Guidance

Local authorities and similar bodies (VAT Notice 749)

Decide which activities are business or non-business for VAT purposes if you're a local authority or other public body.

Detail

This notice cancels and replaces Notice 749 (8 February 2016).

Help and advice

If you need general advice contact the VAT: general enquiries helpline.

1. Overview

1.1 This notice

This notice explains 3 things:

  1. Which activities of local authorities and similar bodies are business or non-business for VAT purposes.
  2. The VAT registration requirements for local authorities.
  3. When local authorities and certain similar bodies can reclaim VAT incurred on costs that relate to their non-business activities.

There’s also comprehensive guidance in the VAT Government and Public Bodies Manual.

Further information is available on:

1.2 Changes to this notice

The changes to this notice are:

  • the contact details for HMRC and the procedure for ‘Putting things right’ have been updated
  • the overview has been changed to give a better understanding of the work of public bodies and the general provisions for VAT reclaims
  • the name and number of public notices has been updated
  • further information has been given on the calculation of VAT attributable to exempt supplies
  • new rules on occasional breaches of the insignificance test
  • paragraphs 12.3, 12.4, and 12.6 have been amended

1.3 The law

The law covered in this notice is:

2. Business or non-business activities by local authorities and similar bodies for VAT purposes

2.1 Definition of a public body

The term ‘public body’ takes its normal every day meaning. It includes government departments, non-departmental public bodies, NHS bodies, local government bodies, the police and the fire and rescue services.

2.2 The general rule

Because VAT is a tax on transactions, individual circumstances need to be considered according to their facts. But the general rule is that where a public body is funded by way of public expenditure (such as grant-in-aid) to do something for the public good, it’s unlikely to be engaging in business activities for VAT purposes. Such activities are outside the scope of VAT.

Conversely, where a public body supplies goods or services for consideration and by way of business, and it’s registered or required to be registered for VAT, such activities are within the scope of VAT. The term ‘business’ has a wide meaning for VAT purposes. See VAT Manual Business and Non-Business VBNB21000.

The following outlines the main differences between business and non-business activities.

Business activities:

  • are mainly concerned with making supplies to other persons, or any form of payment or ‘consideration’, whether in money or otherwise
  • have a degree of frequency and scale
  • continue over a period of time
  • are within the scope of VAT and may be standard-rated, zero-rated or exempt

Non-business activities are:

  • activities you carry out for no charge and no other form of consideration, including leases you grant, or the freehold sale of land and buildings, for the nominal payment of a peppercorn or a pound and where no other form of payment is involved
  • activities you carry out for a charge but with no degree of frequency or scale, and without continuing over any period of time
  • outside the scope of VAT

You can find out more about ‘business’ and ‘non-business’ in VAT guide (Notice 700).

2.3 Section 41A VAT Act 1994

Under Section 41A of the VAT Act 1994, supplies of goods and services made by certain public bodies are not regarded as being made by way of business, and they’re therefore outside the scope of VAT, if:

(i) The public bodies form a part of the public administration.
(ii) The public bodies in question engage as public authorities when they make the supplies in question. This happens when they act under a special legal regime applicable to them, that is, under different legal conditions from those that apply to private traders, typically carrying out public interest activities for the service of the community.
(iii) Unless they’re carried out on such a small scale as to be negligible, the supplies are not of a type listed in Annex I of the Principal VAT Directive (2006/112)
(iv) This outcome would not significantly distort competition.

Public bodies which form a part of the public administration, such as government departments and local authorities, can treat activities that they charge for as non-business when they meet the conditions in the decision steps.

If the conditions are not met, they cannot treat their activities as non-business merely because they’re a central or local government body.

Step 1

Is the public body acting as a public authority?

  • if yes, go to step 2
  • if no, the activity is business

Step 2

Is the activity included in Annex I of the EC Principal VAT Directive?

  • if yes, go to step 3
  • if no, go to step 4

Step 3

Is the public body’s involvement in the activity on such a small scale as to be negligible?

