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HMRC internal manual

VAT Government and Public Bodies

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

For … go to … For … go to …
Paragraphs 1 to 4 Section 33 bodies VATGPB7530 Paragraph 5  VATGPB7540
Paragraph 6 VAT & expenditure VATGPB7550 Paragraph 7 Insurance VATGPB7560
Annex A Flowchart on VAT recovery under Section 33 VATGPB7570    

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

Examples when VAT is recoverable by local authority under section 33

Example Comments
1. Where governing bodies procure non-governing body responsible capital goods or services and pay for such supplies out of its delegated budget. The Governing body acts as local authority’s agent (S49(5) SSFA) unless they are governing body responsible capital works of a value above the de minimis limit.   (see VATGPB7540)
2. Where governing bodies donate funding, such as moneys received from external grant providers, PTAs or governing body’s private fund, to the local authority which the local authority then uses to meet expenditure for works or revenue purchases for which the local authority is responsible. Provided the conditions in para 10.4 of Public Notice 701/30 and/or para 7.3 Public Notice 749(see also VATEDU66250) are met, local authorities may recover VAT under section 33.
3. If a local authority decides to spend its own funds (excluding the delegated budget), by means of an order placed directly by the local authority (i.e. not by the governing body) with a supplier, then the VAT would be recoverable. This is so even if the expenditure is on work to the premises of a VA school for which the governing body is responsible. When a local authority uses its own funds, VAT may be recovered under section 33 as described in Public Notice 749 para 7.1, in other words the local authority must procure the goods or services and receive the supply.
4. PFI funding, including; Building Schools for the Future (BSF), PFI funding, awarded to local authority. Any unitary charge from the PFI provider is regarded as revenue expenditure and as such is the local authority’s responsibility.


Examples when VAT would not be recoverable by local authority under section 33

Example Comments
1. Where a governing body donates funding, such as moneys received from external grant providers, governing body’s private fund or money from delegated budget, to the local authority which the local authority then uses to meet expenditure for works for which governing body is responsible. VAT incurred in these circumstances is not recoverable by the local authority, unless it accounts for output tax on the value of the contribution received from the school.

In these arrangements, including where the funding originates from Scottish Government or Welsh Assembly and direct grants paid to governing bodies to fund 90%/85% of capital projects, any such funding paid by governing bodies to local authorities to fund capital works should be treated as consideration for a supply to the governing body. In other words, the money is not donated because it obtains benefits for the governing body.

A governing body usually owns the school buildings and it will be difficult in most cases for the local authority/governing body to argue that the local authority can retain ownership of capital works in VA schools. Whilst some local authorities might incur ongoing costs of upkeep, most capital works are the responsibility of the governing body.    
  2. Under no circumstances should any VAT be recovered by local authority in respect of expenditure met from 90%/85% Department for Education / Scottish Government or Welsh Assembly funding (e.g. Devolved Formula Capital). This funding is awarded to pay for capital works for which the governing body is responsible and therefore when it is spent, any VAT incurred is incurred by governing body not local authority. Department For Education, Scottish Government and Welsh Assembly funding is calculated to include irrecoverable VAT.
  3. If remaining 10%/15% is met directly from governing body’s fund raising. This applies even where payment is met from the delegated budget (see comment). This also applies where, for example for cash flow reasons, the governing body spends delegated budget to pay for work which is the governing body’s own responsibility and then they subsequently top-up the  delegated budget by an equivalent amount using funds from the governing body’s own resources e.g. rents, fund raising activities etc. In effect, this seems to simply amount to borrowing from the delegated budget. Clearly in this arrangement, the governing body is not acting as local authority’s agent when the delegated budget is spent. In effect, they are spending their own funding and VAT is therefore not recoverable by the local authority.
  4. Where governing body’s 10% liability is met using delegated budget funding. S49(6)(b) SSFA specifically excludes governing bodies  from acting as the local authority’s agent when they use delegated budget to meet their own liabilities for capital works.
  5. Where a governing body spends own private funds on revenue expenditure itself procuring the goods or services. These funds are not paid for from delegated budget or donated to the local authority or delegated budget.
  6. Local authority donates funds to governing body for capital works for which governing body is responsible. Unless the local authority procures, receives and pays (para 7.1 of PN 749), then supply of works is not to local authority .This policy came into effect from 1 September 2009. Previously recovery in these circumstances had been allowed.   
  7. On expenditure paid for from income obtained by governing body from other sources e.g. where charges are made for community services e.g. adult education, sporting facilities etc. where money is owned by governing body and cannot be paid into delegated budget. VAT incurred in these circumstances is not recoverable by the local authority.
  8. On expenditure paid for from funding awarded to governing body and/or local authority by National Lottery, Sport England etc. Recovery of VAT would be dependent upon ownership of the grant.

If the grant is solely awarded to the school, then the funding does not belong to local authority. The governing body, as the body awarded the funding, is the body responsible for carrying out the works and any VAT incurred may not be recovered.  If the local authority are contracted by the governing body to do the works and funds are passed to the local authority for these works, then, to the extent of the money paid to the local authority, this may represent consideration for supplies by the local authority to the governing body to allow it to carry out its commitment in respect of the funding.

If the grant is awarded jointly to the school and the local authority, then if the local authority places the order and makes payment etc. then VAT may be recovered by the local authority subject to the normal rules.    
  9. On expenditure from Local Authority Co-ordinated VA Programme (LCVAP) funding. This funding originates from Department for Education and is administered by the local authority. However, it is intended to support capital projects which are the governing body’s responsibility (see section on LCVAP in Blue Book).
  10. Although paid via the local authority , Building Schools for the Future (BSF) funding for Design & Build(D&B) or redevelopment of VA schools is awarded and belongs to the governing body for these capital works for which the governing body is responsible (exceptionally BSF grant is paid to meet 100% of governing body’s liability - see Blue Book). For D&B or redevelopment works procured under BSF, the local authority and governing body will enter into a Development Agreement for the BSF works. Acting as principal, the local authority will procure/project manage BSF work for all schools in its area. When complete, the local authority will make a supply of the works to the governing body which will be subject to VAT unless the work can be zero rated. The local authority will retain the school’s BSF funding as consideration for the supply of the works to the governing body.

HMRC public notices and published guidance referred to above can be found on website: