pump track design

VAT Guidance

(CILCA submission, P Edwards, 2nd March 2021)

Business and Non-Business Activities[1]

Business activities cover the supply goods and services in return for payment with a degree of frequency and scale, continuing over time and which could be provided by the private sector. Non-business activities cover acting as a public authority[2] to provide services for free or under statutory duty (eg allotments or burial grounds) and for leases of £1 or less.

Taxable Supplies

Standard, reduced[3] and zero[4] rate supplies (where no VAT is charged and the rate is nil[5]) are all classed as taxable supplies.
Examples: sports (single booking), off street car parking, market stalls, event admission

Exempt Supplies

Schedule 9 of the VAT Act 1994 lists exempt supplies.
Examples: room hire, sport block bookings, market pitches, lease of land, wayleaves

When it is not lawful to reclaim VAT

A council is liable to be registered for VAT if it makes any taxable supplies[6], but it is only enforced if the VAT would exceed £1000[7]. VAT registered councils may reclaim VAT on taxable business activities. Non registered councils cannot reclaim VAT on taxable supplies for business activities.[8]

To reclaim VAT on non-business activities a council must place the order, pay from its own funds including grants, receive the supply and receive a tax invoice addressed to it.[9]

Councils can reclaim VAT on exempt business activities[10] provided the total reclaimed on exempt activities is less than £7500 per annum[11]. If it exceeds this amount, nothing can be reclaimed on exempt activities.

When using money from a grant or donation given for a specific purpose, a council must remain the owner of the goods and use them for its own non-business purposes. VAT cannot be recovered if the council give or do something or allow a third party to benefit in return for a grant or donation.

[1] VAT Notice 749 (2.2)

[2] VAT Notice 749 (3.3)

[3] Schedule 7A of the VAT Act 1994 list reduced rate supplies

[4] Schedule 8 of the VAT Act 1994 lists zero rated supplies.

[5] VAT Act 1994 S30(1)

[6] VAT Act 1992 S42

[7] VAT Notice 749 (3.2)

[8] VAT Act 1994 S33(1)(b)

[9] VAT Notice 749

[10] VAT Act 1994 S33(2)

[11] VAT Act 1994 S33(2)(b)

  • Posted: 3rd September 2023