Guidance Notes for
Government
Departments
Seventh edition
Issued: 19 July 2012
Guidance Notes for Government
Departments
Seventh edition 2012
These guidance notes cancel and replace the 6th Edition last reissued and
updated in March 2009. They are designed to give a brief introduction to VAT
and the way in which it applies to Government Departments (GDs). They have
been generally revised and updated and are primarily designed for VAT Liaison
Officers (VLOs) in GDs.
Guidance Notes for Government Departments | Page 2 of 87
Contents
i
ii
iii
iv
v
Introduction
How to use this guidance
Who should read this guidance?
Useful Notices
Use of tax advisors
Do you have any comments?
PART 1 - An overview of VAT
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1.8
1.9
1.10
1.11
1.12
1.13
1.14
1.15
1.16
1.17
1.18
1.19
1.20
1.21
VAT Liaison Officers
What are VAT Liaison Officers?
How do I keep up with changes in VAT?
How to tell us of changes.
Who should I contact if I have a query?
I have a query, what sort of information do I need to provide?
How quickly will you deal with my query?
A basic Introduction to VAT
What is VAT?
How does VAT affect GDs?
Is there a difference between VAT incurred in carrying out
statutory functions and VAT incurred in respect of other
‘supplies’ made by a department?
How does VAT work?
What are taxable supplies?
What is the difference between “Business” and “Non-Business”
activities?
How does “Business” apply to GDs?
I have heard that some supplies are “Exempt” from VAT. What
does this mean?
I have heard the phrase “Outside the scope of VAT”. What
does this mean?
When must VAT be accounted for and how?
What VAT can a GD recover?
What about VAT GDs and trading funds incur on making both
taxable and exempt supplies?
The Reverse Charge
What is the Reverse Charge?
How does the Reverse Charge Work?
What is the effect of the reverse charge?
Guidance Notes for Government Departments | Page 3 of 87
1.22
1.23
1.24
Registration for VAT
When does a GD need to register for VAT?
Why aren’t GDs subject to the normal VAT registration rules?
How will HMRC register my department for VAT?
1.25
1.26
1.27
1.28
1.29
1.30
The VAT Return
How do I complete my VAT return?
Am I allowed to “Net Off”?
When should I recover and account for VAT?
How often should my VAT return be submitted?
How do I correct errors on VAT returns?
Overview of the penalties system
PART 2 - Sales and the Treasury Taxing Direction
2.1
2.2
2.3
2.4
2.5
2.6
2.7
2.8
2.9
2.10
2.11
2.12
2.13
2.14
2.15
2.16
PART 2 A - General Advice about Sales
What happens when my department sells goods and services
to other GDs and Executive Agencies?
What happens when my department sells goods and services
to Non-Departmental Public Bodies (NDPBs)?
What happens when an Executive Agency sells goods or
services to another GD?
What happens if a customer does not pay?
Supplies of Goods outside the UK
Which countries are included in the VAT territory of the EC?
What happens when I sell goods to customers based in
another European Community (EC) country?
What other documentation must I complete?
What are EC sales lists?
How often do I have to submit ESLs?
Where can I find out more information about completing my
EC Sales List?
What happens if my EC customer is not registered for VAT?
What is Intrastat?
How do I account for VAT on goods exported outside the EC?
Supplies of Services
Services supplied within and outside the European
Community?
What is place of supply?
What services are being supplied?
Guidance Notes for Government Departments | Page 4 of 87
2.17
2.18
2.19
2.20
2.21
PART 2 B - The Treasury (Taxing) Direction
Recent Changes
What is the Treasury (Taxing) Direction and its purpose?
Where can I find the Direction?
How should output tax on such supplies be accounted for to
HMRC?
What activities are contained in the Direction and how should
they be defined?
PART 3 - Purchases and The Treasury Contracting Out
Directions
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
4.1
4.2
4.2.1
4.2.2
4.2.3
4.2.4
4.3
4.3.1
PART 3A - General Information about Purchases
Do any special rules apply when GDs purchase goods and
services?
How do I query whether a supply is correctly liable to VAT?
What happens if I purchase goods from countries outside the
EC?
What happens if I purchase goods from countries in the EC?
What happens if I buy services from countries outside the EC?
What happens if I buy services from inside the EC?
PART 3B The Treasury (Contracting Out) Direction
What is the purpose of the Contracting Out Direction?
What is refunded?
Where is the Direction published?
Can additional services be added to the Direction?
Who can claim refunds under the Direction?
How are such refunds made?
What activities are contained in the Contracting Out Direction?
Services agreed by HMT for inclusion in the next revision of
the direction
PART 4 - Government Departments in Northern Ireland
Business activities of Government Departments in Northern
Ireland
Non Business activities of Government Departments in
Northern Ireland
What is section 99 of the VAT Act?
Which Departments are eligible for refunds under section 99?
What can be recovered under section 99?
What is excluded from section 99?
GDNIs and purchases of cross border services.
What happens if I buy services from suppliers which are
treated as being supplied in the Republic Of Ireland?
Guidance Notes for Government Departments | Page 5 of 87
5.1
5.2
5.3
5.4
5.5
5.6
5.7
PART 5 – Government Departments, Executive Agencies,
Trading Funds and Non Departmental Public Bodies
(NDPBs)
What is the definition of a GD?
What are Executive Agencies?
What is the VAT position of supplies between a separately
registered Executive Agency or Trading Fund and its parent
GD?
Trading Funds
What happens when GDs become Executive Agencies or
Trading Funds?
Executive Non–Departmental Public Bodies (NDPBs)
What happens if a GD makes taxable supplies to an NDPB?
.
PART 6 - Reference Section.
Funding Advice Sheet 1
Supplies of Staff Sheet 2
Section 278 Agreements Advice Sheet 3
Land and Property Advice Sheet 4
Money Laundering Regulations Advice Sheet 5
VAT and flexible benefits for employees (Salary Sacrifice)
Advice Sheet 6
Guidance feedback form
Guidance Notes for Government Departments | Page 6 of 87
i
Introduction
These guidance notes are designed to give you, the VAT Liaison
Officers (VLO) in your department a brief introduction to VAT and the
way it applies to government departments. The VAT Supply team of
VAT Policy Division has produced these notes as we have policy
responsibility for the VAT affairs of GDs.
The Government Departments Team located within HMRC’s ’Public
Bodies Group (PBG) is responsible for compliance activity (which
includes audits and advice) to the Government sector, which includes
GDs, Trading Funds, Executive Agencies, Non Departmental Public
Bodies (NDPBs) and associated entities.
The guidance notes are divided into six parts:
Part 1 gives a basic background about the VAT system and how it
applies to GDs.
Part 2 gives an explanation of how GDs’ sales should be treated for VAT
purposes and how The Treasury (Taxing) Direction applies to them.
Part 3 deals with GDs’ queries about purchases and the Treasury
(Contracting Out) Direction.
Part 4 provides information for GDs in Northern Ireland
Part 5 provides information for Executive Agencies and Trading Funds.
Part 6 provides additional detailed reference material on specific
activities that GDs may engage in. The topics covered by the information
sheets may not apply to all GDs
The Annex - gives details of place of supply rules prior to 1 January
2010.
[N.B. Any reference to “Departments” or “GDs” in this guidance
note should be taken to include all Crown Bodies covered by
Section 41 of the VAT Act 1994, unless stated otherwise]
Guidance Notes for Government Departments | Page 7 of 87
ii
Who should read this guidance?
If you are …
A Government Department in
England, Scotland or Wales
A Government department in
Northern Ireland
An Executive Agency or a
department responsible for
Executive Agencies.
A Non-Departmental Public Body
(NDPB) or the parent department
of an NDPB.
Please read…
Parts 1,2, 3, 5 and 6
Parts 1,2a, 2b, 3a, 4, 5 and 6
Parts 1, 2, 3, 5 and 6
NDPBs are NOT Government
Departments for VAT purposes.
However they are associated to a
parent department.
You should contact your Finance
Team in your parent department
for further advice on VAT issues.
iii
Useful Notices
We suggest you read these guidance notes in conjunction with Notice
700 ‘The VAT Guide’.
You may also find it useful to consult the following VAT notices that are
referred to in this guidance. Copies of the notices can be accessed via
the HM Revenue & Customs website at www.hmrc.gov.uk
Notice 700/12
Notice 700/18
Notice 701/30
Notice 703
Filling in your VAT return
Relief from VAT on Bad Debts
Education & Vocational Training
What happens if I buy services from suppliers
which are treated as being supplied in the Republic
Of Ireland?
Notice 723A
Refunds of VAT in the European Community for EC
and Non-EC businesses
The Single Market
Place of Supply of Services (before 1 January 2010)
Place of Supply of Services from 1 January 2010
Opting to tax land and buildings
Notice 725
Notice 741
Notice 741A
Notice 742A
If you are very new to VAT, you may find it useful to read through Notice
700/15, ‘The Ins and Outs of VAT’. The notice is primarily designed for
new VAT registered businesses, will give you a useful overview of how
VAT works.
Guidance Notes for Government Departments | Page 8 of 87
You can find information about how to obtain copies of Notices in
Section 1.4 of this guidance, Who should I contact if I have a query?
iv
Use of tax advisors
The Treasury’s view of the use of Tax Advisors and Tax Avoidance is
explained in the Managing Public Money part of the HMT website;
www.hm-treasury.gov.uk. The view is expressed in section 4.2.4 of the
HMT guidance.
v
Do you have any comments?
We would be pleased to receive any comments or suggestions you may
have about this guide. Please use the feedback form included at the end
of the guidance. This feedback will help us to ensure that future editions
of this guidance are user friendly and informative.
Guidance Notes for Government Departments | Page 9 of 87
PART 1 - Overview of VAT
VAT Liaison Officers
1.1
Who are VAT Liaison Officers (VLOs)?
All GDs, separately VAT registered Executive Agencies or Trading
Funds, must appoint a VLO. As a VLO you fulfil an important and
valuable role as you act not only as the expert for your Department’s
VAT affairs in general, but you will also be able to advise your
colleagues on how to comply with the VAT requirements by ensuring
that:
1.2
(a)
your department reclaims or pays the correct amount of VAT;
(b)
the list of business activities in the annual Taxing Direction (see
Part 2B of these notes) is kept up to date and telling HMRC as
soon as a change occurs;
(c)
HMRC is made aware at an early stage of any Government
initiatives that GDs are planning or about to announce. In many
cases, this is because there are likely to be VAT implications that
could impact on funding. Therefore it is important that you alert us
to these issues so that they can be resolved at an early stage;
and
(d)
you act as contact point within your department and your Finance
Team for VAT enquiries. We believe it is important that enquiries
to HMRC on VAT matters should come from you, or should have
been discussed with you prior to contacting the Government
Departments Team, as you will have accumulated a considerable
amount of knowledge about how VAT affects your Department
and the accounting systems that are involved. This saves
duplication of effort, minimises any misunderstandings and
should ensure a speedier service from us.
How do I keep up with changes in VAT?
There are a number of methods of keeping up-to-date with
developments in VAT which are available from the HM Revenue &
Customs website. The address is www.hmrc.gov.uk.
(a)
VAT Notes - These are available electronically as they are issued
on quarterly basis. They are particularly important as they flag up
VAT changes as and when they occur.
Guidance Notes for Government Departments | Page 10 of 87
(b)
Revenue and Customs Briefs - These give information on
recent significant VAT changes and can be accessed by clicking
on www.hmrc.gov.uk or the VAT reference material and updates
section at www.businesslinks.gov.uk
(c)
VAT Notices - The full range is available via our website.
(d)
VAT Guidance - This is available via our website and provides
detailed information on specific areas of VAT legislation.
.
1.3
How to tell HMRC of changes
You will have a contact name, Customer Relationship Manager (CRM)
or Customer Co-ordinator within the Government Departments Team.
You should inform them of any changes in circumstances that could
have an impact on your department’s VAT affairs. This is because this
allows us to ensure that our records are kept up to date. For example,
please let them know if your department…
1.4

Changes its status - please refer to Part 5 of the guidance for
further details;

Changes its name and/or address; or

Appoints a new VLO - please write to the nominated contact point
shown in 1.4.
Who should I contact if I have a query?
If you require…
 Verification of your customers’ VAT
numbers
 General advice about Import & Export
procedures
 Advice about Treasury Directions
 Certificates of status of Taxable
Person.(VAT 66s)
 Advice on completing your VAT return
and VAT 21.
 Advice on correcting errors on your VAT
return and VAT 21.
 Advice on GDs Option To Tax issues.
 Information about
pre and post
Customs clearances
 Assistance with VAT queries relating to
Non Departmental Public Bodies
(NDPBs)
which
your
department
sponsors
Please contact …
Your nominated CRM or
Customer Co-ordinator within
the Government Departments
Team
Guidance Notes for Government Departments | Page 11 of 87





1.5
Information about the VAT liability of
supplies made to your department.
Changes to your department’s return
periods
Changes to your bank details
Changes to name or address details on
your VAT return
Help or advice with on-line filing only
Your supplier
Debt Management & Banking,
GABS Team
HM Revenue & Customs
7th Floor Alexander House
21 Victoria Avenue
Southend On Sea SS99 1AA
(Copied to your CRM or
Customer Co-ordinator)
The address in the box above
or alternatively ‘phone 01702
366328
I have a query, what sort of information do I need to provide?
You will need to provide the For example…
following information…
 Your department’s name and
your contact details.
 A summary of all the facts about  What is being supplied and why
the
transaction
concerned,  Who is making the supply
together with copies of any  Where you think the supply is
documents
relating to
the
taking place
particular transaction.
 When you think the supply is
taking place
 Copies of relevant documentation
including copies of contracts
/agreements / Memorandums of
Understanding etc
 Your opinion of the issues
referring to HMRC information
 Areas of contention when you
require clarification from HMRC.
 Details of the VAT in question.

