.png)
.png)
HMRC’s revised policy on VAT recovery by local governing authorities on expenditure relating to capital works at voluntary aided schools is contained in Revenue and Customs Brief 53/09.
Under VATA 1994, s 33 certain 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. Governing bodies of maintained schools are separate legal entities and are specified in s 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, any VAT incurred on purchases made by it in connection with these schools is recoverable.
In voluntary aided schools, the governing body retains statutory responsibility for certain capital expenditure, including when made from the school’s delegated budget.
Therefore any supplies which fall within the prescribed definition of such expenditure 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.
A local authority is allowed to contribute funding to a governing body to help it meet the cost of its responsibilities.
HMRC 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.
Having reviewed this policy, HMRC realise that it goes beyond what s 33 actually permits.
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).
HMRC 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.
