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HMRC have made a change to their policy on the VAT liability of first-time connection charges for water.
Where a customer enters into a contract for mains water that needs a first-time connection, the connection will be ancillary to the zero-rated supply of water providing the supplier of both water and connection are made by the same taxable person, or within the same VAT group, to the same customer.
If the customer is involved in a relevant industrial activity, such as manufacturing, the supply of the water and a connection will be standard rated.
First time connection of water pipework is standard rated if, at the time of connection, no water supplier had been identified.
The zero rate applies only if, to supply mains water for the first time, the supplier needs to carry out the connection. (It is ancillary to the supply of water).
But where a connection is carried out for the first time without reference to a water supplier, such work cannot be ancillary to the water supplier’s supply. In such cases, the water connection will be a separate taxable supply from the supply of water.
Repairs, alterations and replacements carried out to existing pipework of a water supply are standard rated.
