Notice

VAT Notice 701/16: water and sewerage services

Updated 6 August 2014

This notice was withdrawn on 3 May 2016

This notice was withdrawn on 3 May 2016. For further information see the manual VAT Water and Sewerage Services.

This notice was withdrawn on 3 May 2016. For further information see the manual VAT Water and Sewerage Services.

Foreword

This notice cancels and replaces Notice 701/16 (February 1999). Details of any changes to the previous version can be found in paragraph 1.1 of this notice.

Other notices on this or related subjects

700 The VAT Guide

701/14 Food

701/19 Fuel and Power

708 Buildings and Construction

1. Introduction

1.1 What is this notice about?

This notice explains the VAT liability of:

• water supplies
• sewerage services
• hot water and steam
• other related supplies

It has been restructured to improve readability, but technical content has not changed from the February 1999 edition.

This notice and others mentioned are available either on our website, go to www.hmrc.gov.uk or by phoning our helpline on 0300 200 3700.

1.2 Who should read this notice?

You should read this notice if you supply or buy water, or sewerage services.

1.3 What law covers this notice?

The VAT Act 1994, section 30 holds that goods and services specified in Schedule 8 to the Act are zero-rated. Schedule 8, Group 2 (as amended by SI 1996/1661) specifies when sewerage services and water are zero-rated.

The VAT Act 1994, section 29A (as inserted by the Finance Act 2001) holds that goods and services specified in Schedule 7A are reduced-rated. Schedule 7A, Group 1 specifies when supplies of domestic fuel or power are reduced-rated.

You can find further information about the current rates of VAT in Notice 700 The VAT Guide.

2. Water

2.1 What is the VAT liability of water supplied for industrial use?

Subject to paragraph 2.5 below on mixed use, water supplied to a customer for use in connection with an industrial activity is always standard-rated - the liability of water supplied for non-industrial use is explained at paragraph 2.4.

Your ‘customer’ is the person to whom you address your invoice. That remains the case whatever the corporate structure of the business to which the customer belongs; or whether or not the customer is part of, or the representative member of, a VAT group.

2.2 Who decides the use of the water?

The supplier is responsible for deciding whether his customer uses water in connection with an industrial activity. The same applies to VAT-registered persons who receive water for onward supply to others.

2.3 What are ‘industrial activities’?

An ‘industrial activity’ is any activity described in any of Divisions 1 to 5 of the 1980 edition of the Standard Industrial Classification. In brief, those Divisions are:

Division	Title
1	Energy and water supply industries.
2	Extraction of minerals and ores other than fuels; manufacture of metal, mineral products and chemicals.
3	Metal goods, engineering and vehicle industries.
4	Other manufacturing industries.
5	Construction.

Note: although a new Standard Industrial Classification was issued in 1992, the legal basis for decisions remains the 1980 classification.

2.4 What is the VAT liability of water supplied for non-industrial use?

The following table summarises the VAT liability of supplies of water to domestic and other non-industrial customers:

Supply	VAT rate
Supplies of water and ice (except heated water, distilled water, or mineral waters etc.)	zero-rated
Supplies of hot water or steam	reduced-rated or standard-rated (see section 4)
The provision of water against payment of an unmeasured charge, standing charge or other availability charge for those supplies	zero-rated
Charges for the abstraction of water by licence	zero-rated
Specific charges for the supply of water for hosepipes, swimming pools and garden ponds, sprinklers and sprinkler licence fees	zero-rated
Disconnection and reconnection charges arising as a result of the non-payment of the bill	zero-rated
Opening and closing of stopcocks at the request of the water supplier	zero-rated
Distilled or deionised water and water of similar purity	standard-rated
Sterile water, except where additives alter the nature of the product	zero-rated
Mineral, table and spa waters in bottles or similar containers held out for sale as a beverage	standard-rated (see VAT Notice 701/14 food)
Ordinary water, of a kind usually supplied by water mains, supplied in bottles as a drought alleviation or other emergency measure	zero-rated

2.5 Mixed use - the ‘predominant activity’ test

2.5.1 General rule

Where water supplied to a customer is used for both relevant industrial activities and other purposes, the liability of the supply depends on the predominant activity of the customer.

For example:

• where a customer has both relevant industrial activities and other business activities
• and the predominant activity is one or more relevant industrial activities

the whole supply is standard-rated.

Where a decision has to be made about what constitutes the predominant activity, any reasonable basis may be used. These could include, for example:

• turnover
• or the number of employees engaged in the respective activities.

Where you supply water to a customer who has both domestic (or other non-business) and relevant industrial use of water, the predominant activity of that person - for this purpose - is the use to which most of the water is put. The same approach would apply in the case of mixed domestic, relevant industrial and other business use.

You should establish the ‘predominant activity’ of each of your customers, and tax the water supplied accordingly.

There is no apportionment in cases of mixed relevant industrial and other use. In such cases a supply of water is either wholly standard-rated or wholly zero-rated.

2.5.2 Exception to general rule

There is one exception to this general approach.

Where:

• a relevant industrial customer has two or more business activities
• and one of those activities is non-industrial and exempt for UK VAT purposes
• and that exempt activity is not the predominant activity
• and the water supplied to the exempt business activity is separately identified and separately invoiced

the water so invoiced may be treated as separately supplied and zero-rated.

