VATGPB2100 - Bodies governed by public law: introduction

The scope of VAT on taxable supplies is defined in section 4 of the VAT Act 1994 as follows:

4(1) VAT shall be chargeable on any supply of goods or services made in the United Kingdom, where it is a taxable supply made by a taxable person in the course or furtherance of any business carried on by him.

A transaction is therefore within the scope of UK VAT if, among other things, it is made by a taxable person. The normal conditions that must apply for somebody to be a taxable person are explained in the VAT Taxable Person Manual (VTAXPER) (external users can find the guidance at http://www.hmrc.gov.uk/manuals/vtaxpermanual/Index.htm).

However, Section 41A of the VAT Act 1994 applies to bodies governed by public law as follows:

41A(1) This section applies where goods or services are supplied by a public authority in the course of activities or transactions in which it is engaged as a public authority.

41A(2) Unless the supply is on such a small scale as to be negligible, it is to be treated for the purposes of this Act as a supply in the course or furtherance of a business if it is in respect of any of the following activities–

(a) telecommunications services,

(b) supply of water, gas, electricity or thermal energy,

(c) transport of goods,

(d) port or airport services,

(e) passenger transport,

(f) supply of new goods manufactured for sale,

(g) engaging in transactions in respect of agricultural products in the exercise of regulatory functions,

(h) organisation of trade fairs or exhibitions,

(i) warehousing,

(j) activities of commercial publicity bodies,

(k) activities of travel agents,

(l) running of staff shops, cooperatives, industrial canteens, or similar institutions, or

(m) activities carried out by radio and television bodies which are of a commercial nature.

41A(3) If the supply is not in respect of such an activity, it is to be treated for the purposes of this Act as a supply in the course or furtherance of a business if (and only if) not charging VAT on the supply would lead to a significant distortion of competition.

In addition, Article 13 of the EU Principal VAT Directive (previously Article 4(5) of the EC 6th VAT Directive - 77/388/EEC) applies to bodies governed by public law in Northern Ireland, in relation to goods.

The consequence of Section 41A is that government and public bodies are not treated as taxable persons when they engage in certain activities or transactions and these activities or transactions are outside the scope of VAT, unless this would significantly distort competition. By ‘taxable person’ we mean a person who, independently, carries out an economic activity whatever the purpose or result of that activity.