What you need a decision about
For example:
 Whether an activity is a supply for
VAT purposes;
 The VAT liability of a supply:
 whether your department is
eligible to claim a refund of VAT
under one of the Contracted out
Service Direction headings
Guidance Notes for Government Departments | Page 12 of 87

Please say if the matter is urgent


How you will use the decision


Any previous correspondence on
the matter including the reference
number

If you need to receive an answer
by a specific date, please say.
This helps to prioritise replies.
However please bear in mind that
if the matter is complex HMRC
may not be able to give a quick
answer, therefore it would be
useful if you could factor this in
and make sure you contact the
Government Department Team
as soon as possible
Please refer to paragraph 1.6
for details of response times
If you want to pass the reply on to
other GDs or businesses, as it will
be necessary to say if the advice
has wider applications. We may
also ask you to liaise with the
other GDs or businesses to
ensure that they can confirm you
are in possession of the full facts
and are acting on their behalf.
This means that we can find and
retrieve information
To help minimise delays in responding to your queries please try
to avoid:



1.6
Only contacting HMRC at the last minute.
Forwarding long e-mail strings because these can make it
difficult for us to work out your problem, as the authors of some of
the text in a long email chain may not have intended it to be read by
someone outside your department. As a result, the authors may
have assumed that the person reading their e-mail will be familiar
with the topic or policy to which they are referring, but this won’t be
obvious to us.
Using abbreviations, internal jargon or acronyms without explaining
them.
How quickly will you deal with my query?
The Government Departments Team will aim to respond to written
enquiries within 30 working days of receipt. However where this is not
possible we will advise you when a reply is likely to be issued. Please
note, that we treat e-mail messages as written enquiries.
Guidance Notes for Government Departments | Page 13 of 87
A Basic Introduction to VAT
1.7
What is VAT?
VAT was introduced in the United Kingdom (UK) in 1973. It is a tax
charged on most supplies of goods and services made in the course of
business in the UK by VAT registered businesses.
1.8
How does VAT affect GDs?
VAT affects GDs because it will have an impact on the programmes
they deliver. This is because government tends to deliver public services
under statutory powers to the public. This means that the majority of
activities undertaken by GDs are not usually supplies that are subject to
VAT. Therefore, as with the majority of VAT registered businesses, they
cannot generally recover the VAT they may incur which relates to these
statutory activities, except in limited circumstances discussed later in this
guidance – see Part 3.
However, GDs can, and do, make supplies that are subject to VAT. This
may be because the function is not carried out under any particular
statutory requirement, or the activity may be deemed to be a business
activity by the Treasury’s Taxing Direction – see Part 2B.
Therefore, GDs must ensure that they have carefully considered the
VAT implications in the funding arrangements of any programmes they
deliver, or plan to announce.
1.9
Is there a difference between VAT incurred in carrying out statutory
functions and VAT incurred in respect of other ‘supplies’ made by
a department?
Yes there is. You must be able to differentiate, in your records, the VAT
you have incurred in respect of non-business statutory activities, and the
VAT you incur in respect of other ‘supplies’ the department makes, (i.e.
goods sold or services provided for a charge). This distinction is very
important because it directly affects the overall amount of VAT the
department can recover. (see 1.13 below)
1.10
How does VAT work?
If you make “Taxable Supplies”, in the course of “Business” you have
to account to HMRC for the VAT due. This is called “Output Tax” and is
charged to your customers.
Guidance Notes for Government Departments | Page 14 of 87
With a few exceptions, VAT can be recovered on the purchase,
importation from outside the EC, or acquisition within the EC, of taxable
goods and services if these are to be directly used in connection with the
making of taxable supplies by your department. This is called “Input
Tax”. The exceptions are VAT incurred on business entertainment, and
in some cases, the VAT incurred on cars.
1.11
What are Taxable Supplies?
All goods or services, which are subject to VAT, are called “Taxable
Supplies” and currently there are three rates of VAT
VAT Rate
Examples of supplies
The Standard Rate (currently Most supplies of goods and services are
20%)
subject to this rate of VAT;
The Reduced Rate (currently Supplies of: 5%)
 fuel and power to domestic users and
charities that satisfy certain tests, and
 installing energy saving materials.
The Zero Rate ( 0%)
 Most Food other than that supplied in the
course of catering,
 Newspapers & books,
 Young children’s clothing
 Certain supplies to and by charities.
Although no VAT is charged such supplies
are still taxable but the rate of VAT charged
is 0%
1.12
What is the difference between “Business” and “Non-Business”
activities?
It is very important that you understand the difference between
“Business” and “Non-Business” activities:
By “Non-Business” we mean:


Activities carried on for no consideration and which are excluded as
supplies within the VAT legislation.
Activities carried out by GDs under public statute which do not
apply to non-public bodies
By “Business” we mean:


Activities falling within the Treasury’s Taxing Direction (see Part2B)
Activities which do give rise to supplies of goods and services and
are not carried out under public statute
Guidance Notes for Government Departments | Page 15 of 87
1.13
How does “Business” apply to GDs?
In the majority of cases, the activities carried out by GDs are statutory
in nature and are treated as non-business for VAT purposes. Other
activities which would ordinarily result in supplies of goods and
services for VAT purposes are regarded as outside the scope of VAT
when a GD does them under public law, unless this would significantly
distort competition.
The Treasury (Taxing) Direction addresses the issue of competition.
If a GD supplies goods or services which are listed in the direction,
these are always within the scope of VAT and taxed at the appropriate
rate. This direction is updated periodically. Further details may be
found in Part 2B of this guidance.
1.14
I have heard that some supplies are “Exempt” from VAT. What
does this mean?
Some supplies are “Exempt” from VAT. These include, financial
services, such as banking transactions; many transactions in land and
buildings; and certain types of training and education.
Exempt supplies must not be confused with zero-rated supplies. In the
case of exempt supplies whilst no VAT is charged on the supply of such
goods or services, there is no entitlement to recover Input Tax. Whilst a
VAT registered business does not have to charge tax on a zero-rated
supply it may nevertheless, subject to the normal VAT rules, recover
Input Tax on VAT that it incurs in making those supplies
1.15
I have heard the phrase “Outside the Scope” of VAT, what does
this mean?
Certain supplies fall ‘Outside the Scope’ of VAT. In summary, this
means that they do not fall within UK VAT legislation. Typical “outside
the scope” supplies are activities that are either funded by grants or
donations or activities GDs undertake in carrying out their statutory
functions. (Please note that whilst these may be outside the scope for
VAT purposes, they could be treated differently for other tax purposes.)
Other outside the scope supplies will be where the place of supply is
outside the UK.
Guidance Notes for Government Departments | Page 16 of 87
1.16
When must VAT be accounted for and how?
VAT becomes due when a supply is treated as having taken place; this
is called the tax point. It is worth spending time to familiarise yourself
with the rules on “tax points”, which can be found in Notice 700.
Although VAT becomes due when the supply takes place, it only needs
to be accounted for to HMRC when the VAT return for that period
becomes due.
1.17
What VAT can a GD recover?
GDs cannot, under the normal rules, reclaim from HMRC the tax they
incur on purchases relating to their non-business or exempt activities.
Treasury funding takes into account the levels of VAT that a GD is
unable to recover.
VAT can only be recovered by GDs when:




it is input tax incurred in the course of taxable business;
it is input tax incurred on supplies that are outside the scope of VAT,
but which would be taxable if they occurred in the UK;
it is VAT that has been incurred in the course of contracting out those
services listed in the Treasury’s Contracting Out of Services
Directions - see Part 3B.
VAT which has been accounted for under the reverse charge
mechanism - see item 1.19 below.
In all cases, proper evidence must be held to support the claim. Proforma invoices are not tax invoices, even if the wording “Tax Invoice”
appears, and cannot be used as evidence for Input Tax deduction.
1.18
What about VAT GDs incur in making both taxable and exempt
supplies?
A GD should always directly attribute as much tax as possible to its
non-business and business (i.e. taxable and exempt) activities.
GDs cannot, under the normal rules, reclaim from HMRC the tax they
incur on purchases relating to their non-business or exempt activities
[see section 1.17]. Treasury funding takes into account the levels of
purchase VAT that a GD is unable to recover
GDs can reclaim the tax they incur on purchases directly relating to
their taxable business activities
In some instances VAT incurred on a GD’s purchases may relate to
both its business and non-business activities.
Guidance Notes for Government Departments | Page 17 of 87
It is important to identify these instances because if a GD undertakes
both business and non-business activities then it is unlikely to be able
to treat all the tax it incurs as input tax. Any tax which relates:

to goods or services obtained solely for the purposes of the
business activity, is input tax; and

solely to the non-business activity is not input tax.
Under VAT Act 1994 Section 24(5) the taxpayer is required to
apportion tax so that only tax which relates to its business activities is
treated as input tax.
Where, however, there is expenditure, which cannot be directly
attributed to business or non-business activities such as costs incurred
on overheads, this non-attributable expenditure must be apportioned in
a fair and reasonable way.
GDs should note that the law does not specify any particular method by
which they must apportion the VAT incurred. Any method of doing so
may be used provided that it results in a fair and reasonable
apportionment of the tax bearing in mind the various activities and the
purposes for which the expenditure was incurred.
1.19
What is the ‘reverse charge’?
Normally, the supplier of a service is the person who must account, to
the tax authorities, for any VAT due on the supply. However, in certain
situations, it is the customer who must account for any VAT due.
Although normally called the ‘reverse charge’ the procedure may also
be referred to as ‘tax shift’.
The reverse charge applies to almost all “Business to Business”
(“B2B”) supplies of services except those of a description in Schedule 9
of the VAT Act 1994 (Exemptions). It does not apply to land on which
the option to tax has been exercised. Reverse charge is not a
complicated accounting procedure. Where it applies to services which
you receive, you, the customer, must act as if you are both the supplier
and the recipient of the services.
1.20
How does the reverse charge work?
This depends on whether you have received the supply of services for
your non-business activities or your business supplies. You simply
credit your VAT account with an amount of output tax, calculated on
the full value of the supply you have received, and at the same time
debit your VAT account with the VAT you are entitled to recover if the
service is recoverable under the COS Direction (in the case of a nonbusiness activity and the expense is included under the “COS”
Guidance Notes for Government Departments | Page 18 of 87
headings) or the input tax to which you are entitled, in accordance with
the normal ‘business’ rules. You then include in the relevant boxes of
your VAT return:




