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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: welfare: disabled student grants

The Department for Education (DfE) provides grants through local authorities to assist people with disabilities to undertake further and higher education. The grant can be used to buy specialist computer equipment or to contribute towards the costs of personal assistance while studying away from home.

Although the funding is often held and administered by the local authority, it does so on behalf of the DfES. The award is by the DfES to the student so any expenditure it is used for is incurred by the student. This is in line with the decision of the High Court in the case of Ashfield District Council (CH/2001/APP/10434) which considered the VAT treatment of home improvement grants issued by a local authority (see VATGPB8350).

As a result the local authority has no entitlement to recover VAT on purchases made using disabled student grants, even if the goods and services are ordered and paid for by the authority. Nevertheless, it is accepted that an authority can act as an agent for the student. In that event it can recover VAT under section 47 of the VAT Act 1994, but only to the extent that it recharges VAT as a supply to the student. For further information see the VAT Taxable Person Manual (external users can find the guidance at http://www.hmrc.gov.uk/manuals/vtaxpermanual/Index.htm).

Some computer equipment supplied to a student in these circumstances may be eligible for zero rating. For more information see Notice 701/7‘VAT reliefs for disabled people’ (external users can find the notice at http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.por…). Where a local authority acts as a buying agent for the student the supply of the computer equipment will be standard-rated to the authority. However, the local authority may zero-rate the onward supply in the same way that it would have been zero-rated had they ordered the equipment themselves. The local authority can recover the VAT they are charged as input tax.