VQOTW: Liability of commission on the sale of a sited caravan

My client operates a holiday caravan park, so the sources of income they receive are pitch fees and commission. The commission the client receives is for selling sited caravans on behalf of the owners.

A caravan was sold on a customer’s behalf on the 16th July 2020 and the customer is saying the commission invoice raised by the caravan park should be at the reduced rate of 5% is this correct?

The government announced on the 8th July 2020 the introduction of a temporary reduced rate of VAT on certain supplies of hospitality, hotel and holiday accommodation and admission to certain attractions. The temporary reduced rate will have effect from 15th July 2020 to 12th January 2021. Included in this temporary reduced rate are pitch fees for caravans and tents.

The supply of a caravan pitch is the grant of a licence to occupy land and the liability will depend on the nature of the pitch. Pitch fees and rents received for granting caravan owners the right to keep their caravans on the pitches is either exempt or standard rated.

Your client operates as a holiday caravan park and the provision of pitches for holiday or leisure sites is standard rated, therefore the liability of the commission received will also be standard rated.

However, as the temporary reduced rate allows the pitch fee to be at the reduced rate of VAT, the commission that the client has received will follow the same liability and will be reduced rate.

The client must meet the condition that the entitlement to commission falls under the Mobile Homes Act 1983, Caravan Act (Northern Ireland) or the terms of the licence agreement (contract).

VAT Notice 701/20 section 3.4

A caravan owner may sell a caravan ‘on site’ at your park to which you’re entitled to commission under the Mobile Homes Act 1983 (as amended), Caravan Act (Northern Ireland) 2011 or the terms of the licence agreement (contract). The commission you receive is to be treated as additional payment for the pitch and follows the liability of the pitch fee or rent.

This provision is applicable from 15th July 2020 to 12th January 2021 and as the client’s supply was within this period the commission is at the reduced rate.

If there are additional charges made to the seller which are over and above the commission allowed by the pitch agreement, these are standard rated.

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VAT Advisor
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Arti has worked in VAT since 2004 spending 11 years with HMRC. During her time in the department she was a visiting officer, a business records check officer providing educational visits and spent the last three years on the Alcohol Fraud team where she gained a good understanding of civil penalties and appeals. In addition she was an IT specialist providing support to colleagues and an associate trainer delivering VAT and Penalties training.

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