1.21
The amount of output tax in box 1 VAT due on sales
The amount of VAT recoverable under the relevant COS heading
(for non-business supplies) and the amount of input tax (these are
shown on the VAT 21 entered on-line) in box 4 VAT reclaimed on
purchases
The full value of the supply in box 6 total value of sales, and
The full value of the supply in box 7 total value of purchases.
What is the effect of the reverse charge?
In respect of a business supply, if you can attribute the input tax to a
taxable supply you can reclaim it all. In respect of a non-business
activity, you can recover that amount which you can directly attribute to
a non-business activity and which the purchase falls under a COS
heading.
If you cannot do either of the above, the effect is to make you pay VAT
on the whole or part of the supply at the UK rate. This puts you in the
same position as if you had received the supply from a UK supplier
rather than from one outside the UK.
The Reverse Charge is explained in more detail in Notice 741 and
741A.
Guidance Notes for Government Departments | Page 19 of 87
Registration for VAT
1.22
When does a GD need to register for VAT?
All private sector traders who make taxable supplies that exceed a
specified annual amount are required to register for VAT with HMRC.
GDs, however, are required to register for VAT regardless of the annual
value of their taxable supplies.
1.23
Why aren’t GDs subject to the normal VAT registration rules?
This is because they are part of the Crown. Although certain GDs may
not undertake any business activities, they are able to claim a refund of
VAT on certain contracted-out services for non-business activities
under Section 41(3) of the VAT Act 1994, discussed in Part 3 of these
notes. If a GD is not registered, it will not be able to reclaim these
refunds.
1.24
How will HMRC register my department for VAT?
When a GD registers for VAT, it is given a 3 digit number but will also be
automatically assigned a 9 digit number - which starts with 888.
The 9 digit number is unique to the GD to which it is issued. This number
must be shown on all tax invoices and correspondence relating to
taxable supplies made.
Executive Agencies and Trading Funds are usually part of their parent
GD for VAT purposes, but further details may be found in Part 5 of this
guidance.
You should inform us of any change of circumstances or activity that
could affect a GD’s registration or distort the figures declared on VAT
returns.
GDs must use their 9 digit number on their VAT invoices. When
trading with other EC Member States or importing/exporting goods they
will be given a separate VAT number which should be used in these
circumstances. This number must be prefixed with “GB”. Confirmation
of GD VAT registration numbers may be obtained from the
Government Departments Team.
Guidance Notes for Government Departments | Page 20 of 87
The VAT Return
1.25
How do I complete my VAT return?
From 1 April 2010, GDs are required to file their VAT 100 and VAT 21
online. The first step to achieving this is to sign up and enrol for the VAT
for Government and NHS online service.
The enrolment process is done only once and ensures the GD’s
confidential information is kept secure and can only be seen by it or
those it has authorised. If you want more information on online security
and how to protect yourself and your organisation, go to
www.online.hmrc.gov.uk and click on the Online Security link in the
News element.
You are only able to account for VAT and reclaim any relevant VAT that
relates to the entity/entities included within that registration.
For GD purposes, note that the online VAT 21 has been designed in
such a way that VAT refundable under Treasury’s Contracting Out of
Services Direction is automatically transferred to Box 4 of VAT 100.
Therefore, a GD’s VAT return should be completed as follows:
Box number What should be entered in the box
Box 1
Output Tax due on sales
Box 2
Any VAT due on acquisitions, (i.e. goods acquired from other
EC Member States) which did not have VAT on them when
purchased.
Box 3
The total of Boxes 1 and 2
Box 4
The total VAT reclaimed for the period.
This figure will be made up of Input Tax and /or refunds under
the Treasury’s Contracting Out Direction. The figure in Box 4
will match the figures you have entered into your VAT 21.
Note that the acquisition tax declared in Box 2 may be
recovered as input tax subject to normal VAT rules (i.e. if the
goods are for taxable business activities or Business to
Business supply of services.
Box 5
Take the figures in Boxes 3 and 4, deduct the smaller from
the larger and enter the difference in this box
Box 6
VAT exclusive value of total standard rated, zero-rated and
exempt business supplies of goods and services.
If you have made any supplies to the EC, these must be
entered in Box 8 and Box 6.
Box 7
VAT exclusive value of purchases of goods and services for
business activities.
If you enter anything in Box 9, also include it in the Box 7
total.
Guidance Notes for Government Departments | Page 21 of 87
Box 8
Information
for EC
statistical
purposes.
Box 9
Information
for EC
statistical
purposes.
1.26
Total value of all supplies of goods to other EC Member
States.
If you enter anything in Box 8, you must also include the
amount in Box 6.
Total value of all acquisitions of goods from other EC Member
States.
If you enter a figure in Box 9, include the amount in Box 7
total. If the goods are standard rated there should also be a
figure in Box 2.
Am I allowed to “Net off”?
When calculating the figures for the VAT return, output and input tax on
individual transactions must not be “netted off”. The figure for tax due in
Box 3 must be the total liability for output tax, with the figure in Box 4
showing the total claim for input tax and Section 41(3) refunds.
You take the figures in Boxes 3 and 4, deduct the smaller from the larger
and enter the difference in Box 5. This Box then shows the net sum
which is due to HMRC, or which your department is claiming from
HMRC.
1.27
When should I recover and account for VAT?
The general rule is that you should include any VAT you are entitled to
recover on the current VAT return. There are, however, special rules for
claiming this VAT at a later date.
If
you
are
claiming…
Refunds
under
section 41(3) (i.e.
VAT
recoverable
from contracted out
services that relate
to
your
nonbusiness (statutory)
activities
Time limits for recovery
Claims MUST be made in the financial year
when the supply is received.
There is no provision to make retrospective
claims. This is because the Treasury takes into
account any irrecoverable VAT during the
bidding and funding process.
However, you are able to include any VAT
adjustments (either in your favour or in HMRC’s)
that were actually incurred during the past
financial year in the returns covering the first
three months of the following year. Thus, for
example, HMRC will consider a request to
include on the return for the period 1 April to
30.June, VAT incurred in February the same
calendar year.
Guidance Notes for Government Departments | Page 22 of 87
Recoverable Input
Tax
(i.e.
VAT
reclaimed
in
respect of taxable
business supplies)
You can make a retrospective claim provided no
more than four years have elapsed since you
incurred the VAT. This is sometimes referred to
as the “Four Year Cap”
1. 28 How often should my VAT return be submitted?
The normal accounting period is a calendar quarter. Although you can
ask to submit monthly returns if you want.
.
The online return Forms VAT 100 and 21 must be completed and
submitted within one calendar month of the end of the VAT period. For
example, for a VAT period ending on 31 March, HMRC must receive the
completed VAT return on or before 30 April. The relevant dates are
shown at the top of Form VAT 100 when it is accessed online.
If you require further information on the online facility, please contact
your CRM, Customer Co-ordinator, or DMB GABS in Southend.
If a GD wants to submit monthly returns then you should contact your
CRM or Customer Co-ordinator within the Government Departments
Team.
1.29
How do I correct errors on VAT Returns?
If you discover an error on a VAT return after it has been submitted, you
should contact your CRM or Customer Co-ordinator within the
Government Departments Team. You can either:
(a)
Give details of the errors in a letter, showing how the error arose
and what action you are taking to minimise this type of error
occurring again.
(b)
complete a VAT 652 Form ‘Voluntary Disclosure of errors on
VAT Returns’. Copies of the VAT 652 form can be downloaded
from the “forms and publications” section of the HM Revenue &
Customs website. However you will still need to explain how the
error arose and what action you are taking to minimise this type of
error occurring again.
(c)
adjust the amount on the next return if the error is of a suitable size
as given in Notice 700/45.
Please remember that the covering letter or form 652 MUST give details
of the adjusted return period so that the Government Departments Team
is able to account for the error correctly for the relevant VAT return in
question.
Guidance Notes for Government Departments | Page 23 of 87
Notice 700/45 contains more information about making adjustments on
your VAT return. However; please note that the time scales mentioned
in section 4 of the notice should be 1 April 2011 for GDs, whereas 1 April
2009 is applicable for other VAT registrations..
1.30
Overview of the penalties system
Legislation requires that all errors must be considered for penalty
purposes. In order that the Government Departments Team can
determine the level of penalty applicable, it will need certain information
from you.
You will need to be able to provide evidence to the Government
Departments Team showing:





how the error arose;
what efforts were made at the time to ensure correct treatment was
applied - including any advice sought;
how you identified the error and to what VAT periods the error
relates;
how you calculated the error;
what action has been taken since then to try and prevent the error
occurring in the future?.
If a penalty is applicable, the Government Departments Team will take
into account the extent to which you have explained this to them.
Further information about penalties will be provided to you at that time.
Guidance Notes for Government Departments | Page 24 of 87
PART 2 - Sales and The Treasury Taxing Directions
PART 2A - General Advice on Sales.
Supplies of goods and services in the UK
2.1
What happens when my department sells goods and services to
other GDs and Executive Agencies?
When a GD makes supplies of goods or services to another GD, with a
different VAT number, this is a supply and VAT must be charged at the
appropriate rate. However, if a sale is made between parts of a GD, or
between a GD and its executive agency using the same VAT number,
this is not a supply for VAT purposes.
2.2
What happens when my department sells goods and services to
Non–Departmental Public Bodies (NDPBs)?
If a GD makes taxable supplies to a NDPB, the NDPB must be treated
as an “ordinary” customer. As many NDPBs do not undertake business
activities, and are consequently not registered for VAT, they cannot
recover any VAT as Input Tax or under the Treasury (Contracting-out)
Directions.
2.3
What happens when an Executive Agency sells goods or services
to another GD?
a) Executive Agencies who share a VAT registration with a parent
GD
An Executive Agency which has not been given a separate GD VAT
registration number will not charge VAT on any supplies it makes to its
parent GD, as both will share the same GD VAT number. However,
sales to other GDs will be liable to VAT at the appropriate rate.
b) Executive Agencies who are separately registered
An Executive Agency or Trading Fund which has been separately
registered for VAT must charge VAT on their standard and reduced
rated supplies, including supplies to their parent GDs.
2.4
What happens if a customer does not pay?
If your customer does not pay a VAT invoice, which you have issued
for a taxable supply made to them, your department may be able to
reclaim relief from VAT as long as these meet the criteria for bad debts.
You can find out more about this in VAT Notice 700/18 – “Relief From
VAT On Bad Debts”.
Guidance Notes for Government Departments | Page 25 of 87
Supplies of Goods outside the UK
2.5
Which countries are included in the VAT territory of the European
Community?
The fiscal (VAT) territory of the European Community consists of:
o
Austria;
o
Belgium;
o
Bulgaria
o
Cyprus
o
Czech Republic
o
Denmark, except the Faroe Islands and Greenland;
o
Estonia
o
Finland;
o
France, including Monaco;
o
Germany, except Busingen and the Isle of Heligoland;
o
Greece;
o
Hungary
o
The Republic of Ireland;
o
Italy, except the communes of Livigno and Campione d'Italia and
the Italian waters of Lake Lugano;
o
Latvia
o
Lithuania
o
Luxembourg;
o
Malta
o
Netherlands;
o
Poland
o
Portugal, including the Azores and Madeira;
o
Romania
o
Slovakia
o
Slovenia
o
Spain, including the Balearic Islands but excluding Ceuta and
Melilla
o
Sweden;
o
United Kingdom, including the Isle of Man.
Guidance Notes for Government Departments | Page 26 of 87
There are some "Special Territories" which are within the EC customs
area but outside the EC fiscal (VAT) area:
o
Andorra;
o
The Åland Islands (Finland);
o
The Channel Islands;
o
The Canary Islands (Spain);
o
The overseas departments of France (Guadeloupe, Martinique,
Reunion and French Guiana);
o
Mount Athos (Greece).
Goods entering the UK from the "Special Territories", will be treated as
imported goods, for VAT purposes.
2.6
What happens when I sell goods to customers based in another
European Community (EC) country?
A GD can only zero-rate the supply of goods to a customer in another
EC Member State if:
2.7

the EC customer's VAT registration number (with 2 letter country
code prefix) is obtained and it is shown on the invoice; and

the goods are delivered to a destination in another EC country; and

valid commercial documentary evidence is obtained within three
months of the date of supply, and held to show that the goods have
been removed from the UK.
What other documentation must I complete?
You must also complete EC Sales lists showing the zero-rated sales
you have made to VAT registered businesses in the other Member
States.
2.8
What are EC Sales Lists (ESLs)?
Where VAT registrations, including Government Departments, make
supplies of goods to customers registered for VAT in other EC Member
States they are required to complete and submit ESLs for these supplies
of goods and related services.
From 1 January 2010, you are also required to complete ESLs for intraEC taxable supplies of services to which the reverse charge applies.
Guidance Notes for Government Departments | Page 27 of 87
2.9
How often do I have to submit ESLs?
ESLs can be submitted either monthly or quarterly depending on the
nature of the supplies (i.e. goods or services) and value of the supplies
excluding VAT.
You can submit ESLs either electronically using the ‘ECSL Service, or
by using the ESL Form VAT 101. HMRC issues VAT Form VAT 101
and 101A if they are identified as having EC sales.
2.10
Where can I find more information about completing my EC sales
list?
More information on EC Sales Lists is contained in VAT Notice 725
“The Single Market “and VAT Information Sheet 1/96 “Filling in your
EC Sales List. Further guidance is also available in the ESL guidance
and in Revenue & Customs Briefs 53/08 and 02/09.
2.11
What happens if my EC customer is not registered for tax?
If the EC customer is not registered for VAT, you must charge UK VAT
and treat it as a domestic sale. It should not be recorded in Box 8.
However, you must keep a record of supplies of goods despatched to
non-VAT registered customers in other EC Member States. This is
because you may become liable to the distance selling arrangements.
These arrangements state that if the value of sales to a particular EC
Member State rises above that State's threshold for distance selling, the
place of supply becomes that of the other Member State, and you will
become liable to register for VAT there. You will have to contact the
appropriate tax authority if registration is necessary.
Notice 700/1 “Distance Selling” and Notice 725 “The Single Market”
give more information about distance selling arrangements.
2.12
What is
“Intrastat”?
“Intrastat” is the system for collecting statistics on the trade in goods
between EC Member States. If a GD has a value of trade in goods of
either arrivals or dispatches above a specified value “threshold”, they are
required to submit further information on what are called Supplementary
Declarations each month. This arrangement and details of the
thresholds can be found in Notice 60 “Intrastat General Guide”.
Guidance Notes for Government Departments | Page 28 of 87
2.13
How do I account for VAT on goods exported outside the EC?
When a GD exports goods outside the EC, the goods may only be zero
rated if HMRC’s regulations in respect of proof of export, and any other
regulations which may be in force at the time, are adhered to.
If a GD purchases goods it intends to export and takes physical delivery
of goods from the UK manufacturer or supplier in the UK, then it will
have to pay VAT to the manufacturer or supplier but will be able to
recover this by adjusting its VAT account when the goods are exported,
subject to the correct proof of export being held.
Please refer to Notice 703 “Exports and Removal of goods from the
UK” for more information.
Guidance Notes for Government Departments | Page 29 of 87
Supplies of Services
2.14
Services supplied within and outside the European Community
In order to determine the VAT treatment of services supplied to
customers outside the UK, you will need to identify the place of supply.
2.15
What is “Place of Supply”?
For VAT purposes, place of supply is the place where a supply is treated
as being made or supplied. This is the place where the service will be
liable to any VAT. There are a number of rules which determine where
services of different kinds are made.
This information can be found in:


