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HMRC internal manual

VAT Government and Public Bodies

HM Revenue & Customs
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Other local authority activities: miscellaneous (F to M): highways


Although there is no legal definition of a ‘highway’ it has emerged from case law as meaning a way over which there exists a public right of passage. That is to say, a right for members of the public, at whatever season of the year, to freely and at their will, pass and re-pass without let or hindrance.

Where a local authority undertakes work or services to a road for which it is the highway authority under the Highways Act 1984, any VAT incurred is recoverable as a non-business activity.

The highway authority will generally be the county council. However, in London the duties are split between the Borough Councils and Transport for London which is also a section 33 body (see VATGPB4000). The highway authority for motorways and trunk roads is the Highways Agency, which is a s41 body (see VATGPB9300).

Highway repairs

A district council that is concerned about the state of repair of a highway in its area can serve a notice on the county council (under section 42 and schedule 7 of the Highways Act) that it intends to carry out the repair. When that happens the county council must either undertake the repair itself or reimburse the district council for its costs. This is a non-business supply because the district council acts under a notice that is unavailable to a private contractor.

But if a county council, as highway authority, puts its maintenance work out to tender and the district council successfully bids for the contract, any subsequent work is by way of business and therefore standard rated. This is because the district council is acting in competition with the private sector.

Works done by a local authority for the Highways Agency is always done under tender and so will always be by way of business and likewise standard rated.


A local authority acting as a highway authority has powers to place traffic signs so long as they comply with the Traffic Signs Regulations and General Directions (SI 1994/1519).

Any charges raised by the authority for assessing the need for the positioning of a sign and for its installation and maintenance, qualify for non-business treatment so long as the services comply with the terms of the Directions. This is because the local authority is not acting in a business capacity when supplying these services, but is instead carrying out its statutory responsibility as the highway authority.

If a local authority provides or places signs when not acting as a highway authority, for example on motorways for the Highways Agency, this is a business supply and so is standard rated.

Verges and the like

Section 96 of the Highways Act applies to highways maintainable at the public expense. It allows for the planting of trees and shrubs, the laying out of grass verges, together with their maintenance by a highway authority. It also allows a district council to do the same with the consent of the highway authority, but there is no obligation for the highway authority to reimburse the district council.

Section 142 of the Highways Act allows a highway authority to permit, by licence, the occupier or owner of any premises adjoining the highway to plant and maintain, or retain and maintain

  • trees
  • shrubs
  • plants, or
  • grass

on any part of the highway specified in the licence. The licence fee is non-business.

The responsibility for landscaping and maintaining verges and the like primarily rests with the highway authority, which can choose to perform the tasks itself or put the work out to tender. If the work is not put out to tender another local section 33 body, or a specified licensee, can obtain the consent of the highway authority to do the work. In these circumstances any payments are non-business. But if the work is put out to tender the contractor, even if another section 33 body, will be making standard rated supplies to the highway authority which can recover the VAT charged under section 33.

General points

Care should be taken to establish who has the statutory obligation to maintain the highway and whether works done are under tender. Whether work is non-business or standard rated, the VAT that a local authority incurs will be recoverable under section 33 or as input tax respectively.