HMRC internal manual

VAT Government and Public Bodies

VATGPB3500 - Non-business activities: grants and statutory contributions

You should check the other guidance available on GOV.UK from HMRC as Brexit updates to those pages are being prioritised before manuals.

Sometimes funding for the activities that are carried out by a public body under statutory powers comes from a mixture of grants and statutory contributions by private individuals or businesses.

Where, for example, the main purpose of work is to enhance the wider local environment, rather than, say, improving individual properties, it will be a non-business activity. This remains the case even though an individual may derive an incidental personal benefit from these wider improvements.

The following points provide a general guide on distinguishing between the business and non-business activities of public bodies. However, given the wide range of activities, they do not cover every eventuality.


  • money is given freely to an activity and the donor receives nothing tangible in return, the activity is treated as non-business for VAT purposes
  • a donation is given on the understanding that it is spent on a particular activity (for example tree planting), it is non-business so long as the donor is receiving no direct benefit
  • an activity is funded wholly by statutory charge, or for which someone is legally required to contribute, it is non-business
  • a supply that is paid for and is not voluntary or statutory, and where the person giving the money receives something tangible in return, it is treated as being made in the course of business for VAT purposes.

However, as already mentioned, where someone who contributes financially to an activity ends up with, for example, improved property or premises, it does not automatically follow that a business activity has taken place. The improvement is usually one of the purposes of the activity. Therefore, to avoid any ambiguity, it is important that the objectives are made clear at the outset. Where the improvement is clearly incidental to the main objective, which is itself non-business for VAT purposes, the financial contribution should also be treated as non-business.

For example, an authority might stipulate that all frontages in a block must have a uniform appearance and instigate work to achieve this. Contributions from affected private property owners for things such as replacement windows, doors or roof tiles will be non-business. These are often known as ‘group repair schemes’.

Nevertheless, it is possible that in certain cases a mixture of business and non-business activities will occur. For example, improvements to a housing estate may be planned which are funded, at least partly, by a statutory charge to the residents. However, if a householder asks for further works to be provided which are not part of what is planned, any additional work is seen to be a business activity (see also VATGPB8365).

Note: The above is a general description of the VAT treatment of grants. For detailed information please see VATSC06300.