VATGPB8860 - Other local authority activities: miscellaneous (N to Z): supplies of staff

Basic principles

When deciding on the business/non-business treatment of supplies, the tests outlined in the VAT Business/Non-Business Manual (VBNB) should be considered.

Additionally, where a local authority carries out activity governed by a special legal regime, the activity may be taken outside the scope of VAT irrespective of the normal business/non-business rules outlined in the VBNB manual.

A section 33 body (see VATGPB4000) that supplies the services of its staff under the same legal conditions that apply to the private sector is not acting in its capacity as a public authority, meaning there is no special legal regime. The supply it makes is therefore a taxable business activity.

By contrast, if the section 33 body makes the supply under a special legal regime, it does so in its capacity as a public authority (see paragraph VATGPB2300) and the supply is outside the scope of VAT.

Examples of business activities

Taxable business activities include secondments of staff by:

  • one police authority to another for purely administrative purposes
  • a local fire service to an external organisation to advise on general fire safety matters
  • a local authority Direct Labour Organisation (DLO) to enhance the management team of another DLO
  • a Local Education Authority to an examination board to advise on methods of assessment.

In all these cases, the section 33 body supplies the service in potential competition with organisations in the private sector rather than acting under a special legal regime.

Supplies of teaching staff

The supply of teaching staff, including classroom assistants, by one eligible body to another for the provision of education qualifies as an exempt supply of education under item 1(a), Group 6 of Schedule 9 to the VAT Act 1994. In addition to local authorities, eligible bodies include universities, further education colleges, schools (as defined in law), health authorities, government departments and non-profit making organisations that meet certain criteria. These are all defined in note 1 to Group 6.

For more information about eligible bodies see the VAT Education Manual (VATEDU.

Examples of non-business activities

Provision of police assistance

A police authority may provide normal policing assistance to another force under section 24 of the Police Act 1996, for example in connection with an ongoing investigation. It may also second officers under section 23 of the Act to the Serious Organised Crime Agency, the National Crime Squad or the National Criminal Intelligence Service. In these examples the law requires the police authority to supply the services of its officers. Similar services cannot be supplied by the private sector. As there is no competition with the private sector the activities are treated as non-business and therefore outside the scope of VAT.

Provision of fire service training

In providing specialised fire service training, the Fire Service College obtains experienced serving officers under secondment from local fire brigades to act as instructors in advanced safety and rescue techniques. The authorities supply this service under Part 1 of the Fire and Rescue Services Act 2004. No other organisations have the necessary expertise to offer an equivalent service to the college. The local brigades provide the service in their capacity as a public authority and so the secondments are non-business and outside the scope of VAT.

Fire service secondments for union duties

There are also some specific circumstances where secondments take place without a special legal regime, but where HMRC considers there to be no economic activity. An example of such circumstances are where a Fire Service seconds a firefighter employee to work on union duties for the Fire Brigades Union (FBU):

  • the firefighter remains an employee of the Fire Service
  • the employer charges the FBU for a contribution towards the employee’s employment costs
  • the Fire Service does not charge an administration fee
  • the Fire Service does not obtain any financial advantage from the arrangement

In these specific circumstances, HMRC considers there to be no economic activity, and therefore the supply will be outside the scope of VAT.

Agreements to release rather than supply staff

Sometimes, rather than supply the services of its staff the authority will agree to their release. For instance, this frequently occurs where a teacher undertakes A level or GCSE exam work. A teacher who volunteers to undertake these duties will make all the necessary arrangements with the examining board. They will have two discrete contracts, one with the authority and one with the examining board.

The local authority, who may continue to pay the salary of the teacher for administrative reasons, will gain no specific advantage from the arrangement. It plays no role other than agreeing to the release of the teacher concerned. A similar situation may apply where staff are seconded to other government departments, or commercial companies, for career development purposes, albeit the authority may have more involvement in making the arrangements.

Secondments in circumstances where the secondee has two discrete contracts do not amount to a taxable supply of the services of staff by the authority and any reimbursement of salary is not liable to VAT. However, any administration charge made by the authority is consideration for a supply of payroll services on which VAT is to be accounted for.

Points to consider in determining the liability of a secondment arrangement

  1. If there is a release of staff where the employee has two distinct contracts, the supply will fallo utside the scope of VAT (see above).
  2. In instances where there is a tripartite arrangement between the seconding organisation, the organisation to which the staff member is seconded, and the staff member, it is possible that a taxable supply takes place, although the activity may fall outside the scope of VAT – this will depend on the facts of the specific agreement.
  3. The business/non-business tests outlined in VBNB30200 should be considered. Firstly, it needs to be determined whether the activity results in a supply of staff for consideration in return, and secondly, whether that supply has been made for the purposes of obtaining income. Further detail on how to answer these questions can be found in the VBNB manual.
  4. If the seconding organisation continues to pay the employment costs of the employee over the course of the secondment, it is likely that the activity falls outside the scope of VAT. On the other hand, if the seconding organisation is reimbursed for some of, or the entire amount of, the employee’s employment costs, the supply should be subject to the business/non-business tests above.
  5. Any administration fee charged by the seconding organisation will be a taxable supply.
  6. Where there is a taxable supply of staff, if a Special Legal Regime exists, under which the secondment takes place, the supply will fall outside the scope of VAT.
  7. Further guidance on supplies of staff can be found in Notice 700/34 -  Supply of staff and staff bureaux.
  8. This guidance does not examine the legal definitions of secondments, tripartite agreements, etc., for non-tax purposes. Advice should be sought on these matters when it is appropriate to do so.