Notice 741 Place of supply of services (before 1 January 2010); and
Notice 741A Place of supply of services – i.e. after 1 January 2010.
2.16 What services are being supplied?
It is essential that you think carefully about the nature of any services
that you supply (or receive). Sometimes a short hand or colloquial
description will not reflect what is really being supplied. You must have
a clear understanding of the nature of the services before you can
identify the appropriate place of supply rule.
Guidance Notes for Government Departments | Page 30 of 87
Part 2B - The Treasury (Taxing) Direction
2.17
Recent changes
Until 16 July 2012 inclusive section 41(2) of the VAT Act 1994 deemed
supplies by GDs to be within the scope of VAT if they were of a type
listed in a Treasury Direction (‘the Taxing direction’). These were
supplies which would be within the scope of VAT is supplied by other
bodies, but were supplied by GDs under public law.
2.17.1 From 17 July 2012 section 41(2) has been repealed and replaced by
section 41A of the VAT Act 1994, which has wider coverage in terms of
the public bodies involved. The principles are still the same and GDs
may, for the purposes of supplies by them to other persons, continue
to rely upon the former Taxing Direction as a guide. However, the
question we encourage GDs to ask is whether the goods or services
being supplied could also be supplied by non-public bodies, and thus
GDs and these other bodies are in competition.
2.17.2 The Taxing Direction remains in force for supplies between GDs. This
may sound strange but the Taxing Direction was made under both
section 41(2) (supplies by GDs in competition) and section 41(5)
(supplies by one GD to another). Section 41(5) has not been repealed.
This is further explained below.
2.18
What is the Treasury (Taxing) Direction and its purpose?
The Taxing Direction originally did two things in respect of those bodies
included in list 1 of the Direction and now it does one:
(i) it applied VAT to certain supplies made by GDs to other
persons which were made under public law provisions. GDs often
carry out activities under specific statutory authority. Normally a charge
made by a GD in connection with such an activity would not be subject
to VAT. However, in certain cases, some services provided by GDs
are, or can, also be supplied by commercial businesses which would
have to apply the normal VAT rules. To prevent any potential distortion
of competition, the Treasury could direct that such supplies be treated
as business when provided by GDs. As mentioned in paragraph 2.18,
the Taxing Direction is no longer in force for this purpose, but GDs may
continue to rely upon it as a guide.
Guidance Notes for Government Departments | Page 31 of 87
ii) It continues to ensure that certain supplies made between GDs
are taxed. Under the normal rules VAT does not apply to supplies
made between GDs. This is because the Crown is legally seen as a
single indivisible body and so any supplies between government
departments are taking place within a single VAT entity. Under the
normal VAT rules such transactions would not be taxable supplies.
However, this causes problems when GDs make supplies of goods or
services which can also be obtained from businesses in the private
sector. If GDs did not charge VAT on this type of supplies, they would
be undercutting the private sector and this would lead to “distortion of
competition” as GDs may be tempted to source goods and services
from other GDs to save VAT. To ensure that this does not happen, the
Treasury has directed that certain specified activities must be treated
as business when supplied between GDs. Effectively, it levels the
playing field by breaking government up into individual “businesses” for
certain activities, and prevents distortion of competition.
It is important to note that the Taxing Direction sets out when the
activity must be treated as being by way of business, but it does not
specify the VAT liability which must be applied. The list contains
supplies which are standard rated, reduced rated, zero-rated and
exempt from VAT. It is therefore your responsibility to identify and
apply the correct VAT liability. For example, supplies of land may be
exempt from VAT, but disposal of surplus office equipment is standard
rated.
2.19
Where can I find the Direction?
The Taxing Direction is published in the London, Edinburgh and Belfast
Gazettes. You can find the Direction by going to the London Gazette’s
homepage at www.london-gazette.co.uk and looking for Issues 58877 at
page 17363
The current edition of the Taxing Direction was published on 10
November 2008.
You are responsible for telling us of any changes in your Department’s
trading activities throughout the year, so that the Direction can be
amended.
2.20
How should Output Tax due on such supplies be accounted for to
HMRC?
Output tax due on such supplies should be accounted for on a VAT
return. Details on how to complete a VAT return, can be found in Section
1.25.
Guidance Notes for Government Departments | Page 32 of 87
2.21
What activities are contained in the Direction and how should they
be defined?
The Taxing Direction lists a number of activities that are deemed to be
business activities when undertaken by a Government Department.
The table below shows the activities which appear in List 2 of the
Direction and gives examples of the types of activities which can fall
within the heading. Please note that the examples shown are not
exhaustive. If you are in any doubt about whether the supplies you are
making should be treated as business, please contact your CRM or
Customer Co-ordinator, providing all the details set out in section 1.5.
Table showing the heading contained in list 2 of the Taxing Direction
with examples of activities which fall within them.
Heading as it appears in the
Direction
Accommodation, including
property acquisition and disposal
and any related services
Administration services
Admission to premises and to
events, e.g. entertainments, air
displays etc.
Advertising or publicity services
Archives
Attendance of staff at court or any
similar place
Bankruptcies and insolvency
services
Broadcasting services
Catering, including supplies from
vending machines
Car leasing
Computer services or goods
Examples we have seen include
Letting office space
Letting land
Sales of government buildings
Purchase of land or buildings
Open days where an admission charge
is payable.
Guided tours
Fireworks displays
Concerts
Provision of advertising space in a
publication
Charges for distributing advertising
material
Maintenance & updating of records
Where a civil servant attends court in
the UK as an expert witness and a
charge is made for their professional
services.
Sharing software with others
Guidance Notes for Government Departments | Page 33 of 87
Concessions for catering or other
services
Conferences, exhibitions and any
related facilities or services
Construction, alteration,
demolition, repair or maintenance
work, civil engineering work, any
related services or goods
Contract or procurement services
Copying or supply of any
reproductions or of any documents
Copyright, patents or licences to
manufacture
Delivery or distribution services
Drainage work
Electronic transfer of data
Export of goods and related
services
Filming, replay or recording
services
Financial and any related services
Granting a licence to a caterer to
occupy a specific kitchen and
restaurant area even if the grant
includes the use of kitchen or catering
equipment.
Organisation of conferences, symposia
and seminars
Organisation of exhibitions and displays
Provision of lectures and
speakers
.
Negotiating bulk contracts.
Charges made for providing copies of
official document to insurance
companies, solicitors etc
Granting a licence to use computer
software.
Allowing use of logos or insignia.
These are often referred to as “digitised
products”
Photographs/ videos
Downloading computer software
Transfer of electronic journals
Preparation of export documentation.
Use of freight containers.
Storage of goods prior to export.
Operation of current, deposit & savings
accounts
Administration, payment of salaries and
wages.
Deductions from employees’ pay for
insurance premiums or in compliance
with an attachment of earnings order.
Mortgage repayments, Union
Subscriptions.
Safe custody and safe transportation
services
Guidance Notes for Government Departments | Page 34 of 87
Fishing licences or permits
Fire service assistance
Freight transport
Fuel and power.
Government car service
Grant or assignment or surrender
of any interest in or right over land,
or of any licence to do anything in
relation to land.
Grant of a right to inspect records
Goods, including goods
manufactured within a Government
department and sold to its staff
and to other customers, stores,
surplus or other equipment
Grave maintenance
Grounds maintenance
Hairdressing
Heating
Hire of vehicles, machinery or
equipment, with or without
operator or crew
Hydrographic, cartographic and
similar services.
Information or statistical services
Right to take fish from land
Includes any transport by road, sea or
air
Supplies of fuels for domestic use
Supplies of hot water including steam.
Right to park vehicles in a car park or
garage.
Provision of storage for bicycles.
Right to take game or fish from land
Mooring charges
Grazing rights
The sale or disposal of any capitalised
asset, including vehicles, computers,
and furniture, regardless of whether any
Input VAT was recovered on the
original purchase.
Maintaining commemorative
headstones & plaques.
Planting trees, shrubs & rosebushes.
Cutting grass
Maintaining footpaths
Maintaining fences
Planting trees, shrubs & rosebushes
Of the sort provided in hospitals,
prisons or the armed forces.
Please see the entry on fuel and power
above.
Charges for the attendance of
ambulances at sporting and similar
events, where the package is
comprised of crewed ambulances and
supporting medical staff.
Topographical surveys
Please note that charges made for the
provision of information requested
under the Freedom Of Information Act
2000 is not treated as being a taxable
supply provided that the information
can only be provided by your
department and is not available from
any other source.
Guidance Notes for Government Departments | Page 35 of 87
Inspection services
Laboratory services including
analysis and testing of any
substance
Laundry services
Licensing, certification,
authorisation or the granting of any
rights other than rights over land
Manufacturing, assembling and
other services
Medical services
Membership subscriptions
Meteorological and related
services
Mineral or prospecting rights
Mortuary services
Nursery and day-care facilities
Occupational health services
Passenger transport
Payroll and pension administration
services
Pest or animal control
Photocopying services
Photographic services
Port, airport or harbour services
and related goods
Washing and laundering uniforms,
clothing and bed linen.
Crown Copyright
Software licences
Care, diagnosis, treatment or
assessment of patients
Provision of weather forecasts
Provision of data relating to weather/
climate change.
Use of computer modelling to simulate
weather conditions or climate change
Post mortems.
Refrigeration of bodies before post
mortem.
Transport to, from or within a place of
historic interest if you also supply the
right to admission.
Administration, payment of salaries and
wages.
Deductions from employees pay for
insurance premiums, Mortgage
repayments, union subscriptions or in
compliance with an attachment of
earnings order.
Laying poison
Quarantine
Charges made for providing copies of
official documents to insurance
companies, solicitors etc
Piloting /Towage services
Storage services in a port
Loading and unloading in a port, land
adjacent to a port, transit shed, airport
Guidance Notes for Government Departments | Page 36 of 87
Postal, packing or distribution
services
Professional services, including
those of any manager, adviser,
expert, specialist or consultant
Publications
Radio or communication services
Recruitment services
Research, testing,
experimentation, sampling or other
related laboratory services
Repair or maintenance of
machinery, equipment or other
goods
Searches
Secondment of staff where such
services could also be obtained
from the private sector
Secretarial services
Security services and related
goods
Shipping services
Franking services
Postage and distribution charges
Please refer to the Advice Sheet on
supplies of staff in the reference section
of this guidance.
Posters for public display
Stationery items e.g. business cards,
envelopes, calendars, letterheads,
questionnaires
CDs, DVDs, audio and video cassettes
Supplies of books, pamphlets, journals
and periodicals.
Does not include the issue of statutory
licences
Interviewing
Security vetting
Retrieval of information from records
Please refer to the supplies of staff
advice sheet in the reference section
Typing services
Minute taking
Transcription services
Provision of security guards
Installation of security systems – door
key pads, CCTV, security lighting etc
Preparation of import / export
documentation
Allowing use of freight containers which
belong to you
Slaughter, rendering and disposal
of animals
Social services
Statistical services, including the
collection, preparation and
processing of data
Storage facilities and related
services
Guidance Notes for Government Departments | Page 37 of 87
Telecommunications
Training, tuition or education and
any related services or goods
Transfer of milk quota leases
Translation services
Tree planting and afforestation
Vehicle conversions
Vehicle servicing and maintenance
Verification of particulars of births,
marriages or deaths
Waste disposal
Water
Allowing someone else to use a
telecommunications mast that belongs
to you. Also, please see information
relating to electronic transfer of data.
Supplies of training materials
Provision of training courses e.g. First
Aid, Lectures, Seminars.
Supply of oral interpreters
Written translation
Forest Management – e.g. thinning out
Mechanics’ services
Provision of MOT tests
Providing duplicate copies of birth,
death or marriage certificates
Confirming information on application
forms and other official forms
Incineration of waste products
Allowing someone else to use your
incineration facilities
Removal of waste that cannot be
discharged into the sewers.
Supplies of water and ice
Ordinary water supplied in bottles as a
drought alleviation or other emergency
measure
Supply of distilled or deionised water
and water of similar purity.
Supply of water for an industrial activity.
Weighbridge services
Guidance Notes for Government Departments | Page 38 of 87
Part 3 - Purchases and the Treasury Contracting
Out Direction
Part 3A General Information about purchases
3.1
Do any special rules apply when GDs purchase goods and
services?
No special rules apply when goods and services are purchased by
GDs. If the good or service is subject to VAT, then a VAT-registered
supplier will charge you VAT.
3.2
How do I query whether a supply is correctly liable to VAT?
As it is the legal responsibility of VAT registered traders to decide the
tax liability of the supplies they make, you must ensure that when
seeking tenders or placing orders, suppliers are not pressured, or
asked to describe their supplies in such a way as to avoid the proper
tax liability.
Where you wish to query a liability, you should ask the supplier to
obtain a written ruling from HMRC. Only if there is a dispute should you
should seek advice from us. In such circumstances, it will be necessary
to provide the full details of the supplies involved, the name and
address of the supplier and copies of contracts and other documents to
enable the issue to be fully reviewed.
Supplies of Goods
3.3
What happens if I purchase goods from countries outside the EC?
.
When you purchase and import goods from outside the EC, the normal
customs procedures will apply. This means standard import declarations
and import entries must be submitted and you will be charged customs
duty and VAT at importation in the same way as ordinary business.
If special arrangements are necessary, e.g. for security or diplomatic
reasons, you should consult your CRM or Customer Co-ordinator.
3.4
What happens if I purchase goods from countries in the EC?
Receipts of goods from other EC Member States are termed
acquisitions. GDs are liable to pay VAT on acquisitions at the rate
applicable in the UK, although the mechanism for paying this VAT to
HMRC is not the same as that for imports from non-EC Member States.
Guidance Notes for Government Departments | Page 39 of 87
When acquiring goods from other EC Member States as the customer a
GD should give its VAT registration number to the supplier in order to
receive the supply of goods VAT-free. On acquisition of the goods in the
UK however, VAT must be accounted for at the rate applicable to the
supply of goods in the UK. This is known as “Acquisition Tax “. When
completing a VAT return, the Acquisition Tax should be inserted in Box 2
(which is added to Box 1 to make Box 3 Total VAT due) and the value of
the goods entered in Boxes 7 and 9.
VAT Notice 725 “The Single Market” explains the procedure in detail.
Supplies of services
3.5
What happens if I buy services from suppliers based outside the
UK that are subject to the B2B General rule?
a) You must quote your 9 digit VAT registration number (not the one
starting 888) to your supplier. The supplier will then zero-rate their
supply to you.
b) You must then credit your VAT return with the amount of output tax
calculated on the full value of the supply you have received.
c) If the supply of services are directly attributable to your
department’s taxable activities, debit your VAT return with the
input tax that you are entitled to recover
.
d) If the supply of services relates to your non business activities
and to eligible contracted out services, the VAT can be
reclaimed under the appropriate headings of the Contracting out
Direction and documented on your VAT 21 claim form.
e) If the supply of services relates to your department’s non business
activities and do not fall within the Contracting Out Direction,
no further action is necessary as you have correctly accounted for
UK VAT
3.6 What happens if I buy services from suppliers which fall under a
special rule and are treated as being supplied outside of the EC?
a) Services supplied as part of your department’s business activities.
If the services is treated as being taxable in
i) Another EC Member State and it is received for business
purposes, you may claim a refund of the VAT paid by using the 8 Th
Directive Refund Procedures, as long as you are not registered for
VAT in that Member State. Claims for refunds should be made
using the new electronic refund procedures. You can access the
services through the HMRC VAT online services webpage. A
Guidance Notes for Government Departments | Page 40 of 87
separate online application is required for each Member State from
which you wish to claim. Please see VAT Notice 723 “Refunds of
VAT in the European Community for EC and Non-EC traders”
for more information.
Please remember your department cannot recover VAT it incurs in
another Member State via its GD VAT return
ii) Any other country outside of the EC and is received for
business purposes, you will be charged whatever tax is in place in
the country of supply. You will not be able to recover the tax unless
that country has a procedure that allows this. Any queries on this
will need to be discussed with the tax authorities in that particular
country and not with HMRC.
b) Services purchased as part of your department’s non-business
activities
When a GD purchases services for its non-business activities, you will be
charged VAT at the appropriate rate in the country where the supply is
deemed to take place. As this VAT is not UK VAT, it cannot be reclaimed
under the Section 41(3) refund scheme.
Guidance Notes for Government Departments | Page 41 of 87
Part 3B The Treasury (Contracting Out) Direction
3.7
What is the purpose of the Contracting Out Direction?
GDs have been encouraged to contract-out services to the private sector
which had traditionally been performed in-house. It is recognised that
many of these services would be subject to VAT and where they were
acquired for “non-business” purposes, the non-reclaimable VAT could
act as a disincentive to contracting-out.
It was therefore decided to compensate GDs by a direct refund
mechanism, which is provided for in section 41(3) of the VAT Act 1994.
Under this provision, the Treasury issues a Direction, commonly known
as the “Contracting-Out Direction” listing both the GDs that are eligible to
claim refunds of VAT, and the services on which VAT can be refunded.
3.8
What is refunded?
HMRC is empowered to refund VAT to GDs on contracted out services
listed in the Contracting-Out Direction provided that:
(a)
(b)
(c)
3.9
They have been purchased for (non-business) statutory
purposes; and
they meet the conditions of being contracted out; and
The claim meets any conditions that may be laid down regarding
timing, form, and manner.
Where is the Direction published?
Like the Taxing Direction, the Contracting-Out Direction is published in
the Belfast, Edinburgh and London Gazettes. The last published version
of the Treasury’s Contracting-Out Direction is featured in the editions
dated on 10 January 2003.
You can view a copy of the Gazettes online by visiting the London
Gazette’s homepage at www.london-gazette.co.uk. You should then
look for issues 56816 page 306
Guidance Notes for Government Departments | Page 42 of 87
3.10
Can additional services be added to the Direction?
Yes. From time to time, the Treasury reviews the Direction. At the start
of this process the Treasury will ask each department for details of any
changes (including deletions) which should be considered for inclusion
in the new Contracting-Out Direction.
This process allows departments the opportunity to update their
information - for example, departments and agencies that have been
rebranded following machinery of government changes.
You must also consider whether there are any existing headings in the
direction which are no longer required.
Departments may also ask the Treasury to consider adding a new
heading to Direction. In order that the request can be fully considered,
the Treasury requires that GDs submit a full business case, detailing the
reasons why a new heading is needed. It is important to include full
details of the financial implications for your department.
Where requests for new headings are made outside the Treasury review
process, these should be sent to your CRM or Customer Co-ordinator
within the Government Departments Team so that they can be formally
passed to the Treasury for consideration.
3.11
Who can claim refunds under the Direction?
The following bodies can claim refunds of VAT on the purchase of
services detailed in list 2 of the Direction, provided these are used for
non business activities:





Houses of Parliament,
Government departments which are recognised as such by the
Cabinet Office, Welsh Government, Scottish Government or
Northern Ireland Executive and the devolved administrations
themselves,
certain agencies of government departments,
Named NHS bodies,
Crown NDPBs
With the exception of Parliament, the bodies entitled to claim refunds of
VAT are either detailed in List 1 of the Direction, or will have been
advised separately by HMRC that they can claim pending the next
revision of the Direction. We accept that normal machinery of
government changes, for example where the responsibilities of
Department X are transferred to new Departments Y and Z, are
automatically covered – you do not need separate authority from HMRC.
Guidance Notes for Government Departments | Page 43 of 87
Please note - The Direction does not extend to Non-Departmental
Public Bodies other than Crown NDPBs, or to bodies such as Advisory
Committees.
3.12
How are such refunds made?
Any VAT to be reclaimed, whether input tax resulting from a business
activity or Section 41(3) refunds, should be recorded on the same VAT
return as that used to declare Output Tax on business activities. See
section 1.25 for more details.
A GD should obtain VAT tax invoices from its suppliers that clearly
describe the supply received. The VAT charged should be shown as a
separate item.
3.13
What activities are contained in the Contracting Out Direction?
In the following table we reproduce in bold print the headings as they
are shown in the Direction, and then we provide some explanatory
notes based on cases where our advice has been requested or
discussions with the Treasury. These notes are not exhaustive in that
they cannot cover every situation. Therefore if you need further advice,
please contact your CRM.
It is particularly important to note that the headings in the Direction
should be interpreted in a purposive manner, and therefore in the
context of the rationale for refunding VAT – namely that VAT should
not dissuade departments from contracting out services if this is the
most efficient and cost-effective thing to do.
The last published Direction was in 2003. However the Treasury
subsequently undertook its periodic review of the Direction and
although a replacement Direction was agreed, it has not been
published. We therefore show the revisions agreed by the Treasury in
italics.
Since that review, departments have requested some new
headings and those requests have been agreed and are awaiting a
further revision of the direction. We mention these in paragraph
3.14.
Guidance Notes for Government Departments | Page 44 of 87
1. Accounting, invoicing and related services
Excludes:
 Auditing a GD’s financial accounts.
 Hire of accountants to carry out tax health checks - Please refer to
Advice Sheet 1 “Use of Tax Advisors”.
 Internal audit reports - these deal with efficiency and any VAT incurred
can be recovered under heading 52. Recovery is allowed as GDs have
never been allowed to do their own auditing it has to be done by another
body - now the National Audit Office.
2. Administration of the following











Career development loans
Certificates of Experience
Government support payments to the Railway Industry Pensions funds
Grants and awards
Services supplied under the Companies Acts and the Patents and
Trademark Acts
Teacher’s Superannuation Scheme
Vehicle Excise Duty refunds
Winter fuel payment scheme
Inherited State Earnings Related Pension Scheme
Student Loan Scheme
Fast Track Teaching Programme
It is important to note that the heading can only be used to recover costs
which relate to the named programmes. New programmes can only be
added to the list by agreement with HM Treasury.
3. Administration and collection of toll charges
4. Aerial photographic surveys and aerial surveillance
5. Agricultural services of the kind normally carried out by DEFRA
The wording of this heading was amended in 2008 when the Farming and
Rural conservation Agency was abolished under a machinery of
Government change.
The heading can be used by the departments of the devolved
administrations which have assumed responsibility for such activities from
DEFRA.
Guidance Notes for Government Departments | Page 45 of 87
6. Alteration, repair and maintenance of road schemes, except (a) any
works carried out pursuant to an agreement under section 278 of the
Highways Act 1980 or (b) works involving construction on land not
already used for road schemes
Please refer to The Advice Sheet 3 in the Reference section for more
information.
7. Broadcast Monitoring Services
Includes:
 Recording news and TV programmes which are relevant to the work of a
government department.
 Recording radio programmes
 Providing a digest of a departments coverage in the broadcast media
8. Cartographic Services
Includes:
 Mapping services
 Topographical surveys
 Preparation of bespoke maps
9. Cash in transit services
For example, the secure transport of cash
10. Catering
Includes:
 Food prepared and facilities supplied by a contract catering service.
 Hire of agency catering staff and domestic staff relating to catering.
Excludes
 Purchases of food or drinks alone.
 Sandwich/food delivery services.
11. Ceremonial services
Includes:
 Erecting seating and stands for dignitaries and the general public.
 Putting up flags and bunting.
 Hire of portable toilet facilities.
 Putting up and dismantling crowd control barriers.
 Hire of PA systems
 Laying the “red carpet”
Guidance Notes for Government Departments | Page 46 of 87
Excludes:
Recovery on goods, for example the purchase of
 flags,
 flowers
 red carpet
 food or drink for hospitality purposes
 fireworks that are to be used in a display.
12. Childcare services
This heading allows departments to recover VAT incurred on the provision
of crèche facilities or holiday play schemes operated by GDs for the benefit
of their own employees.
Please note that the heading excludes crèche facilities provided by a
nursery /play group registered under the Children’s Act 1989 – as such
supplies are exempt from VAT.
13. Collection, delivery and distribution services
This applies to services provided by couriers, Rail Freight, Federal Express,
UPS etc. Some services provided by Royal Mail are exempt from VAT.
14. Computer services supplied to the specification of the recipient
Includes:
 the provision by one or more suppliers of a fully managed and serviced
computer infrastructure either using the recipients’ own hardware or
hardware provided by the supplier as part of the infrastructure; and
 the development, delivery and support of bespoke software.
Excludes:
 supply and support of off-the-shelf software ;
 hire of hardware alone;
 line rental alone;
 telephony; and
 hire of computer consultants to add expertise to in-house IT teams.
Previously the scope of the heading reflected the PFI type procurements
common in IT where the infrastructure had to be provided by a single
provider on hardware owned by the provider. Treasury have recognised
that the use of single providers is no longer viewed as always giving the
best service and that for security and continuity reasons departments may
wish to retain ownership of the hardware (even though under a PFI
arrangement this decreases the transfer of risk from the department).
Guidance Notes for Government Departments | Page 47 of 87
15. Conference and exhibition services
Includes:
 A composite facility which could include supplies of staff, hire of venue,
equipment, hotel accommodation, catering etc. There must be more than
accommodation and catering.
 GD staff running a conference themselves and contracting out the venue,
equipment and perhaps catering. The keyword is ‘services’. To qualify for
recovery GDs must be receiving more than a supply of accommodation
and catering.
Excludes:
 The hire of venues alone
 The hire of hotel accommodation on its own.
 VAT incurred when a civil servant stays in a hotel room and receives a
supply of hotel accommodation on its own. This charge may sometimes
be referred to as “conference” or “delegate” rates.
16. Debt Collection
Includes the provision of services by a professional debt collection agency.
17. Departmental staff records and payroll systems including
administration and payment of pensions
This heading excludes the Administration of child care vouchers.
Following the CJEU judgement in Astra Zeneca (C-40/09) benefits by way
of salary sacrifice are treated as business and COS doesn’t apply. Further
information can be found in Revenue & Customs Briefs 28/11 and 36/11.
18. Employment advisory services as directed by the Race Relations
Act 1976
19. Engineering and related process services
This heading is designed to allow recovery on manufacturing and the
related commissioning processes.
20. Environmental protection services of the kind normally carried out
for the Department of the Environment, Food and Rural Affairs
VAT recovery is allowed on contracted out services which contribute to
protection from floods, coastal erosion, disease prevention precautions.
The heading can be used by the departments of devolved administrations
which have assumed responsibility for such activities from DEFRA.
Guidance Notes for Government Departments | Page 48 of 87
21. Estate management services
Covers property where a GD holds either the leasehold or the freehold.
Applies when a contractor manages and runs a building for you. For
example, when an estate agent is responsible for arranging the payment of
rents and other charges. May include utilities charges that are included as
part of the unitary charges.
22. Export intelligence services
23. Filming, audio-visual and production services
Includes:
 Commissioning a company to make in-house training films.
 Filming briefings meetings or conferences.
24. Health Promotion activities
Includes:
 Stress awareness campaigns
 Giving up smoking campaigns.
25. Hire of reprographic equipment including repair and maintenance.
Allows recovery on USE ONLY of reprographic equipment. The provider
retains ownership and responsibility for them.
Excludes:
 Hire of Fax machines, as these are not reprographic equipment.
 Consumable goods such as toner and copier paper.
26. Hire of vehicles, including repair and maintenance
Allows recovery on USE ONLY of hire vehicles. The provider retains
ownership and responsibility for the vehicles. Applies only where a GD
places a contract with a trader to supply vehicles AND provide repair and
maintenance. The supplier MUST carry out the repair and maintenance.
Includes:
 Pool cars
Excludes:
 Hire of vehicles alone
 Arrangements where the GD carries out the repair work itself, or contract
this out to another body
 Short term car hire
Guidance Notes for Government Departments | Page 49 of 87
27. Insolvency services
The costs of Insolvency Practitioners may be recovered under this heading
only if it can be demonstrated that that they are working under contract to a
GD and that their services are being provided to the GD. In many cases
Insolvency practitioners are seen as providing their services to the business
under their supervision and any VAT charge is proper to that entity.
.
28. Interpretation and translation services
This includes simultaneous interpretation services provided in person at
events or meetings or via telephone. Translation of documents.
29. Issue of documents to, and control of bingo halls and off-course
bookmakers
30. Issue of Documents under the Wireless Telegraphy Act
31. Laboratory services
Includes:
 Drug testing
 Forensic testing
Excludes:
 The provision of laboratory consumables – reagents, chemicals, test
tubes
32. Laundry Services
For example:
 towel hire, towel cleaning/provision
 laundering of uniforms
33. Library services
Use of external libraries such University libraries or independent academic
libraries.
Excludes:
 subscriptions to publications
 subscriptions to electronic journals
Guidance Notes for Government Departments | Page 50 of 87
34. Maintenance and care of livestock and fauna in connection with
the Royal Parks
Includes:
 Veterinary costs
 Tree surgeons’ services
 Vaccination programmes
35. Maintenance, non-structural repair and cleaning of buildings
Covers property where a GD holds either the leasehold or the freehold.
Includes:
 Non structural repairs funded from running costs
 Window Cleaning
 Contract cleaning
 Re-painting existing external structure.
 Maintenance of grounds and gardens adjacent buildings.
 Repair of existing suspended ceilings
 Repainting
 Replacing worn flooring with the same type of covering: i.e. replacing
carpet with carpet, linoleum with linoleum
Excludes:
 Non-structural repairs funded from capital expenditure
 The conversion of office space from small offices to open plan or vice
versa
 Installation of suspended ceilings - as this alters the dimensions of the
existing structure
 Extensions
 Widening doorways
 Supply of cleaning materials or equipment alone
 Upgrading worn floor covering - i.e. replacing linoleum with carpet, or
replacing carpet with wood flooring etc
36. Maintenance and repair of civil engineering works
Includes:
 Repairs to existing bridges,
 Repairs and maintenance to existing drains
Excludes:
 Repair and maintenance of road schemes. This work falls under COS 6
 New civil engineering projects
 Supplies carried out under s278 agreements (refer to Sheet 3)
Guidance Notes for Government Departments | Page 51 of 87
37. Maintenance, repair and cleaning of equipment, plant, vehicles and
vessels
This heading allows departments to recover VAT on repair and
maintenance costs as follows:
Includes:
 equipment, plant vehicles and vehicles owned by a department,
 equipment, plant vehicles and vessels which are leased, provided that
the repair and maintenance work is provided by different supplier.
 spare parts which are provided as part of the eligible repair and
maintenance services.
 Repairs to existing lifts
Excludes:
 the lease arrangement itself (this is a supply of goods & VAT is not
recoverable under COS)
 Installation of new lifts
 Complete replacement of central heating and air conditioning systems.
Treasury has additionally confirmed that recovery of VAT under this
heading can be extended to equipment, plant, vehicles and vessels leased
by a department from a separate supplier to the one providing the
maintenance. Recovery on this basis was allowed with effect from 1 April
2006. Before this, recovery was restricted to equipment, plant, vehicles and
vessels owned by a department. Treasury have agreed that the previous
restriction did not take sufficient recognition of the fact that many
departments gain benefit in leasing rather than purchasing this sort of item
outright.
The leasing or hire of equipment, plant, vehicles and vessels is however a
supply of services and any VAT incurred in respect of this is NOT
recoverable. The only exceptions to this are headings 25 ‘Hire of
reprographic equipment including repair and maintenance’ and 26 ‘Hire of
vehicles, including repair and maintenance’. In both these cases the VAT is
only recoverable on contracts for the supply of the equipment /vehicles
together with full repair and maintenance services.
38. Maintenance and repair of statues monuments and works of art
Includes:
 Cleaning
 Restoration costs
 Removal & re-location costs.
Excludes:
 Expenses relating to the design and installation of new monuments.
Guidance Notes for Government Departments | Page 52 of 87
39. Medical and social surveys
This heading is specifically designed to allow recovery on surveys which were
previously carried out “in house” by Government Departments and which are now
outsourced to private sector providers. This type of survey is most typically
conducted amongst other public bodies such as local authorities, police
authorities; health authorities, charities etc and the information gleaned is used to
inform future planning and policies.
Other types of survey may also be eligible for recovery but the key criteria is to
demonstrate that they:


are medical or social in nature and,
would have previously been undertaken in house by a GD.
Excludes:
 MORI Polls as these have always been undertaken by independent
external bodies to conduct opinion polls
40. Messenger, portering and reception services
Includes
 Collection and distribution of internal mail by a private company
Excludes:
 The hire of telephone equipment /telephone lines or switchboard
equipment alone.
 Hire of agency staff to supplement in-house services during peak times
or to cover leave
41. Nursing services
Such as agency nurses
Excludes:
 other types of medical professionals such as doctors, locums.
42. Office removals
Includes:
 Office relocation contractors
 Provision of removal services
 Crate hire when part of a removal contract
 Contractors moving office accommodation. i.e. from one floor to another
Excludes:
 Crate hire alone
Guidance Notes for Government Departments | Page 53 of 87
43. Operation and maintenance of static test facilities, engineering and
support services and test range industrial support and security/safety
services including those acquired for the purposes of research and
development
44. Operation and maintenance of stores depots.
Includes
 Monitoring stock levels.
 Dealing with requisition requests.
45. Operation of hospitals, health care establishments and health care
facilities and the provision of any related services
This heading is concerned with the provision of a fully operational and
managed hospital or healthcare facility, where most services short of
medical and nursing services are supplied to the NHS by the provider.
Includes
 the ancillary provision of equipment together with the service of
operating and maintaining that equipment,
 utilities when provided as a part of the whole package and paid for
within the single unitary charge.
Excludes
 Hire of medical equipment alone.
46. Operation of prisons, detention centres and remand centres,
including medical services
Includes
 Operation of prison shops
 Prisoner transport.
 Operation of prison hospitals
Excludes:
 Hostel accommodation
Guidance Notes for Government Departments | Page 54 of 87
47. Passenger transport services
Includes
 Taxi firms that supply taxis to staff on request provided the GD has
entered into a contract with the firm and receives a tax invoice. E.g. late
night car services
 Chauffeur driven cars
Excludes:
 Public transport costs – (these are already zero-rated).
 Road tax
 Passenger insurance.
 Staff members hailing cabs in the street or picking up a taxi from a taxi
rank.
48. Pest control services
Includes:
 setting of traps
 spraying insecticide
 laying down poison
 removal of dead rodents
Excludes:
 the purchases of poisons/traps on their own
49. Photographic, reprographic, graphic and design services
Includes:
 Hire of a photographer
 Design & printing of annual reports.
 Bulk copying services.
Excludes supplies of goods such as:
 Purchase of photocopiers etc.
 Printing of business cards and headed stationary.
 Printing of office signage
50. Preparation and despatch of forms
Includes
 design printing and mailing of forms providing these services are
provided within a single contract.
Guidance Notes for Government Departments | Page 55 of 87
51. Press cutting services
52. Professional Advice or opinion on departmental efficiency or
policy issues, legal advice or opinion and internal audit.
The wording of this heading has been changed with Treasury agreement
from “Professional services, including those of any manager, adviser,
expert, specialist or consultant”. The change in wording is designed to
clarify the scope of recovery under the heading. The new wording reflects
that heading 52 is essentially concerned with for the provision of advice or
information on how to affect something.
The scope of this heading is much narrower than it may first appear. The
heading only allows VAT recovery in respect of advice on how to do or
improve departmental activities.
Includes:
 Internal audit reports
 Legal opinions from solicitors
 Hire of consultants to provide advice on efficiency issues or comment on
the viability of new departmental initiatives.
Excludes:
 The hire of a consultant to work as part of the Department.
 Research - this is covered by headings 20,58,59,66 or 74.
 The service of actually putting something into effect, as opposed to
merely advising on a matter. For example, this heading does not
include the services of a doctor who advises AND then treats a patient.
Similarly, The services of a professional who is brought in to advise on
AND then implement a new initiative.
 Staff secondments - because this involved contracting in staff to work
along side.
 Specialist staff hired to provide “holiday/ maternity cover” for key staff
members.
 Hire of accountants to carry out tax health checks - Please refer to
Section iv above.
Guidance Notes for Government Departments | Page 56 of 87
53.Provision under a PFI agreement of accommodation, for office or
other governmental use, together with management or other services
in connection with that accommodation
This heading covers PFI arrangements under which GDs are supplied with
fully serviced and managed accommodation by a single PFI provider. The
most distinct element will be that risk is transferred from the GD to the PFI
provider. Consequently, the heading does not include leases granted by
commercial landlords, even where they are landlord repairing and insuring
leases.
If the building is used for …
Standard-rated business activities – Input Tax can be reclaimed under the
normal VAT rules.
Exempt business activities – Input Tax cannot be recovered
Government Non-business activities*


