20% VAT on Caravans: What does it mean for you?

As the UK public collectively tries to licks the wounds inflicted by a straitened and struggling economy, a tax change announcement in the 2012 budget delivers a blow to an age-old tradition and great British institution – Holiday caravanning.

Whilst most the nation have been talking about fuel costs and pasties, everyone in the caravanning industry from dealerships and manufacturers  to site owners and holiday makers alike have been debating the knock on effects the proposed 20% VAT on static caravans could mean in terms of business.

From 1st October 2012 static caravans will now incur the standard 20% VAT rate where before they were zero rated. This applies to any caravan situated on parks where year round residency is restricted. So what does this actually mean in layman’s terms?

Up until now, when anyone purchased a static caravan intended for holiday and leisure use and not for living in 12 months of the year, the only thing they had to pay tax on was removable fixtures and fittings such as furniture and fridges – a small proportion of the overall cost. Now, they will have to pay 20% VAT on the entire caravan purchase which adds thousands of pounds to standard prices.

For example:

Pre 1st October 2012 costs:

Total net cost for unit – £20,000 (£18,000 pounds caravan, £2,000 removables)

Total VAT – £400 pounds (20% VAT on £2,000 only)

Purchase price – £20,400

From 1st October 2012 costs:

Total net cost for unit – £20,000

Total VAT – £4,000

Purchase price – £24,000

Additionally, the tax changes will also mean all park owner services provided to static caravanners, such as electricity, will incur a 20% VAT charge.

These changes have, not surprisingly, sparked a bit of a row and not just from disgruntled would-be static caravan owners. There is a very real danger that a proposal such as this could inflict huge damage on local economies through lost tourism revenue at a time when the economic climate is already causing difficulties.

Directly affected would be the parks which sell static holiday homes while indirectly the list of those who may lose out is endless – cafes, pubs, restaurants, tourist attractions, shops and so forth.

Although the tax authority have predicted an income of £15m within the first year of the implemented tax and £45m within 5 years,  the National Caravan Council (NCC) believe this figure is a huge overestimation when put next to HMRC’s predicted 30% reduction in demand for static homes. On a national scale it is estimated that 50,000 individuals will be affected through the VAT hike along with 750 static caravan retailers and holiday parks.

These figures have made economists, industry professionals and even a group of East Yorkshire MPs to urge the government to rethink.

John Lally, director general of the NCC who commissioned research to back concerns, stated “the imposition of VAT will put manufacturing output levels and sales well below those at the worst point of the recession with significant economic and social consequences.”

According to official figures from Cornish tourism authorities, £104 million is generated annually in the county from the static holiday caravan industry. A survey by Visit Wales last year also estimated an annual £720m contribution to the economy from the caravan park sector and the visitors it brings, as well as directly and indirectly supporting over 10,000 jobs.

Andrew Walker, Director of family ran Tree Tops Caravan Park in North Wales, said of the situation; “It was not that long ago that that the [David] Cameron was telling us how tourism was going to help pull the UK out of [the] recession. This move will damage an important industry.”

He continued, “It will also hurt ordinary people. Caravanning is not the preserve of the super-rich but an escape for hard working folk!”

However, David Cameron backs with the chancellor’s decision, arguing “I don’t think it’s fair that a mobile caravan pays VAT but a stationery caravan does not.”

Despite this, individuals, caravan organizations and MPs continuing to fight this scheduled tax change in the hope of a last minute U-turn have had some success. They have now been given until the 18^th May 2012 to provide evidence of impact in response to the HMRC consultation.

For those looking to join the fight against the added VAT on caravan purchases, you can sign the ePetition and get more information from the DirectGov website here.

What do you think of the imposed 20% VAT on Static Caravans proposed to come into effect on 1^st October 2012? Is it unfair that an area of the caravan (or any) industry should be allowed to operate VAT free whilst others incur a cost? Or does the economic return along with encouraging UK residents to stay at home and spend their tourism money outweigh VAT and warrant an exception? Let us know what you think in the comments below.