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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: childcare and welfare: children’s centres

The position described at VATGPB8210 applies where a local authority supplies childcare and welfare services from a children’s centre it has constructed. Construction is typically undertaken by the authority using funds allocated to it by the Department for Education & Science. The centres are typically used as bases to provide child orientated services including playgroups and child related health services provided by Primary Care Trusts (PCTs) and other health organisations.

In some cases a local authority may construct a children’s centre but will not occupy the building. Instead it will lease it to one or more organisations for them to provide services, or to organisations which will provide other necessary care or counselling services such as PCTs.

Where a local authority leases a children’s centre to one or more organisations for a rent intended only to recover ongoing running costs (as opposed, for example, to charging a commercial market rent) the VAT incurred on developing the centre may be recovered. The authority should exclude the relevant figures from its insignificance test (see VATGPB4500).

Running costs comprise administration, overheads, depreciation and maintenance. They do not include surpluses that will be invested by the local authority in other parts of its business. In other words any surplus that might be made must, and can only be, for the purposes of reinvesting in the building.

Children’s centres may be used for a variety of purposes some of which might include lettings to third parties for a market rent. That is to say for a rent calculated to do more than recover ongoing running costs. Nevertheless, the centre may be excluded from the 5 per cent calculation so long as the area let is minimal in relation to the area of the centre as a whole. But, because children’s centres vary greatly across the country, there can be no hard and fast rule for determining what amounts to minimal. As a guide 10 per cent of the total occupied area, or 10 per cent of the total use, can be accepted as minimal, but it must be stressed that each case needs to be considered on its own facts.