HMRC internal manual

VAT Government and Public Bodies

Government departments and health authorities: VAT law: restrictions on non-business treatment

Among the restrictions Article 13 of the Principal VAT Directive (see VATGPB2100) places on non-taxable treatment (see VATGPB9310), is that it should not lead to a significant distortion of competition. UK law applies additional restrictions to supplies made by Government Departments and health authorities.

Section 41(5) of the VAT Act 1994 states that:

‘For the purposes of this section goods or services obtained by one Government department from another Government department shall be treated, if and to the extent that the Treasury so direct, as supplied by that other department and similarly as regards goods or services obtained by or from the Crown Estate Commissioners.’

The list of activities treated as business under a Treasury Taxing Direction is published in the London, Edinburgh and Belfast Gazettes. The vast majority of supplies made by Government Departments and health authorities are, in fact, potentially in competition with the private sector. Consequently the list of those to be treated as business is substantial (see VATGPB3400).