  • if yes, go to step 4
  • if no, the activity is business

Step 4

Would it lead to significant distortion of competition with other bodies if the public body treated the activity as non-business?

  • if yes, the activity is business
  • if no, the activity is non-business

2.4 Annex I of the Principal VAT Directive

This annex lists the following activities:

  • telecommunications
  • supplying water, gas, electricity and steam
  • transporting goods
  • port and airport services
  • passenger transport
  • supplying new goods manufactured for sale
  • certain activities of agricultural intervention agencies
  • running trade fairs and exhibitions
  • warehousing
  • the activities of commercial publicity bodies
  • running staff shops, co-operatives, industrial canteens and the like
  • certain commercial activities of radio and television bodies

2.5 Supplies between local authorities

Supplies of services by one local authority to another local authority are not regarded as business activities provided that they are not made in competition with the private sector. Otherwise, they fall within the scope of VAT and VAT must be accounted for at the appropriate rate.

2.6 Non-business treatment and significant distortions of competition

Non-business treatment might lead to significant distortions of competition if it means that a public body:

  • does not charge VAT on a supply, while competitors making similar supplies must charge VAT
  • can recover the VAT attributable to an exempt supply or a non-business activity, while the VAT incurred by competitors in making similar supplies sticks with them as a real cost

Significant distortions of competition will occur when non-business treatment:

  • places private traders at a commercial disadvantage compared to a public body
  • deters private traders from starting up businesses supplying similar goods or services in competition with a public body

2.7 How to treat non-business activities by public bodies if there are no competitors

You can treat non-business activities, provided you’re sure that nobody else could carry out the activity (the test relates to the activity in question rather than to, for example, local or geographical trading situations):

  • in the way the public body has to carry it out
  • in similar conditions
  • achieving the results the public body has to achieve

This will normally be the case when:

  • customers or other recipients of the supplies in question, could not obtain the goods or services equally as well from some other supplier
  • non-business treatment would not act as a disincentive to a private trader capable of going into business in direct competition

If you have any doubt whether special treatment will lead to significant distortions of competition you should seek our advice. You can also get help from professional bodies, such as the Chartered Institute of Public Finance and Accountancy.

2.8 Business and non-business activities

The VAT Government and Public Bodies manual page 3600 flowchart and the VAT Government and Public Bodies manual page 8000 Other local authority activities give further guidance to help you decide whether and activity is business or non-business.

3. VAT registration

3.1 Requirement to register for VAT

For bodies other than local authorities, the usual VAT registration requirements apply as set out in VAT Notice 700/1 VAT: should I be registered for VAT?.

These requirements also apply to bodies:

  • that are legally separate from a local authority
  • that are not a joint board or joint committee
  • where the value of your taxable supplies exceeds the threshold for registration

If the value of your taxable turnover is below the registration threshold limits, you can apply for voluntary registration.

3.2 Registering for VAT if you’re a local authority

Local authorities are required to register for VAT if they make any taxable supplies, whatever the value of those supplies is. But for ease of administration HMRC’s practice is to only enforce this where it’s anticipated that output tax will reach £1,000 a year.

3.3 Definition of a ‘local authority’

For VAT purposes the term ’local authority’ means:

  • the council of a county, county borough, district, London borough, parish or group of parishes (or, in Wales, community or group of communities)
  • the Common Council of the City of London, the Council of the Isles of Scilly, and any joint committee or joint board established by 2 or more of the foregoing
  • in relation to Scotland, a regional, islands or district council within the meaning of the Local Government (Scotland) Act 1973, any combination and any joint committee or joint board established by 2 or more of the foregoing and any joint board to which section 226 of that Act applies

3.4 VAT groups and public bodies

Public bodies cannot usually meet the requirements of joining a VAT group, see VAT Notice 700/2: group and divisional registration.

But HMRC will normally grant requests by local authority joint committees to account for VAT under the registration of the lead authority, or any other member if we’re satisfied that:

  • you do not want the arrangement merely for tax avoidance purposes
  • it does not create distortion

4. Recovering VAT by public bodies

4.1 Rules on recovering VAT

The normal rules are explained in VAT guide (Notice 700).

