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HMRC internal manual

VAT Government and Public Bodies

Local government partnership programmes: examples: Business Improvement Districts

Business Improvement Districts (BIDS) can be established to meet the needs of businesses in a particular location by extending civic services beyond what is ordinarily provided by the local authority. For example the local authority may ordinarily clean the main shopping street once a week, but local businesses might prefer to organise this more frequently.

BIDS are created under powers found in sections 41 to 59 of the Local Government Act 2003. They can only be established if businesses in a designated area vote for their creation. Businesses in the BID area will be entitled to additional services, which their existing business rates do not cover.

To fund the work the local authority will add a compulsory additional surcharge or levy to the business rates, which all business in the BID area will have to pay. Whatever is collected from the surcharge is paid into a special ring-fenced account which can only be used for the purposes of the BID. Although some local authorities may deliver the additional BID services, it is more likely that a limited company will be established for this purpose (a ‘BID company’).

Collection of the BID levy by the local authority falls outside the scope of VAT being a statutory levy which is no different to the collection of Business or Non-Domestic Rates. Where a BID company contracts with a local authority to deliver BID services that company is seen to be making supplies to the local authority. The majority of those supplies will be taxable at the standard rate although it is possible that certain exempt and zero-rated supplies might also be made. Any VAT charged to the local authority by the BID Company can be recovered under section 33 (see VATGPB4000).