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HMRC internal manual

VAT Government and Public Bodies

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HM Revenue & Customs
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Bodies governed by public law: non-business treatment

Article 13(1) of the Principle VAT Directive (see VATGPB2100) refers to ‘States, regional and local government authorities and other bodies governed by public law’. This has been clarified by the UK courts in the cases of The Chancellor, Masters and Scholars of the University of Cambridge (VTD 20610) and Wakefield College[2011] UKUT 495 (TCC) as being confined to bodies which are a part of the public administration.

Under Article 13 (1) a body governed by public law is only entitled to non-business treatment for activities:

  • which it engages in as a public authority (see VATSPG3200)
  • where this would not lead to a significant distortion of competition (see VATGPB3300), and
  • which are not included in Annex 1 of the Principal VAT Directive (see VATGPB3500) unless carried out on a negligible scale.

This means that bodies governed by public law and non-public bodies may appear to be supplying the same service, but the service of the public body is entitled to relief from VAT under Article 13(1) because it is governed by different legislation. It is also why an analysis of the extent to which this would significantly distort competition and whether the activity in question is one which is listed in Annex I if the Principal VAT Directive, is important.

It should also be remembered that activities which public bodies alone are required and able to perform are unlikely to be economic activities for the purposes of Article 13. Likewise they are not business supplies for the purposes of section 4(1) of the VAT Act 1994 (see VATGPB2100) and are outside the scope of VAT.

Any other activity carried out be a body governed by public law will fall within the scope of VAT and the normal VAT rules apply.