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HMRC internal manual

VAT Government and Public Bodies

Section 33 bodies: calculations: method


The section 33 calculation method is based on the budget structure for a body. It adopts a worst case scenario, but this can be refined as necessary. The process starts by working through steps 1 to 3 below, with a more detailed examination applied as necessary. Before 2010 there was also a requirement to calculate recharges but this has been discontinued.

Step 1: Identification of exempt activities

List, within Committee, all budget headings or cost centres that contain any element of exempt activity.

Step 2: Identifying taxable expenditure

Within each of the budget headings or cost centres identified at step 1, record all expenditure (net of VAT) for both capital and revenue that would normally carry VAT.

Step 3: Percentage of exempt related input tax

Add up the standard-rated expenditure identified in step 2 and calculate the VAT by multiplying the total by 20%.

If it does not exceed the insignificance test (5% of total VAT incurred during the year, or less than £625 per month on average - see VATGPB4510) then no further calculations are required. However, the total VAT recovered should take account of any error correction or changes to estimation of input tax.

If the insignificance test is exceeded it becomes necessary to make a progressively more detailed analysis of the amount of expenditure that is put to exempt use. A section 33 body cannot be required to repay VAT relating to exempt supplies without more detailed calculations. If, at any stage, a result below the insignificance test is achieved then no further action is needed.

There is no set method of allocation or apportionment. A different method may be adopted for each particular area or activity based on the information available such as

  • number of staff
  • amount of income
  • floor area used
  • number of sessions, or
  • time.

However it is necessary to demonstrate that any method is fair and reasonable.

If, despite a more detailed analysis the insignificance test is still breached, then none of the VAT relating to exempt supplies is recoverable. Please refer to VATGPB4560 in cases where a breach of the section 33 insignificance test occurs.