VAT Status for the Four Welsh “City Deal” bodies clarified

News today of a short consultation announced by HMRC on the VAT treatment that these four entities across Wales will be able to operate under. VAT has its complexities we all appreciated and is no less an issue for local authorities or public bodies. A local authority entity is allowed under existing VAT legislation to recover all the VAT it incurs on its costs where those costs support its non-business/statutory activities. That ability is a huge benefit to the sector and is in contrast to other organisations, including the vast majority of charitable bodies (certain exceptions do exist) and entities like Further Education Colleges that engage in non-business activities.

However, access to this VAT relief is governed under legislation; Section 33 of the VATA 1994; which specifies the entities allowed to use this relief.

When the new structure required to deliver the four “City Deal” programmes across Wales was developed it required new “corporate joint committees” of the relevant local authorities in each regional area to be created. These new structures were not covered, in essence, in the description of entities able to access the VAT reliefs under Section 33. Thus, were exposed to an inability to recover their VAT costs on the range of projects and activities they sought to engage upon to deliver their economic growth, social or environmental objectives.

Welsh Government was alerted to this issue and representations needed to be made to HMRC to resolve this omission. It’s good to see that the draft order has now been announced (Draft) Tax information and impact note - VAT: refunds to Corporate Joint Committees - GOV.UK (www.gov.uk)

From 9 Feb 2023, the following newly created bodies set up to deliver the “City Deal” initiatives across Wales should find themselves able to access the VAT reliefs section 33 allow:

• the Mid Wales Corporate Joint Committee,

• the North Wales Corporate Joint Committee,

• the South East Wales Corporate Joint Committee,

• the South West Wales Corporate Joint Committee.

For those who know the team at Centurion, you’ll be familiar with our drive to ensure VAT and Environmental Tax implications get considered early in any planned projects for our clients and this includes our clients in the public sector – good to see therefore that this issue has reached a successful conclusion and that operational clarity on the VAT front, for these important entities working to drive growth across Wales, has been achieved.

The lesson to be reminded of is – as ever – never assume anything on the VAT front – whether you’re a public body, charity, or corporate, VAT can have a nasty habit of catching you out if its impact is not considered early in the process.

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