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Reduced VAT rate for small cable-suspended transport systems - consultation

Publication date: 17 July 2012
Closing date for comments: 17 October 2012

Subject of this consultation: The introduction of a reduced VAT rate of 5 per cent for the transport of passengers by small cable-suspended transport systems, such as ski-lifts, chair-lifts and cable-cars.
Scope of this consultation: To consider how this change should be implemented, what impact it may have and what administrative burdens it may give rise to, and how its effectiveness should be evaluated.
Who should read this: Businesses and other taxpayers who operate ski-lifts and similar forms of transport.
Duration: Three months, from 17 July 2012 to 17 October 2012.
Lead official: Colin Scott-Morton, HMRC
How to respond or enquire about this consultation: Responses to the consultation and queries about the content or scope of the consultation should be sent to:

Colin Scott-Morton, VAT Supply Team, HM Revenue & Customs, Room 3C/07, 100 Parliament Street, London SW1A 2BQ. Tel 0207 147 0483. E-mail colin.scott-morton@hmrc.gsi.gov.uk.
Additional ways to be involved: As the number of businesses and taxpayers affected by this change is expected to be small, we are requesting written responses. However, if a meeting would be helpful, please contact Colin Scott-Morton at the above address to discuss arrangements.

Alternate format versions of this document are available on request. Please contact Colin Scott-Morton at the above address.
After the consultation: A response document will be published in the autumn.
Getting to this stage: The UK currently has a zero rate of VAT for transport of passengers in any ‘vehicle’ capable of carrying not less than ten persons. Each chair, gondola etc in a cable-suspended system is considered to be a ‘vehicle’ and, where such vehicles are not capable of carrying ten persons, the standard rate of VAT applies. Under EU law, it is not possible to extend the existing zero rate to include these smaller vehicles.
Previous engagement: None.

Contents

1 Introduction
2 Background
3 How the change will be made
4 Tax Impact Assessment
5 Evaluation
6 Summary of questions
7 The Consultation Process: How to respond
Annex A The Code of Practice on Consultation
Annex B Draft Legislation

1. Introduction

At Budget 2012 the Government announced the application of a reduced VAT rate of 5 per cent for the transport of passengers by small cable-based transport systems, in place of the standard rate which currently applies. Most cable-suspended transport systems carry fare paying passengers from one point to another, but do not benefit from the same VAT reliefs as most other forms of public transport. The measure seeks to equalise the VAT treatment as far as possible under EU law. This change will take effect in 2013 and any impact of the reduced rate will be evaluated after three years.

This consultation seeks views on:

  • how the change should be implemented;
  • what impact it may have and what administrative burdens it may give rise to; and
  • how its effectiveness should be evaluated.

2. Background

UK law currently provides a zero rate of VAT for the transport of passengers in any vehicle, ship or aircraft designed or adapted to carry not less than ten passengers (VAT Act 1994, Schedule 8, Group 8, Item 4(a)). In a number of cases, the VAT Tribunal has considered whether this zero rate can apply to cable-suspended transport systems, such as ski-lifts, chair-lifts, cable-cars etc. In each case, the Tribunal concluded that the term ‘vehicle’ applied to each chair, gondola, t-bar etc, rather than to the whole system, and, as the capacity of most such ‘vehicles’ is generally four or less, it follows that few such systems operating in the UK currently fall within the zero rate.

While it is not possible to introduce a new zero rate or extend the scope of existing ones, EU law provides for a reduced VAT rate, of not less than 5 per cent, to be applied to the transport of passengers (Directive 2006/112, Annex III, Category 5). This is the provision under which the new reduced rate will be introduced in the UK. The relief will be restricted to the supply of transporting people by small cable-suspended transport systems. In line with normal VAT principles it will not apply where the supply of transport forms an ancillary part of a wider supply.

The term ‘small cable-suspended transport systems’ covers any means of transport comprising ‘vehicles’ (e.g. chairs, gondolas, t-bars etc) suspended from a cable, with each vehicle having a carrying capacity of less than ten persons (systems with vehicles capable of carrying ten or more persons are covered by the existing zero rate, as explained above). Typically this will include systems designed to transport people up hills and mountains and across rivers and valleys, such as ski-lifts, chair-lifts, cable-cars etc. It will not include any surface-based systems, such as travolators, escalators, funicular railways etc.

The reduced rate will apply only to the transport of passengers by such systems. Where such systems are located in theme parks, open-air museums, or similar locations and an overall charge is made for admission (or for the use of the facilities including travel on the cable-suspended system), the reduced rate will not apply.

3. How the change will be made

Legislation

VAT reduced rates are set out in Groups 1 to 11 of Schedule 7A, VAT Act 1994. A new Group 12 will be added to Schedule 7A by Treasury Order, to come into force after Budget 2013. A draft of the Order is below at Annex B.

Question 1
Do you consider that the draft legislation will achieve the intended policy effect with no unintended effects?

