VATGPB9650 - Government departments and health authorities: Section 33E bodies: VAT refunds to non-departmental public bodies and similar public bodies
Introduction
Finance Act 2016 introduced a new section 33E to the VAT Act 1994 which allows named non-departmental public bodies (NDPBs), and similar public bodies, to recover VAT incurred on certain purchases and acquisitions (referred to in this guidance as “purchases”) made to support their non-business activities. Presently, refunds are confined to the purchase of services listed in the current Treasury’s Contracted Out Services Direction - please see VATGPB9700 for more information.
Why was the scheme introduced?
Public bodies are encouraged to enter into arrangements to share services, such as HR, training and IT.
Under section 41(3) of the VAT Act 1994, government departments and NHS bodies are eligible to claim refunds of VAT incurred on certain outsourced services purchased for their statutory, non-business activities. This VAT would otherwise be irrecoverable.
There was no similar provision for NDPBs and similar public bodies to recover the VAT incurred in relation to their non-business activities.
It was therefore decided to refund VAT to NDPBs and similar public bodies in the same way that it is already refunded to government departments and NHS bodies.
Are bodies automatically included in the VAT refund scheme?
No, they are not automatically included. Bodies need to be named by Treasury Order before they can claim refunds of VAT on eligible services. These bodies will be listed in VATGPB9660.
What do I need to do to be named by Treasury Order?
You will need to meet the following criteria in order to be considered under section 33E:
1. You must be a NDPB or similar body; and
2. The VAT that you intend to recover must not have been incurred in relation to business activities, including those deemed to be a business activity by virtue of section 41A of the VAT Act 1994.
3. You or your parent department have entered into agreements with the Treasury to adjust, where necessary, their overall funding by the amount of VAT recoverable. However, where the Treasury is satisfied that current NDPB budgets do not cover irrecoverable VAT, then no adjustment will be made. You must demonstrate one of the following:
i. Your activities could have been carried out by, or been under the control of, a government department that is eligible for VAT recovery under section 41 of the VAT Act, or
ii. The activities have always been carried out by NDPBs but additional VAT liabilities are now due as a result of cost sharing between public sector bodies or through other procurement policies.
4. You are wholly or substantially funded by Central Government or a Devolved Government.
How should an application be made
Ideally an application should be made by your funding government department via their HMRC Customer Compliance Manager (CCM). The application should fully support the criteria explained above, by containing the following information:
| What we need to know | Why we need this information |
|---|---|
| Information about you – name, date you were established. | To ensure that you qualify for inclusion in Section 33E, and if your application is successful, you are correctly named in the secondary legislation that will need to be enacted. |
| Details about what you do | To establish which of your activities are not carried on by way of business, and that they qualify under Section 33E. |
| Details about how you are funded. | To confirm that you are wholly or substantially funded by Central Government or a Devolved Government, and where necessary a suitable budget adjustment has been made. |
| An estimate of the VAT you will recover each year for the next five years if your application is successful | Required for the purposes of the National accounts. |
| The date from which you wish to start recovering VAT. | To provide a timescale, but please be aware that the legal process can take six months. |
If your application is successful
If you are not VAT-registered, you will need to submit a VAT 1 application form to your Customer Compliance Manager (CCM). You will be provided with a specific government departments VAT number.
If you are VAT registered, you will need to be re-registered with a specific government departments VAT number. You will need to submit a new VAT 1 registration form to your CCM. Separately, you will need to complete a VAT 7 deregistration form, which needs to explain that the deregistration is due to your change to section 33E status and the need to be setup on HMRC’s government departments’ systems for submission of VAT 21 claims. Details for submitting VAT 7 forms can be found here.
If your application is successful, following consultation a Treasury Order will be made naming you and the date from which you can start claiming VAT. You cannot claim VAT until the Order has taken legal effect, and then only in relation to goods and services supplied to you from the effective date. These Orders cannot take effect retrospectively.
What can I reclaim VAT on?
You will only be entitled to claim the VAT incurred on the purchase of services listed in the existing Treasury Direction issued under section 41(3) of the VAT Act 1994 and published in the Government Gazettes. See VATGPB9700 for more information on the Treasury Direction. If a service is not listed in the Direction, then VAT cannot be recovered on its purchase under this VAT refund scheme.
I am registered for VAT. How can I claim the refunds I am entitled to?
You should claim your refund in box 4 of the VAT return. In that box you should include not only the input tax you incurred in making your taxable business supplies, but also the amount of VAT you are reclaiming under section 33E. You must also include the net value of your purchases in Box 7.
You will also be required to complete a VAT 21 form.
I have been named in a Treasury Order as eligible for refunds but I am not registered for VAT. How can I claim the VAT refunds I am entitled to?
For bodies which are not VAT registered a simplified claims form VAT 126 should be used. The VAT126 form is available here.
Normally, once HMRC receives your claim, they will:
- make your refund by BACS or payable order, and
- give you a unique number to quote on all claims - but this doesn’t mean that HMRC has registered you for VAT
From time to time HMRC will select claims for verification.
You may claim on a monthly basis, a three-monthly basis, or on an annual basis, but in the first tow cases the claim must be for £100 or more.
When can I reclaim VAT?
Because refunds of VAT under this measure are met from public expenditure, rather than VAT revenues, VAT should be claimed within the financial year in which the supply in question has been received. By “the supply in question has been received” we mean the tax point. Whilst the tax point is normally the invoice date, this is not always the case. Continuous supplies may have a payment tax point.
In circumstances where you have received a supply on which no VAT has been charged by the supplier, and they subsequnetly issue you with a VAT only incoice, you can recover the VAT in the period in which you received the VAT only invoice.
This means that the VAT must be claimed at the latest in the final VAT return, or other claim form, spanning the end of the financial year.
For example, if the VAT has been incurred in financial year 2020-21 (i.e. ending 31 March 2021), it must be claimed at the latest:
- For bodies which are registered for VAT, on the VAT return covering 31 March 2021; or
- For bodies which are not VAT-registered, on a claim form covering 31 March 2021 and for a period ending no later than 30 June 2021.
For bodies that are registered for VAT, once you have claimed in the correct financial year any necessary adjustments to the VAT claimed should be made within 4 years of the prescribed accounting period in which the VAT was claimed. For further information, please refer to the guidance in VATGPB9720.