If you:

  • do not make supplies in the course or furtherance of business, then you cannot recover VAT on related costs
  • make taxable (including zero-rated) supplies in the course or furtherance of business, then you can recover VAT on related costs
  • make exempt supplies in the course or furtherance of business, then you cannot (subject to certain limits) recover VAT on related costs

4.2 Section 33 of the VAT Act 1994

Section 33 of the VAT Act 1994 refunds to (mainly) local government bodies the VAT attributable to their:

  • non-business activities
  • exempt business activities (providing we consider it an insignificant proportion of the total tax they have incurred)

The bodies in question are listed in VAT Government and Public Bodies Manual page 4120 and those admitted by Treasury Order on page 4300.

For the avoidance of doubt, these bodies do not include a:

  • joint board or joint committee set up by bodies other than local authorities
  • body that merely obtains financial help from local authorities
  • purely advisory committee that does not carry out local authority functions
  • Community Council in England or Scotland
  • Community Association
  • parish meeting
  • parochial church council
  • village hall management committee
  • charity

They’re also unlikely to include a board or committee where not only local authority but also other members have voting rights.

Further information is available if you are not registered for VAT.

4.3 Adding bodies to the list

The Treasury has powers to add bodies to the list by means of an order. Treasury will consider applications from bodies that meet both the following criteria - the body must undertake a function ordinarily carried on by local government, and have the power to draw its funding directly from local taxation.

Applications should be sent to your Customer Compliance Manager, or if you do not have one, the public bodies enquiries team:

HM Revenue and Customs
Newcastle-upon-Tyne
NE98 1ZZ

Your application should include evidence of how you meet both the conditions.

5. Recovering VAT on taxable business activities

5.1 Recovering VAT on costs related to taxable business activities by public bodies

You must be registered for VAT and follow the normal rules for input tax deduction - you can find full details in [VAT guide (Notice 700)]https://www.gov.uk/guidance/vat-guide-notice-700#section10) (see paragraph 6.6 on private use).

5.2 Recovering VAT charged on goods imported or acquired from overseas

If you import goods from a country outside the EU then you will have to pay VAT on the importation of those goods, but if the goods are for your business purposes, you can reclaim the VAT as input tax under the normal rules.

If you acquire goods from another member state of the EU, then you will not normally have to pay VAT to the supplier if you provide them with your VAT registration, but you must account for VAT in the UK on the acquisition of those goods on the VAT Return for the period in which the tax point occurs and you can treat this tax as input tax on the same return.

For further information about goods you import from outside the EU read Imports and VAT (Notice 702) and Fiscal warehousing and VAT (Notice 702/8).

For further information about goods you acquire from another member state and advice about single market requirements read VAT and the single market (Notice 725).

5.3 What to do if you receive services from overseas but have not been charged VAT

If the services:

  • have already been taxed in the country where the supplier belongs, then you do not have to account for VAT on them
  • are ones to which the ‘reverse charge’ procedure applies, then you must account for VAT as output tax and recover the input tax to which you’re entitled

Further guidance can be found in VAT place of supply of services (Notice 741A).

5.4 Recovering VAT incurred in another member state of the EU

You cannot recover VAT as input tax on your VAT Return, but you can sometimes reclaim it direct from the authorities in the member state where you paid it.

Claim back VAT paid in the EU if you’re established elsewhere (Notice 723A) tells you how to make claims.

6. Recovering VAT on costs related to non-business activities

This section concerns those bodies listed in section 33 of the VAT Act 1994 as shown in VATGPB 4120 and VATGPB 4300 and refers to them as ‘section 33 bodies’. There are similar arrangements for other bodies.

If you’re a section 33 body, you can recover the VAT you have incurred on your non-business activities only if you:

Condition Action
1 Place the order
2 Receive the supply
3 Receive a tax invoice addressed to you
4 Pay from your own funds (including funds awarded to you, for example, lottery funds)

These conditions apply whether you have incurred the VAT on:

  • supplies you have received from VAT-registered traders in the UK
  • goods you have acquired from another member state of the EU, or imported from outside the EU

You cannot recover VAT that would normally be irrecoverable in any circumstances - see VAT guide (Notice 700).

