New rules on VAT for static caravans

VAT: taxing holiday caravans

VAT Information Sheet 11/12 August 2012

1. Introduction
1.1 Who should read this Information Sheet? Caravan manufacturers, caravan distributors and caravan park owners should read this information sheet.

However, this is most relevant to businesses that make or sell caravans that are longer than 7 metres (m) or wider than 2.55 m, and which do not meet British Standard 3632:2005 (mainly static and large touring caravans). There are no changes to the treatment of caravans that do not exceed 7 m in length and 2.55 m in width as these remain standard-rated for VAT (mainly small touring caravans).
This guidance updates and supplements Notice 701/20 Caravans and Houseboats. References to a caravan that meets BS 3632:2005 mean a caravan that is manufactured to the 2005 version of BS 3632 approved by the British Standards Institution and is therefore suitable for residential use (see section 3).

1.2 What is this Information Sheet about?
It provides guidance on how to establish the correct VAT liability of supplies of caravans following the changes announced at Budget 2012.

1.3 When do these changes take effect?
These changes apply to supplies of affected caravans (see para 1.1) that are made on or after 6 April 2013.

2. VAT liability of supplies of caravans.
2.1 What are the current rules (prior to 6 April 2013)?
Under current rules the supply of a caravan is either standard-rated or zero- rated depending on its size1. A caravan is standard-rated if it does not exceed 7 m in length and 2.55 m in width. A caravan that is longer than 7 m or wider than 2.55 m is zero-rated. Removable contents (ie, goods that are not part of the structure of a caravan such as white goods, carpets, curtains and furniture) that are sold with a caravan are standard-rated. More information about removable contents can be found in Notice 701/20.

2.2 What are the new rules (from 6 April 2013)?
Under the new rules, the VAT liability of a caravan will either be standard- rated, reduced-rated (5 per cent) or zero-rated depending on certain conditions which are set out below. For simplicity, this guidance focuses on sales of new and second hand caravans on or after 6 April 2013. The same rules apply to other types of supplies of caravans (eg, leases and deemed supplies) that are made on or after 6 April 2013. In all cases, the sale of removable contents remains standard-rated.

2.3 Sales of new caravans on or after 6 April 2013 (a) The sale of a caravan will be standard-rated if it does not exceed 7 m in length and 2.55 m in width, as with the current rules.

Example 1: on 6 April 2013, a business sells a caravan that is 7 m long and 2.55 m wide for £15,000 (including VAT). Under the current and new rules, the business must account for £15,000/6 = £2,500 VAT to HMRC. It is not necessary to apportion the sale price between the caravan and removable contents in this example as both are standard-rated.

Note: the sale price is divided by six in this example to calculate the VAT due (at the standard rate of 20 per cent) on the VAT inclusive sale price of £15,000.

1 These are derived from the Road Vehicles (Construction and Use) Regulations which set out the maximum length and width of a trailer that can be towed legally on the roads by a typical family car.

(b) The sale of a caravan will be reduced-rated if it is longer than 7 m or wider than 2.55 m, and is not manufactured to BS 3632:2005 (see section 3).

Example 2: on 6 April 2013, a business sells a caravan that is 8 m long and 2.50 m wide, which is not manufactured to BS 3632:2005 for £15,000 (including VAT). It is estimated that 20 per cent of the sale price relates to removable contents. Under both current and new rules, the business must account for £15,000 - 20 per cent/6 = £500 VAT on the removable contents. Additionally, under the new rules, the business must account for £15,000 - 80 per cent/21 = £571 VAT to HM Revenue & Customs (HMRC) on the sale of the caravan.

Note: the sale price is divided by 21 in this example to calculate the VAT due (at the reduced rate of 5 per cent) on the VAT inclusive sale price of £12,000 (15,000 — 80 per cent).

(c) The sale of a caravan will be zero-rated if it is longer than 7 m or wider than 2.55 m, and is manufactured to BS 3632:2005.

Example 3: on 6 April 2013, a business sells a caravan that is 8 m long and 5 m wide, which is manufactured to BS 3632:2005 for £15,000 (including VAT). Again, it is estimated that 20 per cent of the sale price relates to removable contents. Under both current and new rules, the business must account for £15,000 - 20 per cent/6 = £500 VAT on the removable contents. No VAT is due on the caravan as it continues to be zero-rated.

2.4 Sales of second hand caravans on or after 6 April 2013
The liability of the sale of a second hand caravan on or after 6 April 2013 is determined in accordance with paragraph 2.3 unless it is longer than 7 m or wider than 2.55 m, was occupied prior to 6 April 2013 and meets BS 3632:2005 or an earlier version of that standard (see paragraph 3.1), in which case it can continue to be zero-rated.

In practice, we expect that many larger caravans will meet earlier versions of BS 3632. Therefore, provided that you can satisfy us (if required) that a caravan was occupied prior to 6 April 2013 and that it exceeds the minimum size requirements, if evidence that the caravan meets BS 3632 is not readily available, we will (absent evidence to the contrary) accept evidence of size and occupancy as sufficient to satisfy the condition for zero-rating of the sale of second hand caravans.