If building is occupied under a normal commercial lease the type of
lease will invariably include, the landlord’s obligation to maintain the
building (for example, heat, light, utilities, cleaning, repairs and
maintenance, and insurance); and, among the tenants’ obligations, a
covenant to pay rents and service charges– you cannot claim a refund
under section 41(3.)
If you occupy the building under a PFI arrangement - you may claim a
refund of VAT under Heading 53 of the Treasury’s (contracting out)
direction.
.
* If you are unsure about the terms under which you occupy the building,
please contact your department’s procurement section. They will be able to
advise whether your department is occupying the building under a normal
commercial lease or has entered in to a Treasury approved PFI
arrangement.
More than one type of use. -The VAT must be apportioned between the
business and non-business uses.
Guidance Notes for Government Departments | Page 57 of 87
54. Publicity services
Includes:
 Advertising campaigns other than recruitment adverts (which are
covered by heading 57)
Excludes:
 GDs commissioning promotional items such as mugs, T-shirts, stickers
etc. This is a supply of goods for VAT purposes and as such falls
outside the scope of the Direction.
 GDs reclaiming VAT charged on the placement of individual
advertisements in a newspaper.
55. Purchasing and procurement services
Eligible activities include:
 Negotiating procurement contracts
 Management and coordination of bulk orders
56. Radio services
Includes
 radio broadcasting.
 radio bandwidth
Excludes
 Purchase of radios or radio equipment alone
57. Recruitment and relocation of staff and other related services
Includes:
 Security vetting checks undertaken on employees.
 Staff relocation expenses where the department commissions the
removal company.
 Staff recruitment advertising commissioned via a recruitment agency.
Excludes:
 VAT incurred on removal firms hired by staff
 Placing recruitment adverts in a newspaper
58. Research, testing, inspection, certification and approval work for
the Health and Safety Executive
Devolved administrations discharging functions on behalf of the HSE may
recover VAT on contracted out services under this heading.
Guidance Notes for Government Departments | Page 58 of 87
59. Scientific work of the kind normally carried out for the Department
of the Environment, Food and Rural Affairs and the Food Standards
Agency
Includes:
 Testing contaminated food to identify strains of bacteria e.g.;
Salmonella.
 Detection and verification of disease in animals - BSE.
 Detection and verification of plant disease e.g. Dutch Elm Disease
 Inspection of diseased animal carcasses
This heading may be used by Departments in the devolved administrations
if they have taken over responsibility for work undertaken by DEFRA or the
Food Standards Agency.
60.Security services
Includes:
 The security guarding of a building and such goods e.g. surveillance
cameras / CCTV, which are an essential part of that service.
Excludes:
 Purchase of surveillance equipment and other goods alone.
 Security vetting.
 Hire of security staff to supplement in house security teams at busy
times or to provide holiday cover.
61. Services of printing, copying, reproducing or mailing of any
documents or publications, including typesetting services
Includes:
 Post opening services
 Franking
 Labelling services
 Parcel X raying services
Excludes:
 Post box hire
 Shredding machines
 Franking machines
62. Share Registry Survey
Guidance Notes for Government Departments | Page 59 of 87
63. Storage, distribution and goods disposal services
Includes:
 Records sent for archiving or destruction.
 Storage of detained or seized items
 Secure disposal of seized items
 Accommodation of seized or detained animals in zoos or boarding
kennels
 Storage of employees’ possessions when they are relocated.
 Incineration services
 Secure bulk shredding services.
64. Surveying, certification and registration in connection with ships
and relevant record-keeping and verification, issue of certification
cards, discharge books and campaign medals to seamen
65. Training, tuition or education
While there is no general restriction under this heading, you should note
that education and vocational training is exempt from VAT (and thus there
is no VAT to recover) if it is provided by one of the “eligible bodies” listed in
Notice 701/30: “Education & Vocational Training”. In practice these are:
a) Schools for the under-19s
b) Universities
c) Further and Higher Education Colleges
d) Other public bodies
e) Non-profit making bodies that reinvest surpluses of income back into
the courses they provide.
66. Transport research of the kind normally carried out for the
Department of Transport.
Departments in the devolved administrations which carry out functions
delegated to them by the Department of Transport may recover VAT
incurred on transport research under this heading.
67. Travel services, excluding hotel accommodation and fares
Includes:
 Travel arrangements provided by an external booking agency
 Charges for use of VIP lounges at airports and stations.
Excludes:
 Public transport fares as these are zero-rated.
 VAT paid by third parties in respect of taxis and hire cars. The recovery
of VAT on hire cars and taxis depends on the arrangements with the
provider and who is receiving the supplies, the GD or the individual.
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68. Travel and transport surveys, including traffic census counts
69. Typing secretarial, telephonist and clerical services including
agency staff
Includes:
 VAT incurred on supplies by agencies providing typing, secretarial,
telephonist and clerical services using their own staff.
 Provision of typing services by a word processing bureau.
Excludes:
 Secondees
 Employee expenses.
If agency staff are utilised because of difficulties in recruiting staff to fill
permanent posts or are brought in to supplement existing staff levels during
busy periods then these would not satisfy the criterion of being a contracted
out service for these purposes and consequently any VAT incurred would
not be recoverable.
70. Waste disposal services
Includes:
 refuse collection
 trade waste
 feminine hygiene services
 Clinical waste
 Recycling services
71. Welfare services
Includes:
 Staff support services
 Counselling services provided to staff in the aftermath of major
incidents
72. Career guidance, mentoring, counselling and other related
services to help people in to work or to retain work as part of the
DWP/Jobcentre Plus Employment Programme, provided under
sections 2 and 9 of the Employment and Training Act 1973
73. This heading is now left blank intentionally
The old heading which allowed recovery on “mentoring and counselling to
help people in to work as part of the New Deal and ONE Programme” has
been withdrawn. This is because activities which used to fall under this
heading have largely been absorbed in to the newly reworded heading 72.
Guidance Notes for Government Departments | Page 61 of 87
74. Original research undertaken in order to gain knowledge and
understanding
While there is no general restriction under this heading, we interpret the
term ‘original research’ as meaning research that:
a) Involves surveys, field tests or new research design thinking, interviews
or observation conducted specifically in relation to the subject of the
research (as opposed to merely collating existing data); and
b) Extends to secondary data analysis, interpretation (which may include
options and/or recommendations) or a systemic review of evidence
(rather than mere data gathering and recording)
You should note that research is exempt from VAT (and thus there is no
VAT to recover) if it is provided by one of the “eligible bodies” listed in
Notice 701/30: “Education & Vocational Training”. In practice these are:
a)
b)
c)
d)
e)
Schools for the under-19s
Universities
Further and Higher Education Colleges
Other public bodies
Non-profit making bodies that reinvest surpluses of income back into
the courses they provide.
75. Inspection of woodland sites for approval of felling licence
applications and of timber imports/imports using timber packing to
prevent entry of foreign tree pests and diseases
76. Probation Services delivered under the Criminal Justice and
Courts Services Act 2000
Guidance Notes for Government Departments | Page 62 of 87
3.14
These services have been agreed by the Treasury for inclusion in
the next revision of the direction. You may recover VAT incurred in
relation to these.
(i) Call centre and contact centre services.
VAT incurred by Consumer Direct Call Centres can be recovered from 1
April 2007. No entitlement to recover VAT prior to this date.
All other call centres can recover VAT from 1 April 2011. No entitlement
to recover VAT prior to this date.
Includes:
 VAT incurred when a GD contracts out the management and day to
day operation of Contact Centres and Call Centres to third parties,
and
 VAT incurred on the associated costs which are recharged by their
suppliers.
 In so far as VAT is chargeable, VAT charged on the outsourced
operation of the NHS 111 service.
Excludes
 VAT incurred on overheads relating to the provisions of in-house
call centres and contact centres.
(ii) Services provided through International Trade Advisers for UK
Trade and Investment.
Can recover VAT from 1 April 2011. No entitlement to recover VAT
prior to this date.
(iii) Services provided under Framework for Procuring External
Support for Commissioners (FESC) other than:
a. Supplies of computer services and professional services that
are excluded from the scope of headings 14 and 52 above,
unless the Treasury directs otherwise.
b. Elsewhere, the supply of staff.
Can recover VAT from 1 April 2007. No entitlement to recover VAT
prior to this date.
Guidance Notes for Government Departments | Page 63 of 87
PART 4 Government Departments in Northern Ireland.
4.1
Business activities of Government Departments in Northern
Ireland.
Any business activities carried out by Northern Ireland Departments are
subject to the guidance given in Part 2 and Part 2B of this guidance.
Northern Ireland departments need to refer to these sections of the
guidance for advice on how to treat supplies they make to their
customers.
4.2
Non Business activities of Government departments in Northern
Ireland.
4.2.1 What is section 99 of the VAT Act?
Government departments in Northern Ireland (GDNIs) do not receive
refunds of VAT under the Treasury (Contracting Out) Direction. A
different refund scheme is necessary because GDNIs have far wider
remits than their counterparts in the rest of the UK; for example being
directly responsible for the delivery of education and health services.
Section 99 of the VAT Act sets out a special scheme for the
departments.
4.2.2 Which departments are eligible for refunds under section 99?
The Department of Finance & Personnel is responsible for advising who
can be treated as a Government department in Northern Ireland. NonDepartmental Public Bodies (NDPBs) are not included in Section 99.
4.2.3 What can be recovered under section 99?
The proportion of VAT incurred relating to non-business activities may
be recovered under section 99. A GD in Northern Ireland (GDNI)
should always directly attribute as much tax as possible to its nonbusiness and business (i.e. taxable and exempt) activities. Each GDNI
should have a method of business / non-business apportionment. The
apportionment needs to be fair & reasonable and be agreed with the
Department of Finance & Personnel in Northern Ireland.
Guidance Notes for Government Departments | Page 64 of 87
The percentage is applied to purchase of goods and services to
calculate the VAT recoverable under the section 99 refund scheme. This
percentage can be applied to the following types of transactions:
a)
b)
c)
Supplies of goods or services purchased in the UK
Goods purchased from other EC Member States
Goods purchased from outside the EC
VAT incurred on business activities is reclaimed subject to the normal
rules.
4.2.4 What is excluded from section 99?
Tax incurred on services purchased from suppliers in other Member
States for non-business purposes cannot be recovered under section
99. This is because the refund scheme only applies to UK VAT.
4.3
GDNIs and purchases of cross border services.
On 1 January 2010 new place of supply rules came in to force. These
changes affect the way that VAT is accounted for on cross border
supplies. Please refer to paragraph 2.15 for further information.
4.3.1 What happens if I buy services from suppliers which are treated
as being supplied in the Republic Of Ireland?
(1) Services supplied as part of your department’s business activities.
If the service is treated as being taxable in Republic of Ireland and it is
received for your department’s business purposes, you may claim a
refund of the VAT paid by using the 8th Directive Refund Procedures.
Claims for refunds should be made using the new electronic refund
procedures. Please see VAT Notice 723 Refunds of VAT in the
European Community for EC and Non-EC businesses for more
information.
Please remember your department cannot recover VAT it incurs in
another Member State via its GD VAT return.
(2) Services purchased as part of your department’s non-business
activities
When a GDNI purchases services for its non-business activities, you
will be charged VAT at the appropriate rate in the country where the
supply is deemed to take place. As this VAT is not UK VAT, it cannot
be reclaimed under the Section 41(3) refund scheme.
Guidance Notes for Government Departments | Page 65 of 87
Part 5 Government Departments, Executive Agencies,
Trading Funds and
Non Departmental Public Bodies (NDPBs)
5.1
What is the definition of a Government Department (GD)?
The definition of what is a GD, or a part of a GD, is often difficult to
determine. If there is any doubt about the status of a new body, you
should contact the Cabinet Office Domestic and Economic Secretariat or
devolved administration for guidance, before applying for a GD
registration.
As stated above in section 4.2.2 the Department of Finance and
Personnel decides whether bodies in Northern Ireland can be classed as
GDs.
5.2
What are Executive Agencies?
Executive Agencies are legally part of central Government, as are
Trading Funds. They can be divided into the following categories:
(a) Executive Agencies & Trading Funds who share a VAT registration
with a parent GD
Executive Agencies and Trading Funds which continue to operate under
the GD VAT registration number of the parent GD may continue to use
that registration and be included in the reference to the parent GD in the
Treasury (Taxing) Direction and the Treasury (Contracting-Out) Direction
(but see Paragraph 5.4 and 5.5 below about contracting-out refunds and
Trading Funds). They will not therefore be required to submit
independent VAT returns. In such circumstances, supplies between an
Executive Agency or Trading Fund and its parent GD are not supplies
for VAT purposes and such transactions are not subject to VAT. The
normal rules apply when supplies are made to all other customers.
Please note: Executive Agencies and Trading Funds are not, for the
reasons explained above, automatically given separate GD VAT
registration numbers. However, HMRC will consider requests for
independent VAT registration if such a request is endorsed and
supported by the parent GD.
(b) Executive Agencies with a separate VAT registration.
If separate GD VAT registration is granted to an Executive Agency or
Trading Fund, they will be treated as a separate GD. A separately
registered Executive Agency must:
Guidance Notes for Government Departments | Page 66 of 87
a. Appoint a VLO;
b. Have its own reference in the Treasury (Taxing) Direction; and
c. Ask to be added to the Treasury (Contracting Out) Direction if it
requires the refund of VAT on services for its non-business activities.
5.3.
What is the VAT position of supplies between a separately VAT
registered Executive Agency or Trading Fund and its parent GD?
In most cases, supplies between a separately registered Executive
Agency or Trading Fund and the parent GD are likely to be business
activities. As a result, where the supplies are subject to VAT at the
standard rate, VAT must be charged. This is something that should be
considered by both the Executive Agency and the parent GD when
deciding whether to apply for separate VAT registration.
5.4
Trading Funds
A Trading Fund will in general only be involved in business activities. It is
likely, therefore, that a Trading Fund will not be in a position to recover
any VAT under the Treasury (Contracting-Out) Direction.
Subject to whatever activities Trading Funds undertake, they may be
affected by the changes in the Option to Tax Rules (see Advice Sheet 8
on land and property in the reference section at the end of these
guidance notes).
Where a Trading Fund is engaged in making exempt as well as taxable
business supplies then it may, subject to approval by the Treasury and
in conjunction with the Government Departments Team, adopt a partial
exemption method. This will enable a Trading Fund to apportion its input
tax.
5.5
What happens when GDs become Executive Agencies or Trading
Funds?
If…
An entire GD becomes an
“Executive Agency”
An entire GD becomes a “Trading
Fund”
Part of a GD becomes an
Executive Agency or a Trading
Fund
Then…
Its VAT position will remain
unchanged.
It is likely that no VAT can be
refunded via the Contracting
Out Direction
For VAT purposes, it will
remain part of the parent GD
unless an application is made
to HMRC for independent GD
VAT registration.
Guidance Notes for Government Departments | Page 67 of 87
5.6
Executive Non-Departmental Public Bodies (NDPBs)
According to the Cabinet Office’s own guidance NDPBs are NOT GDs.
The term ‘NDPB’ has been in existence since 1980 when it was coined
by Sir Leo Pliatsky in his ‘Report on Non Departmental Public Bodies’.
An NDPB is described as:
“ A body which has a role in the processes of national government, but
is not a government department, or part of one, and which accordingly
operates to a greater or lesser extent at arm’s length from ministers.”
This means that they do not fall within the provisions of Section 41 of the
VAT Act 1994, and they are thus subject to the normal VAT rules and
requirements.
While in England the Cabinet Office decided which organisations are
NDPBs, in Northern Ireland, Scotland and Wales it is the devolved
administrations which decide this.
A VAT-registered NDPB can, subject to the normal VAT rules, recover
the VAT incurred on the purchase, importation or acquisition of taxable
goods and services used to support its taxable activities. VAT incurred in
other circumstances is unlikely to be recoverable.
A NDPB will be registered for VAT in its own right if it is what as known
as a Crown NDPB or is described in a Statute as an emanation of the
Crown.
5.7
What happens if a GD makes taxable supplies to a NDPB?
If a GD makes taxable supplies to a NDPB, the NDPB must be treated
as an ordinary customer and so VAT should be charged as appropriate.
It should be noted that some NDPBs are not able to register for VAT
because they do not undertake any business activities. You may receive
queries from them about the VAT charges because they are unable to
recover VAT as Input Tax or receive refunds of VAT under the Treasury
Contracting out Direction.
Guidance Notes for Government Departments | Page 68 of 87
Reference section
This section contains more detailed reference material about common issues
which GDs may encounter. To ensure that this guidance provides advice on
current hot topics, The VAT Supply Team will issue periodic updates.
List of Topics:
1.
2.
3.
4.
5.
6.
Funding.
Supplies of Staff
Section 278 Agreements and Hybrid Road Schemes
Land and Property
Money Laundering Regulations - refer to HMRC information
VAT and flexible benefits for employees (Salary Sacrifice)
Guidance Notes for Government Departments | Page 69 of 87
Advice Sheet 1
Project Funding Issues
This information sheet explains the potential funding issues which GDs need
to consider. We would recommend that you refer to this when referring a
query to your CRM or Customer Co-ordinator within the Government
Departments Team. This advice sheet is designed to help VLOs and project
teams working within GDs consider the impact of VAT on new projects.
Please consider VAT at the early stages of a new project.
Three Key Questions:
To help avoiding project shortfalls we have devised 3 key questions. By
asking the right questions about VAT at the start of the project GDs can avoid
last minutes funding shortfalls.
The key questions are shown in bold text. These questions are followed by a
brief explanation which sets the questions into context together with details of
the impact.
1. What does the funding represent?
a) Background.
When money is paid over to another body it can be called many things. Often
the transfer of money relating to projects is referred to as:





Grants
Funding
Reimbursements
Retrospective discounts
Donations
b) Potential impact
What ever the terms used to describe the transfer, you must be clear about
what the transfer represents.
2. Is the transfer of money directly linked to the provision of goods or
services to specific persons?
Background
If the transfer of money is directly linked to the provision of goods or services
which are to be used by the body transferring it, then the money is treated as
Guidance Notes for Government Departments | Page 70 of 87
a consideration. In other words the money is seen as a payment for the goods
or services and will be treated as being within the scope of VAT.
Potential impact
The VAT inclusive amounts will have to be considered as part of the project
costs.
3. Is money transferred to enable another body to allow it to achieve its
aims?
Background
If money is transferred to a body to help them achieve their own objectives
and the payer receives nothing in return other than the confirmation that the
money has been spent as promised, then the payment is likely to be outside
of the scope of VAT.
Potential impact
If the monies handed over are outside of the scope of VAT you need to
consider whether the body receiving the funding is subject to any input tax
restriction. If the recipient of the funding is not able to reclaim VAT on
purchases made using the funding, the amounts of money transferred will
need to be based on the gross cost of carrying out the project.
Please Remember
It is the supplier’s responsibility to determine the nature of his activities and to
charge VAT accordingly.
GDs must not attempt to influence a supplier to act in a particular way.
Suppliers’ situations vary.
Any Questions?
If you have any questions about the impact of VAT on your project, please
approach your CRM or Customer Co-ordinator.
Guidance Notes for Government Departments | Page 71 of 87
Advice Sheet 2
Supplies of Staff
What are supplies of staff?
You make a supply of staff for VAT purposes if you provide to another person,
for payment, the use of an individual who is contractually employed by you.
This applies whether the terms of the individual’s employment with you are set
out in a formal contract or letter of appointment, or are on a less formal basis.
The determining factor is that the staff are not contractually employed by
your customer, but come under the direction of that company.
How can I tell the difference between a supply of staff and a supply of
services?
If you make supplies of services, e.g. construction services, to another person
but your staff continue to operate under your own direction, this is not a
supply of staff, but is a supply of those services. This distinction is significant
where the services may be zero-rated or exempt, or when determining
whether or not the supply is made in the UK.
What happens when my department supplies staff to one of its
Executive Agencies?
If the supplies are made to an Executive Agency that shares your VAT
registration - no VAT is due on the supply. This is because the supply is
taking place within the same legal entity.
If you are supplying staff to an Executive Agency that is separately registered
for VAT, you will need to need to consider the guidance set out below.
What happens when a GD makes a supply of staff?
There are special rules that apply to supplies made by GD. If the supplies
could only be obtained by a GD then no VAT is due, whereas if the supplies
could be obtained from either a GD or the private sector, VAT will be
applicable. These special rules are explained in more detail below. They
ensure that where a supply could be obtained from either a GD or from the
private sector, both supplies are treated in the same way. This is to recognise
that supplies of certain staff between GDs do not distort competition with the
private sector.
As such, when a department makes a supply of staff to another body it will
need to consider whether the supply that is being made could also be
obtained from the private sector.
Guidance Notes for Government Departments | Page 72 of 87
How can I tell if a post could be filled from the private sector?
You need to consider whether there are specific skills or knowledge which are
not available outside the Government sector.
Can you provide some examples of specialist posts?
Specialist posts are those in which the official has specific qualities/skills,
which could not be obtained from the private sector or a job that just doesn’t
exist in the private sector, and can therefore only be done by a civil servant. .
This could include knowledge of specific departmental legislation, bespoke IT
systems, procedures or security measures; where this knowledge is not in the
public domain.
What should I do if the post can only be filled by a Civil Servant?
In circumstances where a GD supplies staff for a post that, by virtue of the
work undertaken, can only be filled by a civil servant with the relevant
specialist knowledge; VAT should not be charged. This is because the GD is
the only possible source of the supply.
What should I do if the post can be filled by someone from the private
sector?
In such cases, the VAT must be charged, unless the statement of practice
relating to staff applies. (Please see below for more information). Where a
taxable supply of staff takes place, VAT is due on the whole value of the
consideration for the supply. In addition to any fee charged for the supply, the
value of the consideration includes any reimbursement of salary costs,
National Insurance and pension contributions.
More details on establishing the value of the supply of staff can be found in
VAT Notice 700/34 “Staff”
What is the “statement of practice”?
The statement of practice applies if your customer pays the relevant costs
directly to the staff and third parties. You may exclude these amounts from the
taxable consideration for your supplies of staff provided 