6.2 Registering for VAT in order to claim refunds

You do not have to register for VAT to claim refunds.

6.3 Recovering VAT under section 33 when you buy goods and services using money given for a specific purpose

You can recover VAT, provided you:

Step 1

Buy the goods or services yourself, that is:

  • place the order
  • receive the supply
  • receive a VAT invoice addressed to you and pay

Step 2

Remain owner of the goods or services.

Step 3

Use them, or make them available, for your own non-business purposes.

Step 4

Keep sufficient records for HMRC to easily identify the goods and services you have bought and your reasons for buying them.

6.4 Examples of when VAT can and cannot be recovered

You will not be able to meet the requirements in paragraph 6.3, if the person giving you the money does so only on condition that:

  • you give them something or do something for them in return
  • another person benefits as a direct result of the payment

The following will help you to decide whether you can recover the VAT paid on goods and services.

You can probably recover the VAT

Use Source of funds
community and foundation schools Parent Teacher Association and school funds
welfare services amenity funds
homes and schools for disabled people voluntary bodies

You cannot recover the VAT

Use Source of funds
premises related expenditure at a voluntary aided school the governors
sports equipment at a youth centre you run an independent youth club-but only on condition that you give them exclusive use of the equipment
repairs to a building the owners of the building

But if you instigate and carry out a project or pay for goods and meet the cost entirely from your own resources, and give the goods or services away free to another body, then your activity is non-business and you can reclaim the VAT you have incurred on the goods and services you have given away.

6.5 VAT refunds on goods and services you buy using money from trust funds

You can get a VAT refund but only when you act as sole trustee of a trust, for example, a village hall. For your claim to be valid:

  • you must be acting as sole managing trustee without payment
  • the activities of the trust must be so closely related to your own functions as an authority, that you cannot easily distinguish between them
  • the claim must relate to the non-business activities of the trust

But if:

  • we’re satisfied that recovery of VAT will create anomalies, then we may restrict it
  • you’re a custodian trustee whose role is simply to hold the property of the trust, then you cannot recover the VAT you have incurred, unless you’re also sole managing trustee

6.6 Items that may be blocked from VAT recovery

Some items have a restriction on VAT recovery. For example, a car which has an element of private use will have a blocking order preventing recovery of the VAT. But if the car is used solely for work purposes then the VAT may be recoverable. For greater detail on the meaning of these terms and other restrictions see VAT guide (Notice 700) or section 33 of the VAT government and public bodies Manual.

7. Recovering VAT on exempt business activities

You can recover the VAT, but only where we consider this VAT (input tax attributable to exempt activities) to be an insignificant proportion of the total VAT you have incurred.

7.2 Insignificant proportion

Section 33(2) of the VAT Act 1994 allows local authorities to recover VAT attributable to exempt supplies so long as the amount involved is insignificant.

VAT attributable to exempt activities is insignificant only if it amounts to less than one of the following:

  • £7,500 per annum
  • 5% of the total VAT incurred on all purchases in a year

If at least one of these conditions is met then this amount of VAT is considered ‘insignificant’.

The total VAT incurred includes that attributable to non-business activities. A year for section 33 bodies runs from 1 April to 31 March, even if they utilise special VAT periods. In calculating the VAT attributable to exempt business activities, section 33 bodies must include an appropriate proportion of VAT incurred on general expenditure including overheads. (Recharges do not need to be included in the overheads figure.)

Where the amount of VAT attributed and apportioned to exempt supplies exceeds either of the criteria above, then none of it can be recovered.

A calculation must be carried out at the end of each financial year and any necessary adjustment should be included in the VAT Return for the next period. It’s recognised that many section 33 bodies cannot complete their calculation in the period immediately following their year end. Extensions can be agreed locally but should be no later than the September VAT period.

