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HMRC internal manual

VAT Government and Public Bodies

HM Revenue & Customs
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Other local authority activities: housing and community projects: property improvement grants


To improve their properties qualifying householders can apply to their local authority for grants under a number of different Acts. The most common are:

  • Renovation Grants,
  • Common Parts Improvement Grants,
  • Disabled Facilities Grants, and
  • Multiple Occupation Grants.

They are awarded under the Housing Grants, Construction and Regeneration Act 1996. The grants seldom cover 100% of the work and the householder will normally be required to fund some of the costs.

The funds are paid direct to the local authority by central government and it is up to the authority to decide how best to promote their existence. There tends to be two ways in which grant funded improvements are carried out.

Local authority provides third party consideration

If a home owner arranges with a builder to carry out works and a grant is paid by the council, then the local authority payment is third party consideration which does not attract section 33 recovery (see VATGPB4000).

In Doncaster Borough Council (VTD 12458) the Council paid grants to householders who had arranged for contractors to carry out smoke control work. It then recovered 4/7th of the grants paid from central government. The Council argued that it was entitled to recover the part of the tax charged by the contractors to householders which it was unable to recover from central government. Although accepting that the Council was statutorily obliged to make the grants the Tribunal dismissed the appeal. This was on the grounds that there was no supply by the contractors to the Council and so no entitlement to input tax recovery.

Local authority acts as agent

The local authority may act as agent of the home owner in organising the building work. Nevertheless the authority’s contribution remains third party consideration without entitlement to section 33 recovery.

If the local authority charges the homeowner for its agency services, the fee is taxable. This was confirmed by the High Court in Ashfield District Council (CHD [2001] STC 1706).

The case did not concern agency fees as such. The Council claimed that, when acting on the householders behalf, it entered into contracts as principal and not as the householders’ agent. In rejecting this argument the High Court held that once an authority agrees to award grants it holds these monies on trust for the applicant householder. Once awarded the grant money ceases to be the property of the local authority.

At the time of the case authorities were permitted to apportion the taxable treatment of the agency fee according to the proportion of the work paid for by the householder. With it being held that the grant money, once awarded, was no longer the property of the local authority it followed that VAT should be accounted for by the authority on the whole of the agency fee.