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HMRC internal manual

VAT Government and Public Bodies

Non-business activities: introduction

When considering the statutory activities of public bodies, the first step is to decide whether they are economic (‘business’) activities. Many activities may be funded by taxation for the wider public good and so will always be outside the scope of VAT.

Activities funded wholly by central or local government for the wider public good.

will always be outside the scope of VAT because what is received by the public body is not consideration for VAT purposes. This remains the case even where the specific costs are identified in the public body’s records.

Other activities may also be outside the scope of VAT as a result of Article 13(1) of the Principal VAT Directive (see VATGPB2100).

The broad principles here are that:

  • bodies should form a part of the public administration
  • they should engage as public authorities for the activity in question, which means that the activity is governed by legislation which does not apply to non-public bodies
  • the activity is not listed in Annex I of the Principal VAT Directive and
  • the result should not significantly distort competition with non-public bodies

It will invariably be the case that a single public body will be engaged in activities which:

  • are not economic activities at all or
  • fall within Article 13(1) of the Principal VAT Directive or
  • are subject to the normal VAT rules

There is a decision chart at VATGPB3600 which, when used along with the rest of the information in VATGPB3500, may assist in reaching a decision on how to treat activities of public bodies for VAT purposes.

Article 13(2) of the Principal VAT Directive is an optional measure which is not implemented in the UK.