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HMRC internal manual

VAT Government and Public Bodies

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HM Revenue & Customs
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Section 33 bodies: recoverable VAT: community projects

When contemplating a community project, including work to a village hall, a voluntary group will often approach the parish council and request their assistance in managing the project. If it agrees, the parish council will set up a project fund into which any funds raised locally, along with any grants received by the voluntary group, will be paid. The parish council will then use this fund to purchase or pay for the work on behalf of the voluntary group. Some parish councils have treated a fund like this as if it were their own money and have sought to reclaim VAT on purchases under section 33.

A parish council, or other local authority, may make purchases out of its own funds, including grants it has been awarded, which it then gives away for no charge. This is a non-business activity of the council and so it will be entitled to recover the VAT incurred under section 33. However, grants awarded to a voluntary group, rather than to the council, represent the group’s own funds.

Consequently, if those funds are passed to the council to purchase goods or services for the voluntary group, they represent consideration for a supply by the council to the voluntary group. This is a business activity by the council and so the normal VAT rules apply. Apportionment is appropriate where a council makes purchases using both its own funds and those of a voluntary group. See also VATGPB8375.