If there’s a change in the liability of a supply, then the related VAT should be apportioned for that financial year. Calculations for previous years cannot be revisited other than for the correction of specific errors, including adjustment where the proportion of previously estimated exempt use is later found to be incorrect.

If a local authority wishes to change their tax year they will need to notify their Customer Compliance Manager or the public bodies enquiries team mentioned in paragraph 4.3.

7.3 Using a special section 33 VAT refund method even though all your business activities are exempt

You may use either the model method, or any other agreed method. Any method must be ‘fair and reasonable’ and take into account the implications of conditions relating to the capital item adjustment scheme.

7.4 Choosing not to adopt a special section 33 recovery method

If you’re registered for VAT, you may use any alternative method of partial exemption calculation as detailed in VAT Notice 706: partial exemption. Normal limits for recovering exempt input tax will then apply.

7.5 What to do if you want to opt for a special section 33 VAT recovery method to recover the VAT incurred

Step 1

Before the start of the financial year call HMRC in order to obtain advice on using a special section 33 recovery method.

Step 2

By the start of the financial year, in line with our advice, agree with us the broad principles of the method you intend using.

Step 3

By 3 months before the end of the financial year, complete your discussions and have the final method agreed in writing.

Step 4

By 31 October following the end of the financial year, conclude all annual calculations. If any adjustments are necessary these can be put on the next return.

7.6 Opting to use a special section 33 VAT recovery method but not agreeing it before the end of the tax year

If you do not agree a method before the end of the tax year, you cannot apply it to that year. Under these circumstances, you can only begin using it from the start of the next tax year, and in the meantime you should use the model special method.

7.7 Including capital projects in section 33 recovery calculations

VAT on capital projects should be included in the calculation for the year in which it’s incurred.

8. Model special section 33 recovery method and partial exemption

8.1 The model special method for section 33 bodies

This method, which is based on the budget structure, takes a worst-case scenario. It assumes that, where a budget heading contains any exempt activity, then all the taxable expenditure within that heading is attributable to that exempt activity. If this broadbrush approach shows that your input tax attributable to exempt activities is insignificant, you are not required to refine your calculations.

8.2 Using the model special method

The section 33 calculation method is based on the budget structure for a body. It adopts a worst case scenario, but this can be refined as necessary. The process starts by working through steps 1 to 3, with a more detailed examination applied as necessary.

Step 1 - identification of exempt activities

List all budget headings or cost centres that contain any element of exempt activity.

Step 2 - identifying taxable expenditure

Within each of the budget headings or cost centres identified at step 1, record all expenditure (net of VAT) for both capital and revenue that would normally carry VAT.

Add up the standard-rated expenditure identified in step 2 and calculate the VAT by multiplying the total by 20%.

If it does not exceed the insignificance test then no further calculations are required. But the total VAT recovered should take account of any error correction or changes to estimation of input tax.

If the insignificance test is exceeded, it becomes necessary to make a progressively more detailed analysis of the amount of expenditure that’s put to exempt use. A section 33 body cannot be required to repay VAT relating to exempt supplies without more detailed calculations. If, at any stage, a result below the insignificance test is achieved then no further action is needed.

There is no set method of allocation or apportionment. A different method may be adopted for each particular area or activity based on the information available such as:

  • number of staff
  • amount of income
  • floor area used
  • number of sessions
  • time

But it’s necessary to demonstrate that any method is fair and reasonable.

If, despite a more detailed analysis the insignificance test is still breached, then none of the VAT relating to exempt supplies is recoverable.

8.3 What to do if VAT identified at step 4 is not insignificant

You should now make a progressively more detailed analysis of the amount of expenditure that you put to exempt use. If, at any stage, you achieve a result showing that the VAT is insignificant, then you need take no further action.

If the final result shows that the VAT is significant (more than the higher of £7,500 or 5% of the total VAT recoverable during the year), a method of allocation or apportionment should be agreed.

8.4 Set method of allocation or apportionment

There is no set method, you may adopt a different method for each particular area or activity based on the information available, such as number of staff, amount of income, floor area used, number of sessions, or time. But you must be able to demonstrate that any method you use is fair and equitable.