2.5 How do I know whether a caravan has been occupied prior to 6 April 2013? You will need to obtain evidence to confirm that the caravan has been lived in prior to 6 April 2013. Indicators will normally include one or more of the following:

• registration for/payment of council tax
• a pitch fee agreement/payment of pitch fees
• rental agreements - for example, where a caravan has been used as a residential or holiday let
• payment of utility bills such as gas, electricity and water
• the date the caravan was sold
• the date the caravan was manufactured

The method of calculating the VAT due on the sale of a second hand caravan will be similar to the examples above, although some sales may qualify for the second hand margin scheme. Sales of caravans by private individuals or businesses that are not liable to be VAT registered will be outside the scope of VAT.

2.6 Can I apply the margin scheme to second hand sales?
Where you purchase a caravan from a private individual or a business that is not registered for VAT, the sale may qualify for the second hand margin scheme. This allows you to account for VAT on the difference between the sale and purchase price. Further information about the second hand margin scheme can be found in Notice 718 The VAT Margin Scheme and Global Accounting. The following examples illustrate how the second hand margin scheme applies to sales of second hand caravans on or after 6 April 2013.

Example 4: a business buys a caravan from a private individual that is less than 7 m long and 2.55 m wide on 6 April 2013 for £10,000 and resells it on 30 April for £15,000. As the caravan is less than 7 m long and 2.55 m wide its resale will be standard rated. Also as it has been purchased from a private individual the sale qualifies for the margin scheme. Therefore, the business should account for (£15,000/£10,000) - 1/6 = £833 VAT to HMRC. It is not necessary to consider the caravan and removable contents separately as they are both standard-rated. Also, it is not necessary to consider whether BS 3632:2005 has been met as the dimensions of the caravan confirm that the sale is standard-rated.
Example 5: a business buys a caravan from a private individual or unregistered business that is 8 m long and 2.55 m wide, which meets BS 3632:2005 (or an earlier version) on 6 April 2013 for £10,000 and resells it on 30 April for £15,000. The caravan was occupied prior to 6 April 2013 and it is assumed that 10 per cent of the margin relates to removable contents. As the caravan is longer than 7 m, meets BS 3632 and was occupied prior to 6 April 2013, its resale will be zero-rated. Therefore, VAT will only be due on the removable contents and so (£15,000 £10,000) - 10 per cent - 1/6 = £83 VAT will be due to HMRC.

Example 6: the same as example 5 except the caravan was not occupied prior to 6 April 2013. As the caravan was not occupied prior to 6 April 2013, is longer than 7 m and does not meet BS 3632:2005 its resale is reduced-rated. Therefore, the VAT due on the caravan is (£15,000 / £10,000) - 90 per cent - 1/21 = £214. The VAT due on the removable contents is (£15,000 / £10,000) - 10 per cent - 1/6 = £83.

Example 7: the same as example 5 except the caravan was not occupied prior to 6 April 2013 and does meet BS 3632: 2005. As the caravan is longer than 7 m and does meet BS 3632:2005 its resale is zero-rated. Therefore, VAT due on the removable contents is (£15,000 / £10,000) - 10 per cent - 1/6 = £83.

3. BS 3632
3.1 What is BS 3632:2005? BS 3632:2005 is the current standard for residential caravans and is approved by the British Standards Institution. It confirms that a caravan is designed and manufactured for continuous year round occupation and is therefore suitable for residential use. Earlier versions of the standard were published in 1963, 1970, 1981, 1989 and 1995.

3.2 Why use BS 3632:2005 to determine which caravans are zero rated?
Following consultation we decided that the best way of distinguishing between residential and non-residential caravans is to base the distinction on the single test of whether they meet BS 3632 or not. Further information about the outcome of the consultation can be found in the document entitled: 'Summary of Responses: VAT - Addressing borderline anomalies', which is published on the HMRC website. This has the advantage of simplicity as any caravan that meets BS 3632 will benefit from zero-rating throughout the supply chain. It also means that the VAT distinction is based on an objective criterion. Caravans meeting BS 3632 meet key health and safety requirements that make them suitable as residential accommodation.

3.3 How do I establish whether a caravan is manufactured to BS 3632:2005?
The vast majority of caravans that are built to BS 3632:2005 will bear a badge confirming that the standard has been met.

Alternatively, you may consider requesting written confirmation from the caravan manufacturer that the standard has been met. You should retain this confirmation to evidence that the sale qualifies for zero rating.

3.4 If BS 3632 changes in the future will the VAT liability of caravans also change?
No. The VAT liability of caravans is directly linked to the 2005 version of the British Standard and changes to that standard (eg, where the standard requires a higher specification of caravan) will not affect the VAT liability of caravans, unless further changes are made to the VAT legislation.

3.5 What if a caravan meets an earlier version of BS 3632?
For sales of new caravans on or after 6 April 2013, zero-rating is only available for caravans that meet BS 3632:2005. Second hand caravans that were occupied prior to 6 April 2013 that meet an earlier version of the standard may benefit from zero-rating where the conditions in paragraph 2.4 are met.

4. Who can I contact for further information?
If you have a query for which you have been unable to find the answer within this VAT Information Sheet please contact the VAT Helpline on Tel 0845 010 9000.

The Helpline is available from 8.00 am to 6.00 pm, Monday to Friday.
If you have hearing difficulties, please ring the Textphone service on 0845 000 0200.