HM Revenue and Customs Brief 53/09
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Issued 17 August 2009
VAT - Recovery by local authorities under section 33 VAT Act 1994 in respect
of voluntary aided schools
This Revenue and Customs Brief explains our revised policy on VAT recovery by
local authorities on expenditure relating to capital works at voluntary aided
Under Section 33 of VAT Act 1994 ('Section 33') specified bodies, including
local authorities, are entitled to recover VAT incurred on supplies made to them
which relate to their non-business activities. Their provision of free education
in state maintained schools is one such non-business activity.
However, governing bodies of maintained schools are separate legal entities
and are not bodies specified in Section 33. Therefore any VAT they incur in
relation to their non-business activities is not recoverable.
Where the local authority has a statutory duty to 'defray' all expenses of
maintaining a school, for example, community schools, then any VAT incurred on
purchases made by it in connection with these schools is recoverable under
However, in the case of voluntary aided schools the governing body retains
statutory responsibility for certain capital expenditure, including when made
from the school’s delegated budget. Therefore, in respect of any supplies which
fall within the prescribed definition of such expenditure, the supply will be
made to the governing body, even where the expenditure is met from the school’s
delegated budget, and VAT incurred may not be recovered by the local authority.
Governing bodies in England receive funding from the Department for Children,
Schools and Families (DCSF) of up to 90 per cent of the cost of meeting these
responsibilities (and there are similar arrangements in place in the devolved
Capital expenditure for which the governing body of a voluntary aided school
is responsible is defined by DCSF as expenditure relating to:
- the existing buildings (internal and external)
- those buildings previously known as 'excepted' (kitchens, dining areas,
medical/dental rooms, swimming pools, caretakers’ dwelling houses)
- perimeter walls and fences, even if around the playing fields
- furniture, fixtures and fittings – including ICT infrastructure and
- other capital items (which can include capital work to boilers or other
A local authority is allowed to contribute funding to a governing body to
help it meet the cost of its responsibilities. We have to date accepted that
local authorities can recover the VAT incurred on expenditure which is the
responsibility of the governing bodies but which the authority funds. This is
explained in Public Notice 701/30 paragraph 15.5 and ‘V1-14: Government and
public bodies’ and ‘V1-07 chapter 21; Education’.
We have reviewed this policy, and we now realise that it goes beyond what
Section 33 actually permits. Section 33 is confined to VAT incurred by local
authorities etc on the goods and services that they purchase, not on the goods
and services that another legal entity purchases. Therefore, with effect from 1
September 2009, with respect to projects initiated after this date, VAT may no
longer be recovered by local authorities in these circumstances, as the supplies
are not made to them (whether or not paid for from the delegated budget). We
will consider, on their individual facts, cases where a project initiated after
1 September 2009 was funded on the basis of the previous policy.
A local authority may, however, continue to recover VAT on expenditure at a
voluntary aided school for which the local authority is statutorily responsible,
or where the local authority, rather than the governing body, procures a supply
of works and pays for that supply from its own funds (for further details please
refer to Public Notice 749 Local Authorities and similar bodies paragraph 7.1).
In such cases HMRC accept that the local authority receives the supply in
connection with its non business activities.
Guidance currently contained in Public Notice 701/30 paragraph 15.5 and
‘V1-14: Government and public bodies’ and ‘V1-07 chapter 21; Education’ will be
amended to take account of this revised policy.
If you have any queries in relation to this, or any other tax matter, please
contact the National Advice Service on Tel 0845 010 9000.
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Article Published/Sorted/Amended on Scopulus 2009-08-26 15:56:50 in Tax Articles