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HMRC internal manual

VAT Government and Public Bodies

Other local authority activities: housing and community projects: provision and maintenance of community projects including village halls

Introduction

What follows has been agreed with ACRE (the Association for Communities in Rural England).

Community project funding

When contemplating a community project, including work to a village hall, a voluntary group will often approach the local authority and request its assistance in managing the project. If it agrees the authority will set up a project fund into which any funds raised locally, along with any grants received by the voluntary group, will be paid. The authority will then use the fund to make payments on behalf of the voluntary group.

Some authorities have treated this fund as if it were their own and have sought to reclaim VAT on purchases under section 33 (see VATGPB4000). However, grants that have been awarded to a voluntary group belong to that voluntary group rather than the local authority.

If an authority pays money into a project fund it cease to be the authority’s own money unless the project fund is actually part of the authority. This may be the case where, for example, the project fund forms part of the authority’s statutory accounts and the authority retains control over how the money is spent.

The VAT implications are likely to depend on the ownership of the village hall. A local authority may be regarded as owning a hall if it is sole managing trustee, as opposed to custodian trustee, whose role is simply to hold the property of the trust.

The following arrangements can apply to work carried out on village halls. The same principles apply to other community projects not involving village halls.

Village halls owned by the local authority

A local authority which uses its own funds to carry out work to a village hall that it owns is not making a supply for VAT purposes.

Where the local authority owns the hall, but receives funds from other users such as the village hall management committee, the likelihood is that the funds will be consideration for the latter’s use of the hall. Similarly, if the body providing the funds does so on condition that a third party will be able to use the hall, then this is also likely to be consideration as it amounts to a third party payment.

If neither the body, nor a specified third party, uses the hall then the funds may be a donation and outside the scope of VAT. To qualify as a donation the funds must be freely given and neither the donating body, nor a particular third party, should benefit.

Whether the authority is able to recover the VAT incurred on work to the hall will depend on the use to which the hall is put. If it is used for the authority’s own non-business activities then the VAT will be recoverable under section 33. However, if the hall is used to make a supply which is by way of business, for example allowing someone to use the hall in return for payment (either monetary or non-monetary), then the normal VAT rules apply.

If the authority uses donated funds to make a purchase it can recover the VAT incurred under section 33 so long as that it:

  • places the order
  • receives the supply
  • holds a VAT invoice on which it is shown as the customer
  • pays for the supply
  • retains ownership of whatever is purchased
  • uses it, or makes it available for, its own non-business purposes, and
  • keeps sufficient records for the purchase and the purpose for which it is made, to be easily identified.

Village halls not owned by the local authority

A local authority may assist the owner of a village hall, for example a voluntary group. If the authority uses its own funds to carry out work on the hall it will not be making a supply for VAT purposes so long as it receives nothing in return. However, anything the authority receives for the work is likely to be consideration for a supply.

This consideration need not necessarily be monetary. For example, if the authority has use of the hall, this use could amount to consideration for the supply of the works. Where the authority receives either monetary, or non-monetary, consideration the supply will normally be by way of business with VAT due at the appropriate rate.

A voluntary group which owns a village hall, or a third party, may pass funds to the authority for it to arrange work to the hall. These funds are likely to amount to consideration for a supply to the voluntary group. In arranging the work the authority may be acting as a main contractor in initially receiving the supply and making an onward supply to the voluntary group. The consideration is the funding it has received.

Alternatively the authority may act as an agent of the voluntary group in arranging for the work to be undertaken. If so the supply of the work will be to the voluntary group, not to the authority. However, where the authority acts as agent in its own name the provisions of section 47 of the VAT Act 1994 will apply.

This provides for an agent to be treated as both receiving and supplying the goods or services. It will therefore be liable to account for VAT on the supply but will also be able to recover any VAT it incurs as input tax. However, this does not alter the nature or value of supply to the voluntary group. Consequently the amount of input tax claimed will normally be equal to the output tax accounted for on the onward supply. The authority can only reclaim the input tax once it has accounted for the output tax. If the authority charges the voluntary group for the service of arranging the work this charge is liable to VAT at the standard rate.

Further guidance on supplies made through agents acting in their own name can be found in Notice 700 ‘The VAT Guide’ (external users can find the notice at https://www.gov.uk/government/publications/vat-notice-700-the-vat-guide).

An authority which carries out work to a hall and receives nothing in return is undertaking a non-business activity. VAT is recoverable under section 33. If the authority acts as a main contractor the onward supply it makes is by way of business. Where this is a taxable supply, the VAT incurred by the authority will be deductible as input tax subject to the normal VAT rules.