Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

VAT Government and Public Bodies

HM Revenue & Customs
, see all updates

Local authority education services: voluntary aided schools: paragraph 6 of guidance on section 33 recovery agreed with the Department for Education

For … go to … For … go to …
Introduction VATGPB7520 paragraphs 1 to 4 VATGPB7530
paragraph 5 VATGPB7540    

HMRC Guidance for Local Authorities (LA) and Voluntary Aided (VA) Schools - VAT recovery under section 33 VAT Act 1994 (continued)

6. VAT recovery on expenditure

As described above, generally the LA may recover VAT (under section 33 of the VAT Act 1994), where it is incurred by the LA in relation to expenditure for which it is responsible i.e. where it receives the supply.

However, VAT incurred by a GB on expenditure for which the GB is responsible is not recoverable under section 33, even when payment is made from the delegated budget. VAT is only ever recoverable on expenditure from the delegated budget to the extent that it relates to expenditure for which the LA is responsible.

Neither is VAT recoverable by the LA on any expenditure made from DfE grant funding made to the GB. Again, this is designated for expenditure for which the GB, rather than the LA, is responsible.

Further, although LAs commonly contribute towards a GB’s capital expenditure, for example, to assist GBs in meeting their own 10/15% contribution for capital works, or to subsidise certain projects, again VAT is not recoverable by the LA on such contributions. HMRC recognise that there has been some confusion in the past regarding such recovery and have, to date, accepted that LAs can recover the VAT incurred on expenditure which is the responsibility of the governing body but which the authority funds. However, HMRC have reviewed this policy and realise that it goes beyond what section 33 actually permits. In these arrangements, the GB is responsible for the expenditure and receives the supply. Thus, any VAT incurred on the supply is incurred by the GB, not the LA. This revised guidance now seeks to bring such treatment within the normal rules for VAT recovery for LAs as set out in Public Notice 749 Local authorities and similar bodies. Therefore, with effect from 1 September 2009, for projects initiated after this date, VAT may no longer be recovered by LAs in these circumstances, as the supplies are not made to them (whether or not paid from the delegated budget). We will consider, on their individual facts, cases where a project initiated after 1 September 2009 was funded on the basis of the previous policy.

Where however, an LA decides to spend its own funds (excluding the delegated budget), by placing an order directly with a supplier on work to a VA school for which the GB is statutorily responsible then, under certain circumstances, it may recover VAT under section 33 as described in para 7.1 of Public Notice 749 i.e. it must procure the goods or services and receive the supply.

The flow chart at Annex A and the table of examples at Annex B are intended to give further guidance on circumstances when VAT may and may not be recovered, but are not intended to be exhaustive. In cases of doubt, GBs or LAs are advised to discuss the matter with HMRC.

For … go to … For … go to …
paragraph 7 VATGPB7560 Annex A VATGPB7570
Annex B VATGPB7580