VATGPB8360 - Other local authority activities: housing and community projects: default works
A local authority may use statutory powers to issue an enforcement notice to an individual who has failed to keep their property in a satisfactory state of repair. This can apply to unsafe buildings or damaged drains and sewers.
The purpose of the enforcement notice is to remind the individual of their responsibilities and impose a time limit for meeting them. If the individual fails to comply with the notice and carry out the necessary remedial works within the required time limit the authority may, by law, carry out the work itself and recover any reasonable expenses it has incurred from the property owner.
When the recipient of the notice agrees to the work being carried out and arranges for either the authority or some other contractor to undertake it, then the supply of the contractor’s service is to the property owner. If the authority arranges the contractor’s supplies on behalf of the recipient, it may treat the supply as being both to and by it under section 47(3) of the VAT Act 1994.
If the local authority carries out the works under statutory powers because the recipient of the notice refuses to comply, the authority is not making a supply for VAT purposes. Any payment it receives is outside the scope of VAT.
Only when the supply of the work is to the local authority can it recover the VAT charged. Where the authority makes an onward taxable supply of the work in the course or furtherance of business it can recover the VAT incurred as input tax. However, if the authority imposes the work under its statutory powers, as described above, the VAT may be recovered under section 33 (see VATGPB4000).