§ Mr. RedmondTo ask the Chancellor of the Exchequer how much money will be collected annually in respect of recent legislation applying VAT to hot water supplied to(a) hospitals, (b) universities, (c) hospices and (d) colleges. [40115]
§ Mr. OppenheimThe point of this legislation was not to collect money, but to nip a tax avoidance scheme in the bud. Hospitals and universities are funded on the assumption that they incur VAT on fuel and power, but in fact some of these bodies have been among those who benefited from this avoidance scheme. The cost of the scheme, across all sectors and if left unchecked, could have reached £170 million or so. This figure represents tax at risk not tax raised.
§ Mr. RedmondTo ask the Chancellor of the Exchequer if he will make a statement on recent legislation applying VAT to hot water supplied to hospitals, universities, hospices and colleges. [40116]
701W
§ Mr. OppenheimThe VAT (Anti-avoidance)(Heating) Order—SI 1996, No. 1661—excludes heating water from the zero rate in group 2 schedule 8 of the VAT Act 1994. This ended a VAT avoidance scheme by which some organisations, otherwise unable to recover VAT, had been able to avoid VAT on fuel and power by exploiting the zero rate for supplies of water. Hospitals and universities are funded on the assumption that they incur VAT on fuel and power, but in fact some of these bodies have been among those who benefited from the scheme.
The effect of the order is to ensure the correct VAT treatment of fuel and power. It taxes heated water because it is, in reality, either a means of distributing heat or is supplied for use as hot water, the value of which lies in the fact that it has been heated.
It is expected that the artificial schemes will now collapse and users will revert to the normal practice of purchasing zero-rated cold water, and when heating it will use tax-paid fuel.