VTRANS110630 - The supply of ships and aircraft: aircraft: State institutions

Following the changes of 1 January 2011 the zero rate for supplies to State institutions was preserved under the derogation to Principal VAT Directive (Directive 2006/112) Article 371, Annex X, Part B item 11.

Art 371

Member States which, at 1 January 1978, exempted the transactions in Annex X, Part B, may continue to exempt those transactions, in accordance with the conditions applying in the Member State concerned on that date.

ANNEX X

Part B - transactions which Member States may continue to exempt

(11) the supply, modification, repair, maintenance, chartering and hiring of aircraft used by State institutions, including equipment incorporated or used in such aircraft.

Although the provision refers to exemptions (without refund) as the UK permitted refunds of VAT at the relevant date of 1 January 1978 this was a condition within the meaning of the Article.

State institution includes:

  • The Crown (which includes The Queen in her official capacity and Parliament)
  • Central Government departments and Agencies and persons exercising functions on behalf of a Minister of the Crown as defined in VAT Act Sections 41(6), 41(7) and 41(8)
  1. (for example Ministry of Defence, HMRC, Maritime and Coastguard Agency, Met Office, department of Transport, NHS bodies)

Devolved Administrations of Scotland, Wales and Northern Ireland including their departments and agencies

  • Local Authorities including fire and police authorities
  • The Royal Mail
  • Similar bodies in other countries

For the most part UK State institutions will be bodies as defined under the VAT Act 1994, Section 41 and 33(3) and it is expected that the vast majority of the relevant bodies will know whether they are a State institution under those provisions; see also guidance in VATGPB - VAT Government and Public Bodies.

However, the term State institution is wider than just these bodies, for example the Royal Mail listed above. The list is not exhaustive and officers may have to consider claims that other emanations of the State and other bodies fulfilling State functions are State institutions.

There may be difficulties in a few cases in deciding whether a body belonging to a foreign country is a State institution or not in that country. Officers should also bear in mind that in many cases other zero-rating reliefs will be available for supplies to these bodies.

The status of State institution will not automatically carry through to private contractors engaged by a State institution but a contractor may be a State institution in its own right.