenges and the complexity added by the VAT regime can present a further challenge for many business owners. Businesses often have multiple income streams which cross the spectrum of VAT rates, so VAT compliance can be complicated for even the most experienced holiday park operators. Add to this the growing volume of case law that has arisen over the years, it is important to ensure your VAT position is regularly reviewed.
It is commonly known that pitch fees for anything other than a residential pitch are standard rated supplies for VAT purposes, but the guidance around related supplies of water and sewerage charges and power supplies is not so clear.
Case law sets a precedent that the liability follows that of the pitch fee where the related supplies form part of a single supply. HM Revenue and Customs (HMRC) guidance suggests that in certain circumstances these related supplies can be treated as separate supplies, which would produce a lower VAT burden for the supply of water and sewerage (zero-rated) and power (reduced rated).
In addition to pitch fees, many holiday parks receive a significant income from the sale of caravans and lodges. The VAT rate on these sales can be either 20%, 5% or 0% depending on the nature of the property.
If the caravan or lodge is second-hand, the VAT second-hand margin scheme may also apply.
The rate of VAT to apply to sales can have a significant impact on the margin received which is generally inclusive of VAT, so it’s important to pay the correct rate to avoid overpaying while remaining compliant with VAT law.
Many caravans are supplied with a verandah which, since 2015, have also followed the VAT rate applicable to the sale of the caravan when sold as a single supply. Prior to that, HMRC considered the sale of the verandah as a separate standard rated supply.
The significant increase in the price of holiday caravans and lodges presents an opportunity to revisit the methodology applied in relation to the removable contents which is always a standard rated supply for VAT, even when supplied with a zero-rated or reduced rated caravan. Park operators will be familiar with the 10% methodology for valuing removable contents or using actual values for which the evidence is often the original purchase invoice.
If you are selling a caravan or lodge at a significant mark-up, ask yourself if it is likely that the removable contents have increased in value in line with the value of the caravan or lodge. Generally, fridges, cookers and furniture depreciate in value rather than appreciate. Applying a simple arithmetic valuation method can save time but sellers should be mindful of the impact on their profit margin and consider a more appropriate method of valuation.
Many sites offer other services which can also mean that they need to consider the VAT regime relating to exempt supplies. The most common examples include the granting of a licence to occupy retail/commercial outlets on the site or acting as an intermediary in relation to arranging insurance or financing services.
The existence of exempt supplies for VAT purposes means that there is a potential restriction on the recovery of VAT.
If you're a holiday park owner and you would like advice on valuation methods, calculating VAT recovery or any other aspects of VAT, please contact us.