8.5 The VAT identified still exceeds the ‘insignificant’ limit

If, despite detailed analysis of the amount of expenditure that you put to exempt use, the VAT you have identified still exceeds the ‘insignificant’ limit during the financial year, you may reconsider the position over a longer period of 7 years. For example, you could look at the financial year under review, the previous 4 financial years and the forecast for the next 2 financial years. Any 7 consecutive 7 years may be used as long as no more than 2 forecast years are included.

If, on average, over this 7 year period the VAT identified falls below the ‘insignificant’ limit the breach may be ignored. This is a rolling average.

You must keep details of the calculation with your VAT records. HMRC reserves the right to revisit the question of whether a breach is occasional and insignificant if it subsequently turns out that a local authority miscalculated its percentage in any given year. The same applies where there’s evidence of manipulation of figures.

8.6 If the VAT incurred still exceeds the ‘insignificant’ limit

If, despite detailed analysis of the amount of expenditure that you put to exempt use, the VAT you have identified still exceeds the ‘insignificant’ limit, then you may not recover any of the VAT that relates to your exempt supplies.

8.7 Claim the VAT refunds you’re entitled to

Claims must be made within 3 years of the end of the month in which the supply, acquisition or importation occurred. From 1 July 2018 this period is extended to 4 years, but no claim can be made for goods imported or acquired or on goods or services supplied before 30 June 2015.

9. Amendments to section 33 recovery methods

Amendments to section 33 recovery methods to include additional conditions relating to the capital item adjustment scheme and change of intention.

9.1 Requirement for section 33 refund methods

This section explains the requirement for section 33 refund methods to include conditions relating to the capital item adjustment scheme and change of intention in the use of purchases.

9.2 Incurring VAT attributed to an intended activity under the capital item adjustment scheme but changing your intention before undertaking the activity

You must review your original attribution and possibly make an appropriate adjustment. First identify the VAT attributable to the activity for which there’s been a change of intention.

If the change of intention is from:

  • a taxable or non-business activity to an exempt activity and you cannot treat the new total as insignificant, then you should add the VAT you have identified to the exempt input tax that you have already identified for the year in which you originally incurred the VAT - you must repay the VAT you have identified to us
  • an exempt activity to a taxable or non-business activity and you can treat the new total as insignificant, then you should deduct the VAT you have identified from the exempt input tax that you have already identified for the year in which you originally incurred the VAT - you can reclaim the VAT you have identified from us if you have not already done so

Note: you do not need to rework the calculation itself in full providing you do enough to quantify the new amount of exempt input tax.

9.3 Error in attribution

If you have made an error in attribution, you must rework the entire calculation for the relevant years.

9.4 Capital item adjustments

If you have a capital item as defined in Regulation 113 of the VAT Regulations 1995, and the extent to which you use that item in making exempt supplies changes, you may need to carry out an appropriate adjustment to the amount of VAT that you reclaimed on the initial acquisition.

9.5 How to make the adjustments

You must carry out accounting adjustments in accordance with the guidance in Capital goods scheme (Notice 706/2). The scheme covers the purchase of computers, land and buildings. The scheme was extended to cover aircraft and vessels in 2011. But both of the following variations are necessary:

(a) you should treat non-business use as if it were taxable use
(b) if your exempt input tax is insignificant, without taking account of any change of use adjustments, then you do not need to complete any further calculations, only if the insignificant test is already exceeded do you need to take account of the capital item adjustment

It follows that you must keep sufficiently detailed records of your capital items to enable you to carry out the necessary calculations, usually at least 10 financial years following that in which the expenditure was incurred.

9.6 Other information about special section 33 refund methods and the capital item adjustment scheme

If you:

  • use the section 33 refund method, you must apply the conditions described here for the capital item adjustment scheme
  • wish to use any alternative method for section 33 refunds, this must include acceptable provisions for dealing with capital item adjustments
  • prefer to deal with partial exemption following the guidelines set out in VAT Notice 706: partial exemption, you’ll have to separate and identify the tax you have recovered that relates to your non-business transactions

10. Local authorities and community projects

This section applies only to local authorities.