Publicity

Advance publicity of the proposed change was given at Budget 2012. Further publicity will be provided in advance of the change coming into force in 2013, and amendments will be made to VAT Notice 744A, ‘Passenger Transport’, to HMRC internal guidance, and to relevant website content.

Question 2
Do you consider that this is sufficient to advise all those affected of the proposed changes? If not, should additional, targeted publicity be provided, and who should this be aimed at?

4. Tax Impact Assessment

The table below sets out the Government’s view on what the impact of the legislative changes will be. This section gives all interested parties the opportunity to comment on what impact the changes will have and to point out anything that may have been overlooked. In particular the Government invites comments from charities, small businesses or bodies representing their interests.

Summary of Impacts

Exchequer impact (£m) 2012-13 2013-14 2014-15 2015-16 2016-17
  Negligible Negligible Negligible Negligible Negligible
Economic impact This measure is expected to have no significant economic impacts.
Impact on individuals and households Individuals using cable-suspended systems may benefit from lower prices, but only if operators choose to pass on the VAT reduction.
Equalities impacts No equality groups have been identified as being impacted by this change.
Impact on businesses and Civil Society Organisations Businesses may benefit from increased patronage if they choose to pass on the VAT reduction, or from increased profits if not. This in turn may enable them to invest in improved facilities.

There are cable-suspended lifts within the five Scottish ski resorts, and in a further three skiing areas in England. In addition, there are cable-suspended lifts located elsewhere in England and Wales. The reduced rate will only apply to the small number of such systems where they are not subject to the exclusions mentioned in section 2, or covered by the existing zero rate.

There will be one-off costs for businesses in changing their accounting systems to accommodate the new VAT rate. As we are at the Consultation stage, we would welcome feedback from businesses on the level of these costs.
Impact on HMRC or other public sector delivery organisations No significant impact on HMRC costs.
Other impacts Small firms are likely to be affected by this change, and again, we would welcome feedback on the potential impact.

Any policy change will also be tested against the list of possible impacts used in regulatory impact assessments. The full list of these “other impacts” is set out in Annex A of Overview of Tax Legislation and Rates available from http://www.hmrc.gov.uk/budget2012/ootlar.htm

Question 3
Do you agree that the proposed change will have no impacts other than those set out above? If not, what additional impacts do you think will result from the proposed change?

5. Evaluation

The relief is restricted to cable-suspended transport systems where the vehicles carry fewer than 10 people; transport in larger vehicles already qualifying for the zero rate. As such, it is deliberately narrow in its focus and targeted at these particular means of transport. The extent to which a relief in this area has had an impact will be evaluated after three years, at which time stakeholders and other respondents to this consultation will be asked:

  • for an analysis of any benefits the reduced rate has brought;
  • for details of any administrative burdens arising from its operation; and
  • whether there is a case for its continuation.

At the same time, HMRC will carry out its own assessment of the effect on tax revenues.

Question 4
Do you think the proposals above will result in a meaningful evaluation of the effectiveness of this reduced rate? If not, what other steps should be taken?

6. Summary of questions

From section 3 – How the change will be made

Question 1
Do you consider that the draft legislation will achieve the intended policy effect with no unintended effects?

Question 2
Do you consider that this is sufficient to advise all those affected of the proposed changes? If not, should additional, targeted publicity be provided, and who should this be aimed at?

From section 4 – Tax Impact Assessment

Question 3
Do you agree that the proposed change will have no impacts other than those set out above? If not, what additional impacts do you think will result from the proposed change?

From section 5 – Evaluation

Question 4
Do you think the proposals above will result in a meaningful evaluation of the effectiveness of this reduced rate? If not, what other steps should be taken?

7. The Consultation Process

This consultation is being conducted in line with the Tax Consultation Framework. There are 5 stages to tax policy development:

Stage 1 Setting out objectives and identifying options.

Stage 2 Determining the best option and developing a framework for implementation including detailed policy design.

Stage 3 Drafting legislation to effect the proposed change.

Stage 4 Implementing and monitoring the change.

Stage 5 Reviewing and evaluating the change.

This consultation is taking place during stage 3 of the process. The purpose of the consultation is to seek views on draft legislation in order to confirm, as far as possible, that it will achieve the intended policy effect with no unintended effects.

How to respond

A summary of the questions in this consultation is included at chapter 6.

Responses should be sent by 20 October 2012, by e-mail to colin.scott-morton@hmrc.gsi.gov.uk

or by post to:

Colin Scott-Morton,
VAT Supply Team,
HM Revenue & Customs,
Room 3C/07,
100 Parliament Street,
London SW1A 2BQ.

Or by fax to 0207 147 0097

Telephone enquiries 0207 147 0483 (from a text phone prefix this number with 18001)

Paper copies of this document or copies in Welsh and alternative formats (large print, audio and Braille) may be obtained free of charge from the above address. This document can also be accessed from the HMRC Internet site at http://www.hmrc.gov.uk/consultations/index.htm. All responses will be acknowledged, but it will not be possible to give substantive replies to individual representations.

