VATGPB8860 - Other local authority activities: miscellaneous (N to Z): supplies of staff

Basic principles

A section 33 body (see VATGPB4000) that supplies the services of its staff under the same legal conditions that apply to the private sector is not acting in its capacity as a public authority. The supply it makes is therefore a taxable business activity.

By contrast, if the section 33 body makes the supply under a special legal regime it does so in its capacity as a public authority (see paragraph VATGPB2300) and the supply is outside the scope of VAT.

Examples of business activities

Taxable business activities include secondments of staff by:

• one police authority to another for purely administrative purposes
• a local fire service to an aternal organisation to advise on general fire safety matters
• a local authority Direct Labour Organisation (DLO) to enhance the management team of another DLO, or
• an Local Education Authority to an examination board to advise on methods of assessment.

In all these cases, the section 33 body supplies the service in potential competition with those in the private sector rather than acting under a special legal regime.

The supply of teaching staff, including classroom assistants, by one eligible body to another for the provision of education qualifies as an exempt supply of education under item 1(a), Group 6 of Schedule 9 to the VAT Act 1994. In addition to local authorities, eligible bodies include universities, further education colleges, schools (as defined in law), health authorities, government departments and non-profit making organisations that meet certain criteria. These are all defined in note 1 to Group 6.

For more information about eligible bodies see the VAT Education Manual (VATEDU) (external users can find the guidance at http://www.hmrc.gov.uk/manuals/vatedumanual/index.htm).

Examples of non-business activities

A police authority may provide normal policing assistance to another force under section 24 of the Police Act 1996, for example in connection with an ongoing investigation. It may also second officers under section 23 of the Act to the Serious Organised Crime Agency, the National Crime Squad or the National Criminal Intelligence Service. In these examples the law requires the police authority to supply the services of its officers. Similar services cannot be supplied by the private sector. As there is no competition with the private sector the activities are treated as non-business and therefore outisde the scope of VAT.

In providing specialised fire service training, the Fire Service College obtains experienced serving officers under secondment from local fire brigades to act as instructors in advanced safety and rescue techniques. The authorities supply this service under Part 1 of the Fire and Rescue Services Act 2004. No other organisations have the necessary expertise to offer an equivalent service to the college. The local brigades provide the service in their capacity as a public authority and so the secondments are non-business and outside the scope of VAT.

There are also some specific circumstances where secondments take place without a special legal regime, but where HMRC considers there to be no economic activity. An example of such circumstances are where a Fire Service seconds a firefighter employee to work on union duties for the Fire Brigades Union (FBU):

• the firefighter remains an employee of the Fire Service
• the employer charges the FBU for a contribution towards the emplyee’s employment costs
• the Fire Service does not charge an administration fee
• the Fire Service does not obtain any financial advantage from the arrangement

In these specific circumstances, HMRC considers there to be no economic activity, and therefore the supply will be outside the scope of VAT.

Agreements to release rather than supply staff

Sometimes, rather than supply the services of its staff the authority will agree to their release. This frequently occurs where a teacher undertakes A level or GCSE exam work. A teacher who volunteers to undertake these duties will make all the necessary arrangements with the examining board. They will have two discrete contracts, one with the authority and one with the examining board.

The local authority, who may continue to pay the salary of the teacher for administrative reasons, will gain no specific advantage from the arrangement. It plays no role other than agreeing to the release of the teacher concerned. A similar situation may apply where staff are seconded to other government departments, or commercial companies, for career development purposes, albeit the authority may have more involvement in making the arrangements.

Secondments in circumstances where the secondee has two discrete contracts do not amount to a taxable supply of the services of staff by the authority and any reimbursement of salary is not liable to VAT. However, any administration charge made by the authority is consideration for a supply of payroll services on which VAT is to be accounted for.

Steps to take to determine the liability of a secondment arrangement

1. Is there a release of staff where the employee has two distinct contracts? If yes, the supply will fall outside the scope of VAT. If no, go to 2
2. Is there a tripartite arrangement between the seconding organisation, the organisation to which the staff member is seconded, and the staff member, and does the seconding organisation continue to pay the staff member’s employment costs throughout the course of the secondment? If no, the supply is taxable. If yes, go to 3
3. Is the supply made under a Special Legal Regime? If yes, go to 4. If no, go to 5
4. Is the supply made in competition with the private sector? If yes, the supply is taxable. If no, the supply is outside the scope of VAT.
5. Do the contractual arrangements result in the following criteria being met:

a. The seconding organisation does not charge an administration fee.

b. The secondment is made with no expectation of a material benefit being realised in return by the seconding organisation at the time of the agreement being made or subsequently;

c. The seconding organisation does not enter into the arrangement for the purpose of generating a profit or with the expectation of recouping its monetary loss incurred in full in the course of the arrangement: the arrangement is expected to be loss-making for the seconding organisation throughout its duration, even if a partial reimbursement is made;

d. The arrangement does not generate a profit for the organisation.

• If all of these criteria in point 5 are met (in addition to point 2) and/or there is a Special Legal Regime in place with no possible distortion of competition, the supply is outside the scope of VAT. If the criteria are not met, the supply is taxable.