Written question asked by Martin Redmond (Labour), in the House of Commons. It was due for an answer on Monday, 14 October 1996. It was answered by Phillip Oppenheim (Conservative) on Monday, 14 October 1996 on behalf of the Treasury.

Treasury

Question: If he will comment recent legislation applying VAT to hot water supplied to hospitals, universities, hospices and colleges.

Answer: Mr. Redmond: To 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] Mr. Oppenheim: The 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.

Secondary information