10.1 Recovering VAT incurred on community projects, particularly work to village halls

If you’re a local authority, you may:

  • agree with a voluntary group to set up a project fund into which any funds raised locally and any grants received by the voluntary group will be paid
  • use this fund to make the purchase or pay for the work on behalf of the voluntary group

But these funds do not belong to you and so you cannot recover the VAT incurred.

10.2 Recovering VAT if you pay your own money into the project fund

You cannot recover the VAT unless the project fund is part of the local authority. For example, this may be the case where:

  • the project fund forms part of your statutory accounts
  • you retain control over how the money is spent

10.3 Recovering VAT incurred on work done to a village hall that you own

If you:

  • use your own funds and use of the hall is for your own non-business activities, then you are not making a supply for VAT purposes and you can recover the VAT under section 33
  • use your own funds and use of the hall is for your business activities, then you’re making a supply for VAT purposes and you can recover the related VAT if your supply is a taxable supply
  • receive funds from another body in return for letting it use the hall, then you’re making a supply for VAT purposes and you can recover the related VAT if your supply is a taxable supply
  • receive funds from another body in return for letting a third party use the hall, then you’re making a supply for VAT purposes and you can recover the related VAT if your supply is a taxable supply
  • receive unconditional funding from another body-that is, the funding is freely given and neither the donating body nor a third party benefits, then the funding qualifies as a donation and you can recover the VAT provided you satisfy the conditions

You should note that:

  • we treat a hall as being owned by a local authority if it’s the sole managing trustee, but not if it’s sole custodian trustee only
  • allowing someone to use the hall in return for non-monetary payment is a business activity

10.4 Using your funds to finance building works to a hall that you do not own

If you:

  • use your own funds to carry out work to the hall and give the work away to the owners of the hall (for example, a voluntary group) and receive nothing in return then you are not making a supply for VAT purposes
  • receive anything in return from either the owners or a third party, then what you receive is likely to be consideration for the supply of the work to the owners, and the supply will normally be a business supply and you must charge VAT at the appropriate rate

10.4.1 Considerations

The consideration need not be in money. For example, if you carry out the work only on condition that you can use the hall afterwards, then use of the hall could be consideration from the owners for your supply of the work.

10.4.2 If the consideration is not in money but you’re not sure what its value is

You should consult the guidance in the VAT Valuation Manual.

10.4.3 Acting as an agent of the owners for work to a hall, rather than as the main contractor

The work is not supplied to you but to the owners and you cannot recover VAT. But if you act as agent in your own name, separate rules apply. You can find out more about this in VAT guide (Notice 700).

If you:

  • can treat yourself as both receiving and supplying the goods or services then you’re liable to account for VAT on the onward supply of the work to the owners, you can recover as input tax any VAT you’re charged on the works, the input tax you claim is normally equal to the output tax you account for on the onward supply, and you must not reclaim the input tax before you have accounted for the output tax
  • charge the owners of the hall for the service of arranging the work, then this charge is liable to VAT at the standard rate

10.4.4 Recovering the VAT incurred for the work done if you do not own the hall

If you:

  • carry out the work, give it away and receive nothing in return, then this is not a business activity and you can recover the VAT under section 33
  • act as a main contractor, then your onward supply to the owners is a business activity, you can recover the VAT under the normal rules, if your onward supply is taxable

11. Claiming refunds - public bodies registered for VAT

11.1 How to claim the VAT refunds you’re entitled to

You should use your normal VAT Return to claim any VAT you’re entitled to as a section 33 body.

Step 1

Include the amount of VAT in the ‘VAT deductible’ side of your VAT account and in box 4 of the VAT Return.

Step 2

Include the net value of your claim in box 7.

Step 3

Make your claim within 4 years of the due date of your return for the prescribed accounting period in which the VAT became chargeable.

11.2 Making a late claim

Adjustments to previous claims should be made in accordance with HMRC Manual VATGPB4960. A summary should be kept detailing the errors and the periods covered.