Your customer exercises exclusive control over the allocation and
performance of the employee’s duties during the period of secondment;
and
Your department does not derive any financial gain from the secondment,
whether this comes directly from the secondment or through any other
arrangements you may have with the recipient business - for example,
from a management services agreement relating to the seconded staff.
Guidance Notes for Government Departments | Page 73 of 87
It is important to remember that the amounts in question may only be
disregarded from determining the consideration and value of the secondment
when they are paid directly to the individual and/or third parties. If these
amounts are received by you, they cannot be so disregarded and will be
taken to be part of the consideration and value of the supply.
These rules apply whether you supply full-time or part-time staff. They also
apply to the value of supplies received from outside the UK under the "reverse
charge" procedure Please refer to VAT notice 741A” Place of Supply of
Services” for more information.
The Statement of Practice refers to “exclusive control”, what does this
mean?
The term “exclusive control” refers to the extent to which the host organisation
has control over the “day to day” activities of the employee who is being
seconded / supplied to it.
In other words you will need to consider whether your department when acting
as a supplier can impose restrictions on work areas/given tasks during the
period that your employee is away on secondment. If your department GD
imposes restrictions on the types of work your employee can be asked to do,
then this does not meet the criteria for the statement of practice and your
supply will be subject to VAT
Examples where the host organisation will not have exclusive control over the
secondee’s day to day duties at their new location could include a situation
where a GD stipulates that their employee does not work in specific areas as
it could lead to a conflict of interests. This type of restriction is usually
imposed to prevent the secondee working in areas where he/she has been
privy to privileged information whilst a civil servant.
Please note that HMRC always expects that the parent GD would retain
ultimate responsibility for the disciplinary matters and right to dismiss their
employee. This ensures that Civil Servants remained fully accountable and
abide by the accepted codes of conduct for their departments even when they
are working in other GDs or outside bodies.
Guidance Notes for Government Departments | Page 74 of 87
Aide Memoire for VAT treatment of Supplies of Staff
Stage No.
Things which need to be considered
VAT Treatment
Stage 1
In the first instance, you will need to
establish whether your customer is a
GD. You can do this by asking your
customer for its VAT registration
number. GDs have special VAT
registration numbers which begin with
the sequence 888 8 followed by two
additional numbers
If your customer IS
a GD please move on
to Stage 2
Stage 2
You will then need to consider whether
the services provided by the seconded
employee could be obtained from the
private sector.
.
a) If the secondee could be obtained
only from a GD and not from private
practice or the private sector A simple
way to establish whether the only
source of supply is the GD is to
consider how the secondment
opportunity was originally advertised.
Internal advertisements placed
exclusively in departmental
newsletters/circulars are an indication
that the only possible source of the
secondee could be a GD.
If your customer is
NOT a GD, please
move on to stage 3
The supply is treated
as being outside of
the scope of VAT.
This is because no
distortion of
competition can arise.
You must also consider whether the
secondment required specific specialist
knowledge that could only come from
some one inside a GD.
Please note that the secondment of
general administrators and Directors will
NOT fall under these provisions, as they
will not be able to satisfy all the
necessary criteria set out above
Guidance Notes for Government Departments | Page 75 of 87
Stage 2
b) If the secondee could be
appointed from the private sectorthe supply may be subject to VAT.
The supply is
standard rated
unless the
concession referred
to in Stage 4 applies.
Stage 3
If your customer is not a GD.
The supply is most
likely to be standard
rated unless the
concession referred
to in Stage 4 applies.
In exceptional cases
the supply may be
treated as outside the
scope if the only
possible source of the
secondee is from
within government
Stage 4
Under the statement of practice , if your
customer pays the relevant costs
directly to the staff and third parties, the
payment is not seen as a consideration
for a supply provided that:
Provided all the
conditions set out in
Part B of the
Appendix to VAT
notice 700/34 are
satisfied, the
reimbursement of
- the customer exercises exclusive
salary costs are not
control over the allocation and
seen as being a
performance of the employee's duties
supply for VAT
during the period of the secondment;
purposes. The
and
payment is outside
- the GD does not derive any financial the scope of VAT
gain from the secondment, whether this and as such no VAT
should be charged.
comes directly from the secondment or
through any other arrangements which
you may have with the customer.
More information about this easement
can be found in section B of The
Appendices to VAT notice 700/34
entitled "Staff".
Guidance Notes for Government Departments | Page 76 of 87
Advice Sheet 3
Section 278 Agreements
What are Section 278 Agreements?
Section 278 of the Highways Act 1980 allows a Highways Authority (HA) to
seek contributions from developers towards the cost of works considered to
be for the “common good”. For example, these works could include the
construction of a new slip road or roundabout.
I am a HA, what are the VAT implications of section 278 agreements for
me?
Any work carried out by a HA under a section 278 agreement is a nonbusiness activity for VAT purposes. This is because the HA has a statutory
responsibility under the Highways Act 1980, to maintain the road on which the
work is carried out. As such, the construction works form part of the HA’s
statutory responsibilities for maintaining the road.
Heading 6 of the Treasury’s Contracting-Out Direction prevents GDs from
recovering VAT they incur when undertaking works under section 278
agreements. The heading is entitled “Alteration, repair and maintenance of
road schemes, except (a) any works carried out pursuant to an agreement
made under section 278 of the Highways Act 1980”
As the HA is not able to claim a refund of the VAT under section 41(3) of the
VAT Act 1994, it is a condition of the Section 278 agreement that the
contributions they receive include irrecoverable VAT.
I am making a contribution to works carried out under section 278 - what
are the VAT implications for me?
The HA cannot issue a VAT invoice to the bodies making contributions
because it is seeking a reimbursement of costs and not making a supply.
The contributor will be unable to recover any VAT element included in the
contribution they pay to the HA. This is because the VAT amount does not
relate to a supply, which has been made to you. The contractor carrying out
the works will always be making a supply to the HA.
Guidance Notes for Government Departments | Page 77 of 87
Hybrid Road Schemes
What are “Hybrid Road Schemes”?
“Hybrid Road Schemes” are works comprised of new construction together
with improvements to the existing road schemes.
What are the VAT implications of Hybrid Road schemes?
As the hybrid schemes involve two types of work, new construction and
alteration, the costs must be separately identified for VAT purposes. This is
because some of the VAT incurred on new construction undertaken in the
hybrid scheme cannot be recovered.
It can sometimes prove very difficult to separate the actual expenditure on
new construction from that on alteration etc. HMRC allows an apportionment
of costs to be made based on the terms of the additional contract.
In cases where it is not possible to directly attribute VAT elements,
apportionment may be allowed. Hybrid road schemes are an example of a
situation where permission to apportion the VAT has been granted.
Guidance Notes for Government Departments | Page 78 of 87
Advice Sheet 4
Land & Property
What do GDs do about leases and MOTO arrangements and what is the
difference between them?
A lease is a commercial arrangement between a landlord and a tenant under
a commercial leasing arrangement.
MOTO stands for Memorandum of Terms of Occupation. Many GDs occupy a
building under a Memorandum of Terms of Occupation (MOTO). A MOTO is
an agreement between two GDs which allows them to share the costs of
renting a building or part of a building from a private commercial landlord.
Standard Commercial Leases
What happens when a GD acts as a landlord?
If a GD acts as landlord and supplies a lease to another GD, this is not a
MOTO arrangement. The supply made is of leased accommodation and it is
exempt.
Although the Estate Services Guide issued by the Central Advice Unit of the
Property Advisors to the Civil Estate (PACE) should be consulted for more
information, H.M. Treasury has advised that GDs must not opt to tax a lease
to a tenant, unless there are specific circumstances and these have been
approved by HMRC and HMT prior to the option taking place (whether
another GD or any other type of body). Information for GDs in England and
Wales can be found on page 251 of the 3 rd Edition issued in June 1999. GDs
in Scotland should consult page 161 Edition 2 issued in February 2000.
This means the GD as landlord must not charge the tenant VAT and will not
be able to recover VAT on goods and services purchased for this exempt
supply. The level of the rent may be set to include irrecoverable VAT, but this
must not be shown as VAT on the invoice. Your tenant cannot reclaim the
irrecoverable VAT included in the invoice as Input Tax.
What happens when a GD is a tenant?
GDs may occupy buildings rented from commercial landlords or other GDs
under the terms of a standard commercial lease. Such leases are exempt
from VAT, unless the commercial landlord has opted to tax. GDs cannot
recover VAT they incur on the rent of a building occupied for non-business
purposes. In addition, a GD cannot recover the VAT on a service charge that is
part of the rent.
Guidance Notes for Government Departments | Page 79 of 87
It is also important to remember that VAT incurred on buildings which are
leased from commercial landlords cannot be recovered under heading 53 of the
Contracting-Out Direction.
Opting to tax
As stated above GDs are not normally able to opt to tax supplies of land and
buildings unless they are selling the property in question and then only with
the specific permission of HM Treasury. Any such request should be
submitted through your CRM or Customer Co-ordinator.
Information on opting to tax is found in VAT Notice 742A “Opting to tax land
and buildings”.
Guidance Notes for Government Departments | Page 80 of 87
PFI - Public Finance Initiatives
A PFI company provides GDs with fully serviced and managed
accommodation. The most distinct element of PFI arrangements is that risk is
transferred from the GD to the PFI provider.
When a GD enters into a PFI arrangement for accommodation it will use for
its non-business activities, VAT can be recovered under heading 53 of the
Treasury’s (Contracting Out) Direction.
What about recovery of VAT under MOTO Arrangements?
Treasury paper PES (99)23 dated 24 September 1999 gives guidance on
recovery of VAT on civil estate leases.
The GD which has entered into the lease with the commercial landlord is
known as the “Major Occupier”.
The GD which agrees to share costs is known as the “Minor Occupier”
Under a MOTO, the major occupier is responsible for all VAT payments and
for recovery of VAT. Generally MOTO arrangements fall into three distinct
categories.
(a) Non-business activities where VAT is recoverable.
If a major occupier uses a building for its non-business activities, it can only
recover VAT on those contracted-out services detailed in List 2 of the
Contracting-Out Direction. If the major occupier is able to recover VAT it
should ask the minor occupier for a VAT- exclusive contribution towards
costs.
(b) Non-Business activities where VAT is not recoverable.
If the major occupier is not able to recover VAT, it may ask the Minor
Occupier for a VAT-inclusive contribution towards its costs. Under the terms
of the MOTO, the major occupier is not making a supply to the minor
occupier. So, no VAT invoice should be issued and no VAT should be
charged.
(c) Business activities.
If the major occupier provides a service to the minor occupier that is over and
above what is in the MOTO this is a business activity of the major occupier
who should charge the minor occupier VAT as appropriate.
Guidance Notes for Government Departments | Page 81 of 87
Aide Memoire
Can my department recover the VAT it is charged on rents?
If the building is used for …
Can VAT be recovered?
Standard-rated business
activities
Input tax can be reclaimed under the
normal VAT rules
Exempt business activities
Input tax cannot be recovered
Government Non-business
activities
 If a building is occupied under a
normal commercial lease granted by
a landlord, any VAT charged on the
rents and service charges cannot be
recovered under section 41(3). Most
rents and service charges are
exempt from VAT, but the landlord is
entitled to “opt to tax” them at the
standard rate of VAT.
 If you occupy the building under a
PFI or similar arrangement - you
may claim a refund of VAT under
Heading 53 of the Treasury’s
(Contracting-Out) Direction.
More than one type of use.
The VAT must be apportioned between
the business (taxable and exempt) and
non-business uses – as mentioned
above. Recovery of VAT is determined
by how the building is used - see the
section on purchases above.
Other sources of advice:
VAT Notice 742 “Land & Property” contains more information on general
land & property issues.
Your CRM or Customer Co-ordinator can provide more information
about the VAT Treatment of supplies of accommodation made to GDs.
Guidance Notes for Government Departments | Page 82 of 87
Advice Sheet 5
Money Laundering Regulations
Money Laundering responsibilities of GDs
The 2003 Money Laundering Regulations extend HMRC’s supervision of
businesses vulnerable to money launderers, to include High Value Dealers
(HVDs). HVDs are businesses that:


deal in goods; and
accept (or are prepared to accept) cash payment equivalent to €15,000 or
more, for any single transaction.
HVDs had to implement specific anti-money laundering procedures by 1
March 2004 and register with HMRC by 1 April 2004. For more information,
please see our website at:
http://www.hmrc.gov.uk/business/othertaxes/money-serv-bus.htm
GDs are covered by the regulations but the requirement to register depends
on whether the activity of accepting large cash payments for goods is by way
of business. GDs will therefore need to take their own view, and seek legal
advice if necessary, on whether their activities are covered by the 2003
Money Laundering Regulations.
The Government Departments Team can provide general advice about the
regime.
Guidance Notes for Government Departments | Page 83 of 87
Advice Sheet 6
VAT and Flexible Benefits for Employees (Salary Sacrifice)
You will find more information about this in Revenue & Customs Business
Briefs 28/11 and 36/11. A letter from the Rt Hon Stephen Timms MP to the
Secretaries of State dated 3 November 2009 regarding salary sacrifice is
reproduced below.
Guidance Notes for Government Departments | Page 84 of 87
Guidance Notes for Government Departments | Page 85 of 87
Guidance Notes for Government Departments | Page 86 of 87
Annexe A Guidance Feedback Form.
To help us ensure that the guidance remains both relevant and user
friendly, we welcome your feedback. We would be most grateful if you
complete the form below and return it to the
VAT Supply Team, Room C3/07, 100 Parliament Street, London SW1A 2BQ.
Thank you for your time.
Did you find this guidance easy to use? Yes/No* (*delete as
necessary)
General Comments
What did you find most useful?
What did you find unhelpful?
Are there any areas that could be improved?
Are there any general topics that you would like to be included in the
Reference Section Advice Sheets?
Guidance Notes for Government Departments | Page 87 of 87