(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