Policy paper

VAT: refunds to combined authorities, fire and rescue authorities

Published 22 November 2017

Who is likely to be affected

Combined authorities established under section 103 of the Local Democracy, Economic Development and Construction Act 2009 (LDEDC). Fire and rescue authorities established under the Fire and Rescue Services Act 2004 as amended, the Scottish Fire and Rescue Service and the Scottish Police Authority.

General description of the measure

This measure will entitle combined authorities, fire and rescue authorities which are a function of police and crime commissioners, the London Fire Commissioner, the Scottish Fire and Rescue Service, and the Scottish Police Authority to recover the VAT incurred on purchases made to support their non-business activities.

Policy objective

The broad policy objective of the legislation being amended (section 33 of the Value Added Tax Act 1994 (VATA)) is to ensure that VAT does not become a cost borne by local taxation when incurred by public bodies in relation to their statutory activities.

Background to the measure

Since 1973, local authorities and other specified bodies have been able to recover VAT they incur undertaking their statutory duties under what is now section 33 of VATA.

Section 103 of LDEDC enables the Secretary of State to establish combined authorities in an area consisting of two or more local government areas in England, allowing that authority to assume responsibility for economic development, regeneration and transport across the combined area.

Presently the definition of local authority in section 33 of VATA does not include a ‘combined authority’, with the result that it has been necessary to include these bodies by enacting individual Treasury Orders once they have been established. This measure removes the need for such individual Treasury Orders.

Fire and rescue authorities can recover VAT under section 33 of VATA if they have been constituted under a combination scheme, with specific provision for the London Fire and Emergency Planning Authority. Some of these bodies will be replaced by fire authorities which have become a function of police and crime commissioners, and there is also provision in London for a London Fire Commissioner to be appointed by the Mayor. This measure ensures that such authorities can recover VAT in the same way as their predecessor bodies. The measure extends the same benefit to the Scottish Fire and Rescue Service and the Scottish Police Authority.

Detailed proposal

Operative date

The measure will have effect on and after the date of Royal Assent to Finance Bill 2017-18.

Current law

Section 33 (1) VATA provides for refunds of VAT to eligible bodies on purchases, acquisitions and importations made in support of their statutory duties. These bodies are listed in section 33(3).

Bodies not listed in section 33(3), but entitled to VAT refunds were added by Treasury Order using its powers in section 33(3)(k).

Proposed revisions

Legislation will be introduced in Finance Bill 2017-18 to amend section 33(3) of VATA to include combines authorities (as specified above), fire authorities which are a function of police and crime commissioners, the London Fire Commissioner, the Scottish Fire and Rescue Service and the Scottish Police Authority. The measure also makes some consequential amendments for the purposes of clarity.

Summary of impacts

Exchequer impact (£m)

2017 to 2018	2018 to 2019	2019 to 2020	2020 to 2021	2021 to 2022	2022 to 2023
-	-40	-40	-40	-45	-45

These figures are set out in Table 2.1 of Autumn Budget 2017 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2017.

Economic impact

This measure is not expected to have any significant economic impacts.

Impact on individuals, households and families

This measure has no impact on individuals or households as it only affects combined authorities, fire and rescue authorities, and the Scottish Police Authority.

This measure will have no impact on family formation, stability or breakdown.

Equalities impacts

It is not anticipated that this measure will have any equalities impacts.

Impact on business including civil society organisations

This measure will ensure that current and future combined authorities can continue to recover VAT, and removes the need for individual Statutory Instruments each time one is established. This measure is not expected to have any impact on combined authorities’ administrative burdens, as the measure ensures that the combined authorities are able to recover VAT to the same extent that the local authorities would have claimed as separate entities.

The impact on the new fire and rescue services will be analogous to the combined authorities.

The measure is expected to have a negligible impact on the admin burdens of Scottish Authorities. One-off costs include familiarisation with VAT that can be reclaimed under Section 33 of VATA. On-going costs include keeping records of VAT that can now be claimed under section 33 of VATA, and including those amounts on their VAT returns. There is no impact on civil society organisations.

Operational impact (£m) (HM Revenue and Customs (HMRC) or other))

The additional costs/savings for HMRC in implementing this change are anticipated to be negligible.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

The measure will be kept under review through communication with affected bodies.

Further advice

If you have any questions about this change, please contact Marie Campbell on Telephone: 03000 593383 or email: marie.campbell@hmrc.gsi.gov.uk.