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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 schools.


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 Section 33.

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 administrations).

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
  • playgrounds
  • furniture, fixtures and fittings – including ICT infrastructure and equipment
  • other capital items (which can include capital work to boilers or other services)

Revised policy

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.

What next?

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.

About the Author

© Crown Copyright 2009.

A licence is need to reproduce this article and has been republished for educational / informational purposes only. Article reproduced by permission of HM Revenue & Customs under the terms of a Click-Use Licence. Tax briefs are updated regularly and may be out of date at time of reading.

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Article Published/Sorted/Amended on Scopulus 2009-08-26 15:56:50 in Tax Articles

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