The importance of VAT for local authorities


By Ian Harris, VAT and Taxation Officer, Leicester City Council and member of the CIPFA VAT Committee.

VAT is a major issue in the finances of most public bodies, and local authorities are no exception. Be it securing the refund of considerable sums of VAT relating to local authorities’ statutory public service functions – in addition to the input tax incurred during the course of their business operations – to being aware of when a local authority must charge and account for VAT on income it receives.

It is equally important for local authorities to not expose their finances to penalties and interest charges through a lack of understanding of VAT laws or by its misapplication.

With ever tighter budgets and pressures on organisations to make savings, making sure your local authority is up-to-date on the latest developments in VAT is paramount. Not only so you know you have been fully refunded all the recoverable VAT to which you are entitled – so freeing up scarce resources to fund front-line services – but also to prevent exposure to penalties and interest costs.

The application of VAT is ever-changing as new policies and funding streams emerge and new ways of delivering public services evolve.  Local authorities need to be up to speed on these changes in order to receive the correct refund of VAT incurred and, importantly, in order to plan services and projects so that VAT does not become an unexpected burden.

Therefore, local authority VAT managers and their Section 151 officers must ensure their authority’s compliance with all statutory and regulatory requirements in respect of taxation.  This includes the submission of all appropriate returns as and when required, and to ensure that their authority pays all taxes, which it is legally obliged to do. In addition recovering all monies, by way of refunds, reliefs, rebates etc to which it is entitled.

Furthermore, in order to get the best deal for their local authority, it is essential that local authority VAT managers pro-actively manage their authority’s VAT affairs. This will enable them to take advantage of all legitimate opportunities to minimise their authority’s VAT burden. 

To assist in this, the TISonline Local Authorities and Similar Bodies VAT stream is a real-time, regularly updated, online working reference guide for local authority VAT practitioners. It brings together all the available sources of information as they relate to local authorities. It contains both the official guidance, as published by HMRC, and professionally prepared commentary. It provides the fullest possible working guide for those managers who are responsible for administering VAT and deciding the taxable treatment of income and expenditure.