When responding please say if you are a business, individual or representative body. In the case of representative bodies please provide information on the number and nature of people you represent.

Confidentiality

Information provided in response to this consultation, including personal information, may be published or disclosed in accordance with the access to information regimes. These are primarily the Freedom of Information Act 2000 (FOIA), the Data Protection Act 1998 (DPA) and the Environmental Information Regulations 2004.

If you want the information that you provide to be treated as confidential, please be aware that, under the FOIA, there is a statutory Code of Practice with which public authorities must comply and which deals with, amongst other things, obligations of confidence. In view of this it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information we will take full account of your explanation, but we cannot give an assurance that confidentially can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on HM Revenue and Customs (HMRC).

HMRC will process your personal data in accordance with the DPA and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties.

The Consultation Code of Practice

This consultation is being conducted in accordance with the Code of Practice on Consultation. A copy of the Code of Practice criteria and a contact for any comments on the consultation process can be found in Annex A.

Annex A: The Code of Practice on Consultation

About the consultation process

This consultation is being conducted in accordance with the Code of Practice on Consultation.

The consultation criteria

1. When to consult - Formal consultation should take place at a stage when there is scope to influence the policy outcome.

2. Duration of consultation exercises - Consultations should normally last for at least 12 weeks with consideration given to longer timescales where feasible and sensible.

3. Clarity of scope and impact - Consultation documents should be clear about the consultation process, what is being proposed, the scope to influence and the expected costs and benefits of the proposals.

4. Accessibility of consultation exercise - Consultation exercises should be designed to be accessible to, and clearly targeted at, those people the exercise is intended to reach.

5. The burden of consultation - Keeping the burden of consultation to a minimum is essential if consultations are to be effective and if consultees’ buy-in to the process is to be obtained.

6. Responsiveness of consultation exercises - Consultation responses should be analysed carefully and clear feedback should be provided to participants following the consultation.

7. Capacity to consult - Officials running consultations should seek guidance in how to run an effective consultation exercise and share what they have learned from the experience.

If you feel that this consultation does not satisfy these criteria, or if you have any complaints or comments about the process, please contact:

Amy Burgess, Consultation Coordinator, Budget & Finance Bill Co-ordination Group, HM Revenue & Customs, 100 Parliament Street, London, SW1A 2BQ

e-mail hmrc-consultation.co-ordinator@hmrc.gsi.gov.uk

Annex B: Draft Legislation

STATUTORY INSTRUMENTS

2013 No.

VALUE ADDED TAX

The Value Added Tax (Reduced Rate) (Cable-Suspended Passenger Transport Systems) Order 2013

Made - - - - ***
Laid before the House of Commons ***
Coming into force - - ***

The Treasury make the following Order in exercise of the powers conferred by sections 29A and 96(9) of the Value Added Tax Act 1994.

Citation and commencement

1. This Order may be cited as the Value Added Tax (Reduced Rate) (Cable-Suspended Passenger Transport Systems) Order 2013 and comes into force on [DATE] 2013.

Amendment of Schedule 7A to the Value Added Tax Act 1994

2.—(1) Schedule 7A to the Value Added Tax Act 1994 (charge at reduced rate) is amended as follows.

(2) At the beginning of Part 1 (index to reduced-rate supplies of goods and services) insert—

“Cable-suspended passenger transport systems……………………Group 12”.

(3) At the end of Part 2 (the groups) insert—

“GROUP 12

CABLE-SUSPENDED PASSENGER TRANSPORT SYSTEMS

Item No.

1. Transport of passengers by means of a cable-suspended chair, bar, gondola or similar vehicle designed or adapted to carry less than 10 passengers.

NOTES:

Supplies not within item 1

1. Item 1 does not include the transport of passengers to, from or within—

(i) a place of entertainment, recreation or amusement; or

(ii) a place of cultural, scientific, historical or similar interest,

by the person, or a person connected with that person, who supplies a right of admission to, or a right to use facilities at, such a place.

2. For the purposes of Note 1 any question as to whether a person is connected with another shall be determined in accordance with section 1122 of the Corporation Tax Act 2010.”.

Name
Name

Two of the Lords Commissioners of Her Majesty’s Treasury
Date

EXPLANATORY NOTE

(This note is not part of the Order)

This Order inserts a new Group 12 into Schedule 7A to the Value Added Tax Act 1994 (charge at reduced rate) to provide for a reduced rate for the transport of passengers by means of certain cable-suspended vehicles designed or adapted to carry less than 10 passengers provided that the transport is not supplied to, from or within a specified place by a person (or a person connected with that person) who supplies a right of admission to, or a right to use facilities at, that place.

A Tax Information and Impact Note covering this instrument will be published on the HMRC website at http://www.hmrc.gov.uk/thelibrary/tiins.htm.


HMRC Consultation, 17/07/2012
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