Further details on error correction is available in VAT Notice 700/45: how to correct VAT errors and make adjustments or claims.

12. Claiming refunds - public bodies not registered for VAT

12.1 Public body in section 33 and not registered for VAT

If you’re a public body in section 33 and you are not registered for VAT, this section will help you make sure your claims for VAT refunds are valid. It also explains how to make them.

12.2 How to find out what goods and services you can recover VAT on if you’re in section 33 but not registered

Step 1

Read the section on ‘Recovering VAT by public bodies’ to find out the main principles.

Step 2

Read the sections on ‘Recovering VAT on taxable business activities’ and ‘Recovering VAT on exempt business activities’ to see whether you can meet the various requirements set out there.

Step 3

Reclaim the VAT you have incurred only when you can attribute it to your:

Step 4

Because you’re not registered, you may neither:

  • charge VAT on your taxable business activities
  • recover the VAT relating to them

12.3 Claiming VAT refunds you’re entitled to

Step 1

Apply in writing. If you’re claiming for the first time use form VAT126.

Use form VAT126 if you have previously claimed and have been advised of your unique numbers.

Step 2

Make sure that your claim relates to a period of at least one calendar month, or at least 12 months if it’s for less than £100.

Step 3

Make sure the period you choose ends on the last day of a calendar month.

Step 4

Claims must be made within 3 years of the end of the month in which the supply, acquisition or importation occurred. From 1 July 2018 this period is extended to 4 years, but no claim can be made for goods imported or acquired or on goods or services supplied before 30 June 2015.

Step 5

Keep invoices and other records to support your claims for 6 years, unless we agree in writing to a shorter period.

Step 6

If this is your first claim, also send evidence of your banking details, for example, a copy of a statement or bank letter. Otherwise inform us only if you change bank details.

12.4 What you need to apply for a refund

You do not send the invoices themselves.

You need to send a:

  • signed declaration
  • list of invoices you wish to claim for

The declaration should say:

I am claiming a refund of £X for the period…… to…… to cover VAT charged on goods and services bought for (name of body) non-business activities.

The tax claimed includes VAT incurred for exempt business activities that can be reclaimed under Notice 749: local authorities and similar bodies.

Signed:
For (name of body):
Address:
Contact name:
Contact telephone number:

Delete as appropriate*

The list of invoices sent with your VAT126 or written applications will need to provide the following information:

  • date of invoice
  • suppliers VAT registration number
  • brief description of supply
  • to whom addressed
  • VAT paid

If this is your first claim also send documentary evidence of banking details, for example, a copy of a statement or bank letter.

12.5 Where to send your claim

Send your claim to:

HM Revenue and Customs
Corporate Treasury
DMB 613
West Yorkshire
BX5 5AB

12.6 What happens when we receive your claim

Once we receive your claim we will:

  • provide you with a unique reference number to be shown on all claims, but this does not mean that we have registered you for VAT
  • provide you with a link to the online service so that you can complete any future claims
  • make the refund claimed by Bacs transfer direct to the bank account you have entered on your claim (form VAT126)

Your rights and obligations

Read Your Charter to find out what you can expect from HMRC and what we expect from you.

Help us improve this notice

If you have any feedback about this notice email: customerexperience.indirecttaxes@hmrc.gsi.gov.uk.

You’ll need to include the full title of this notice. Do not include any personal or financial information like your VAT number.

If you need general help with this notice or have another VAT question you should phone our VAT helpline or make a VAT enquiry online.

Putting things right

If you are unhappy with HMRC’s service, contact the person or office you’ve been dealing with and they’ll try to put things right.

If you are still unhappy, find out how to complain to HMRC.

How HMRC uses your information

Find out how HMRC uses the information we hold about you.

Published 26 June 2018
Last updated 14 August 2018 + show all updates
  1. The contact details and how to put things right has been updated. It gives a better understanding of the work of public bodies and the general provisions of VAT reclaims, further information on the calculation of VAT attributable to exempt suppplies as well as the new rules on occasional breaches of the insignificance test.
  2. First published.