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HMRC internal manual

VAT Government and Public Bodies

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Other local authority activities: miscellaneous (G to Z): supplies between local authorities

Supplies of goods

Following the ECJ decision in Carpaneto (ECJ/231/87) (see VATGPB8835) all supplies made by Local Authority Purchasing Consortia (LAPCs) are treated as business. Furthermore a supply of goods between local authorities is not undertaken under any special legal regime. As a result they are ineligible for non-business treatment under Article 13 (see VATGPB2100) and so are taxable.

Supplies of services

This guidance replaces Business Brief 9/95 in explaining how VAT applies to services supplied between local authorities. Firstly supplies of services made under a statutory obligation, that are not in competition with the private sector, are treated as non-business. Secondly, supplies although not made under a statutory obligation, but still not in competition with the private sector, are treated as non-business but taxed if both parties agree

Thirdly, supplies made in competition with the private sector and on a significant scale (such as nationally) are to be treated as business and subject to the appropriate rate of VAT. Finally, supplies that include goods are to be treated as business and subject to the appropriate rate of VAT.

It is not unusual for one local authority to own a property and for another local authority to make some use of it. For example a county council may own a leisure centre within which the local district council operates a nursery. This is often referred to as a ‘dual use’ agreement.

It is frequently the case that one authority will meet all the overhead costs and recharge a proportion to the other without any element of profit or return. This falls within the second category listed above and remains so even if the recharge includes an element to cover heating and lighting which are treated as goods for VAT purposes.