Can supplies of water to tenants be zero-rated?

HMRC’s public notice 742 explains that where a landlord charges a tenant for unmetered supplies of utilities that charge is seen as further payment for the main supply of rent, which will be standard-rated if the landlord has opted to tax the property.

The First Tier Tribunal has now considered this point in the case of The Honourable Society of Middle Temple (TC01245). In this case HMRC had argued that the unmetered supply of water by the appellant was indivisible, being supplied under a single contract, from the rent. The Tribunal rejected HMRC’s arguments, pointing out that the water could be supplied separately by a third party (i.e. the water company) to the individual tenants. The fact that the water was not separately metered to each of the Chambers in the Middle Temple was an “accident of history”. 

This case potentially challenges HMRC’s view on supplies of utilities, particularly in relation to the supply of water which would ordinarily be zero-rated when supplied directly to tenants who are not engaged in industrial activities. 

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