Utility companies supply electricity to property developers at construction sites which they convert into subdivisions. The promoter will have a building permit to build several units to be occupied as dwellings. Intended end use is domestic use, although they may be sold off-plan prior to actual completion and occupancy.
Note 5(g) to Schedule 7A applies the reduced rate of 5% when all electricity supplied by the supplier to a person on the premises is at a rate of 1,000 kilowatt hours per month or less. Note 6 indicates that the supplies are intended for domestic use, if and only if, they are intended for use in a dwelling or several dwellings,
Some utility companies have attempted to split the supplies that are made to the developer and apply the reduced rate to the proportion that pertains to individual houses once individual electricity meters have been installed there. They argue that each house is a separate premises subject to the rule in Note 5(g) (see above), so the supply can be treated as a domestic supply. Alternatively, they argue that the supply is for use in a dwelling because it will be used as a dwelling when occupied. A similar argument can be made for piped gas.
HMRC does not accept either of these arguments is correct, HMRC’s view is that Note 6 will only apply where a completed house has been transferred to a third party allowing it to be occupied for domestic purposes. It is at this stage that it becomes a dwelling and the supply to the occupier will then be covered by Note 6. Until then the building is not a dwelling in the normal sense of that word, that is- i.e. a building where someone actually occupies or/dwells. This electricity in question is not used by the final consumer. The supply must be made to a single person under Note 5 on premises occupied by that person. Land under development becomes separate premises when the houses are sold to third parties, in which case there will be a new recipient of any electricity supply.
Any electricity supplied to the developer during the development period and until the completed homes are sold is used by the developer for its business purposes. This is a business expense and any VAT paid can be deducted as input tax subject to the normal provisions. It is only when the completed houses are sold to owners that they can be separated from the premises on the site and can be considered as separate premises for the purposes of note 5.
Some utility companies have attempted to pay no Climate Change Levy (CCL) on electricity and gas supplies during the construction of homes because they claim the supplies are for residential buildings. HMRC does not accept that this argument is correct. HMRC’s view is that until a completed house is sold by the developer to a third party, the gas and electricity used in that house is not used for domestic purposes, and therefore the CCL is from. The CCL legislation is governed by Schedule 6, paragraphs 8 and 9 of the Finance Act 2000, which mirrors the VAT legislation.
HMRC’s position is that when the house is sold, the new owner takes responsibility for fuel and electricity and decides which supplier to use. The rules will then apply to 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 the CCL. The CCL legislation in Schedule 6, paragraph 8 of the FA 2000 mirrors that of the VAT legislation, so that if the supply of energy is not for domestic and non-business use, the CCL will would apply in accordance with the VAT legislation.