This avoids putting a customer with separate non-industrial, VAT-exempt, activities and industrial activities at a disadvantage, compared to a customer who has only non-industrial exempt activities.

2.6 Supplies to offices of industrial customers

Water (for drinking, washing, flushing toilets, etc.) supplied to an office of a manufacturing company whose predominant activity is covered by SIC Codes 1-5 is standard-rated, as it is used in connection with that industrial activity, even though no actual manufacturing is carried on in that office.

2.7 Eligibility declarations

You may find it difficult to decide whether your customer is an industrial or non-industrial user of water. An acceptable way to make sure that the liability of your supply is correct is through the use of a written declaration by your customer. A non-industrial user would issue a declaration to you confirming that its activities do not fall within Divisions 1 to 5 of the 1980 Standard Industrial Classification.

Note, there are penalties for making false declarations and for fraudulent evasion of VAT.

3. Sewerage services

3.1 What is the liability of sewerage services?

The following table summarises the liability of sewerage services:

Supply	Supplied to an industrial user (see paragraph 2.3)	Supplied to a non industrial user
The reception, disposal or treatment of foul water or sewerage against payment of: an unmeasured charge standing charge other availability charge or a specific charge, such as by reference to the quantity and/or the nature of the effluent	zero-rated	zero-rated
The cleaning, maintenance, unblocking etc. of sewers and drains	standard-rated	standard-rated
The emptying of cesspools, septic tanks or similar receptacles	standard-rated	zero-rated
The reception, treatment or disposal of the contents of cesspools, septic tanks or similar receptacles	zero-rated	zero-rated

Note, other than those services listed above, the removal, treatment and disposal of industrial, farm, hospital, domestic or other waste is standard.

4. Supplies of hot water and steam for heating, laundry or other purposes

4.1 Heated water

Where water is heated and supplied to a customer at a temperature higher than it was before it was heated, it is not taxed like other supplies of water. Instead, it is taxed as a supply of heat. It does not matter if the water was heated by one person and supplied to the final customer by another, or heated and supplied by the same person. In either case, the water will have been heated and the supply is treated, not as a supply of water, but as a supply of heat.

4.2 Steam

Steam is the gaseous form of heated water, and for these purposes is treated as heated water.

4.3 Natural hot springs

Naturally occurring hot water (arising from hot springs etc) is zero-rated. However, water deliberately heated by geo-thermal, solar or other similar methods is treated as ‘heated water’ because it has been deliberately heated.

4.4 Supplies for domestic or charity non-business use

In most circumstances heated water will be taxed at the full standard rate. However, if you supply heated water for domestic use or charity non-business use, your supply is taxed at the reduced rate.

You will find more about this in Notice 701/19 Fuel and power.

5. Supplies in connection with water and sewerage services

5.1 Standard rated supplies

There is no general relief from VAT on goods and services simply because they are made by water suppliers, or because of an indirect association with a zero-rated supply of water. For example, all of the following supplies are standard-rated:

• fluoridation charges
• pressure testing of fire sprinkler systems
• installation and repair of fire hydrants
• reconnection of a water supply (at the customer’s request)
• testing private pipe work (at the customer’s request)
• temporary disconnection of supply (at the customer’s request)
• permanent disconnection of supply (at the customer’s request)
• the opening or closing of a stopcock (at the customer’s request)
• re-washering ball valves and taps
• hire of standpipes, irrespective of the liability of the water supplied
• hire of water bowsers, irrespective of the liability of the water supplied
• first time connection of existing dwellings to the water and sewerage mains
• first time connection of buildings converted from a non-residential to residential use to the water and sewerage mains

5.2 Civil engineering

Civil engineering work is normally standard-rated. But there are some works that can be zero-rated or reduced-rated. In brief, they are works in the course of:

• constructing a new dwelling, residential building (such as a care home) and certain buildings used by charities;
• carrying out an approved alteration of a listed dwelling, residential building (such as a care home) and certain listed buildings used by charities;
• converting a building into a dwelling or residential building (such as a care home);
• renovating or altering an empty dwelling; and
• developing a residential caravan park.

You can find out more about this, including the detailed rules, in Notice 708 Buildings and construction.

5.3 Infrastructure charges

The Water Act 1989 allows a water company to make ‘infrastructure charges’. These charges are intended to contribute to the costs that have been or will be incurred on providing the means of supplying water and sewerage services, such as sewers, water mains, etc. and are standard-rated.

5.4 Water meters

The supply and installation of a water meter is normally standard-rated. But, as for paragraph 5.2, you may be able to zero-rate or reduced-rate your supply. You can find out more about this, including the detailed rules, in Notice 708 Buildings and construction.

The following supplies are, however, always standard-rated:

• the supply of a water meter without installation
• meter survey fees
• meter-testing fees (at the request of a customer)
• special meter-reading charges (at the request of a customer)
• separate charges for maintenance of meters

Your rights and obligations

Your Charter explains what you can expect from us and what we expect from you. For more information, go to www.gov.uk/hmrc/your-charter

Do you have any comments?

We would be pleased to receive any comments or suggestions you may have about this notice. Please write to:

HM Revenue and Customs
Policy, Construction and Utilities Team
4th Floor West
New Kings Beam House
LONDON
SE1 9PJ