VATGPB3210 - Non-business activities: whether provided as a public authority: introduction
It is important to remember that Section 41A of the VAT Act 1994 (see VATGPB2100) is concerned with activities which would otherwise fall within the scope of VAT. The first question to consider, therefore, is whether the activity in question does fall within the scope of VAT? If it is non-business under the normal business/non-business tests, there is no need to consider S41A.
For an activity to fall within Section 41A, the body undertaking it must ‘engage as a public authority’. If it does not, then the activity can never fall within Section 41A.
There is nothing in UK legislation to specify which activities a body engages in as a public authority. Because of the wide range of activities carried out, it would probably be impossible to do so.
Many cases have been heard both in domestic courts and in the CJEU on the matter of whether a public authority ‘engages’ in an activity as a public authority.
In Carpaneto 1, the CJEU held that whether a public body acts as a public authority depends not on the purpose of the activity, but on how it is legally carried out. A body acts as a public authority only when operating under a special legal regime that applies uniquely to public bodies. If it acts under the same legal conditions as private traders, it cannot be treated as a non‑taxable person.
In Fazenda, the CJEU reaffirmed that classification depends on analysing all national law conditions governing the activity. The exercise of public powers distinguished the activity of public authorities from private bodies.
However, in Commission v Ireland, the CJEU clarified that simply having statutory powers does not mean a body is acting under a special legal regime. Public authorities always operate within statutory frameworks, but this alone is insufficient. What matters is the use of specific public powers in the particular activity.
The Supreme Court decision in Northumbria Healthcare NHS Foundation Trust v R & C Commrs [2025] (UKSC 37) is the authoritative case on the matter and provides useful guidance in determining if a body is engaging as a public authority. The findings of this case are discussed in the next page at VATGPB3220.