VFUP3150 - Treatment of supplies of electricity and piped gas: new house construction – supplies to developers

Utility companies supply electricity to property developers at construction sites which they are developing into housing estates. The developer will have planning permission to build several units to be occupied as dwellings. The ultimate intended use is domestic use, although they may be sold off plan prior to actual completion and occupation.

Note 5(g) to Schedule 7A applies the reduced rate for domestic fuel and power of 5%, where all the electricity the provider supplies to a person at the premises is at a rate 1000 kilowatt hours a month or less. Note 6 says that supplies are for domestic use, if and only if, they are for use in a dwelling or a number of dwellings.

Some utility companies split the supplies that are made to the developer and apply the reduced rate to individual houses once individual electricity meters have been installed in them. They argue that each house is a separate premises subject to the rule in Note 5(g) (see above) so that the supply can be treated as a domestic supply. The question is whether “premises” in Note 5 to Group 1 of Schedule 7A of the VAT Act 1994 refers to a particular property development site as a whole, including all the houses, or whether it simply refers to each individual property, as a separate and distinct premises in its own right.

This guidance covers the case where the house is not occupied and so is not being used by a householder. Instead that house and any others that have not been sold are effectively the stock in trade of the developer. Each property has its own individual connection and account. The utility company will bill the developer for the fuel or power used by each house. When the house is sold the account will be transferred to the new owner.

HMRC has reviewed its position on the meaning of premises in this context and accepts that a housing development where electricity/gas meters have been installed house by house is no longer a single premises. It is a collection of premises, each of which has its own curtilage with no dependence on the other houses. A housing estate, as a physical entity, is simply a collection of houses with nothing that makes them necessarily into a unitary entity.

HMRC, therefore, accepts that there is a point within the development of each such housing estate when each house becomes a separate premises and that this will normally be at the point when each plot is sufficiently developed that it is connected to the mains electricity supply and the electricity is billed separately. HMRC accepts that at this point, the reduced rate can apply to the separate premises. If the supply to the separate premises falls below the de minimis limit it will not be subject to Climate Change Levy (CCL).

HMRC’s position is that, when the house is sold, the new owner takes over responsibility for the fuel and power and decides on the supplier to use. The rules will then apply to the supplies made to the new owner (which may be made by a different supplier), who would use the supplies for domestic use, which is excluded from CCL.

The CCL legislation in Schedule 6, paragraph 8 of FA 2000 mirrors that of the VAT legislation in this context.

This paragraph replaces the previous guidance published in April 2022.