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HMRC internal manual

VAT Water and Sewerage Services

HM Revenue & Customs
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Supplies of water: mixed use - the 'predominant activity' test

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 a water company supplies 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. 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. It is up to the water companies to establish the “predominant activity” of each of their customers and tax the water supply accordingly.