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HMRC internal manual

VAT Fuel and Power

Treatment of supplies of electricity and piped gas: first time connection to mains power - position before 1 January 2012

Before 1 April 1994, supplies of first time connection services were treated as part of the supply of fuel and power. Supplies to domestic consumers were therefore zero-rated.

Since 1 April 1994, the supply of first time connection to the electricity or gas mains has been treated as a separate supply of services to the supply of fuel and power to the consumer.

Since it was never the intention to tax these electricity and gas mains connection services, extra-statutory class concession 3.16: VAT: Connection to the gas or electricity mains supply was introduced to relieve first time connections to existing dwellings and other existing qualifying buildings. This reads as follows.

Connection to the gas or electricity mains supply, which would have been zero-rated supply before 1 April 1994 by virtue of Group 7 of Schedule 5 to the Value Added Tax 1983, may continue to be treated as a zero-rated supply provided that:
(a) it is the first connection to the gas or electricity mains supply (as the case may be) of:
    • a building, or part of a building, which consists of a dwelling or number of dwellings;
    • a building, or part of a building used solely for a relevant residential purpose (within the meaning of Note 4 to Group 7);
    • a building, or part of a building, used by a charity otherwise than in the course or furtherance of a business;
    • a residential caravan (that is to say a caravan on a site in respect of which there is no covenant, statutory planning consent or similar permission precluding occupation throughout the year); or
    • a houseboat (within the meaning of Group 6 to Note 7); and
(b) the person receiving the supply does not do so for the purpose of any business carried on by him. | ||

The first time connection of a new dwelling to the gas or electricity mains supply is zero rated under Group 5 of Schedule 8 to the VAT Act 1994 (see VAT Notice 708: Buildings and Construction).

Sometimes the work to provide a connection to a new building also affects an existing building. One example of this is where a college builds a new hall of residence on its campus, and the increased demand for power that the new hall creates necessitates the upgrading of the supply cable to the entire site. In such circumstances an apportionment of the connection service, between standard-rating and zero-rating, may be appropriate. More detailed guidance on this can be found in Vat Construction.