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HMRC internal manual

VAT Government and Public Bodies

Police authorities: specific activities: disposal of goods

Disposal of police assets

The sale of police assets, for example excess furniture, or computer equipment is a supply of goods for VAT purposes.  The VAT liability will be subject to the normal rules.

Disposals under the Police (Property) Act

The police may seize or retain possession of items under the Police (Property) Acts of 1897, 1997 and similar pieces of legislation. Our interpretation had been that the disposal of these items was a business activity and therefore taxable within the normal VAT rules.

However following a comprehensive review into the sale of these goods and the underlying legislation governing it, we accept that they are disposed of under a special legal regime only applicable to the police.  There is so far no evidence to suggest that the non-taxation of these supplies would significantly distort competition. As such the disposal of goods under the Police (Property) Act is outside the scope of VAT. VAT incurred by the police on purchases made to support this activity can be recovered under section 33 of the VAT Act 1994, unless recovery of the VAT would otherwise be blocked.

This guidance supersedes our previous guidance on the matter, which advised that disposals under the Police (Property) Act gave rise to business activities by the police falling within the scope of VAT.

Disposals made under the Proceeds of Crime Act

Where a convicted criminal has financially benefited from their crime the Court can impose a Confiscation Order (CO) under the Proceeds of Crime Act 2002. The CO is for a monetary amount and in most cases failure to pay can increase the length of any custodial sentence. Following the issue of a CO, assets may be sold by, or on behalf of, the defendant. Where assets are sold by a law enforcement agency in connection with a CO, VAT is not due from the agency on any income from the sale.

In effect the defendant is seen to be the owner of the asset and so any VAT liability rests with that person and not with any agency that has overseen the sale. If the defendant is VAT registered then any VAT liability will fall on the defendant’s VAT registration. The sale will also be subject to the normal VAT liability rules. In the unlikely event of an agency making a charge for their services in administering the disposal it is likely that this will be for a taxable supply to the defendant.