Our VAT Team at PSTAX is experienced and accessible, comprising individuals who work with public bodies all day, every day. Our approach is to use highly experienced staff who know and understand the sector and its VAT and indirect tax issues.

Currently, the Team has over 200 years of combined VAT and indirect taxes experience, with seven having worked as taxation officers at local authorities (with responsibilities for police and fire as well). Our Team members include two former Chairs of the CIPFA VAT Committee and National Local Authority VAT Consultative Group. This gives the PSTAX VAT and Indirect taxes Team a unique blend of relevant expertise and experience.

Our Team has VAT and Indirect Taxes experience working in local government, police, and fire, at HMRC, and in the Big 4 and other large firms of advisors.

View our VAT Calculator

Our Uniquely Relevant Experience

VAT team - HMRC, Local Gov, Police and Fire, Big 4

  • Care Contract Novation

    Background

    Care Providers are approaching local authorities requesting to novate their care contracts to a new provider. The current service provider restructures its business to become a parent company to a new provider. The contractual arrangements change so they are between the local authority and the new subsidiary company, with the subsidiary company sub-contracting the delivery of the services back to the parent company.

    Risks

    Following the novation of a contract, a non-CQC entity will supply the local authority with welfare services. The VAT exemption will not apply, and VAT will be charged on the supplies made to the local authority. The local authority can reclaim this VAT.

    However, a local authority can only operate within a specific legal framework. It must meet numerous regulatory, procurement, contractual, tax compliance, and other responsibilities.

    Local authorities typically want to cooperate with providers and are happy to consider requests for a contract novation. But to ensure they meet their various responsibilities, it is prudent for local authorities to conduct a due diligence review of a provider’s proposals to ensure they would not create any unacceptable risks to its ability to comply with those responsibilities.

    PSTAX and Sharpe Prichard have joined to offer a due diligence service that will satisfy the requirements of HMRC and other relevant bodies.

    By instructing PSTAX and Sharpe Prichard to carry out the due diligence exercise, local authorities can agree to an appropriate novation request significantly more quickly and efficiently.

    Benefits

    PSTAX can assist local authorities in undertaking the essential due diligence checks to ensure that the novation proposal does not present any unacceptable risks for VAT and other rules and regulations.

    Who For?

    All local authorities with a statutory care provision.

    Contact Us

  • Supplies of staff and secondments

    Background

    Section 33 bodies, such as local authorities, police bodies, and fire and rescue services, have various staffing arrangements and benefits, including salary sacrifice arrangements, staff secondments, and the provision of vehicles. Each one of these comes with different VAT implications. It is essential to ensure that the implications are considered and addressed at the outset of any new arrangement or benefit.

    Risks

    Charging VAT where a supply is outside the scope can often mean unnecessary costs for the recipient and the project. On the other hand, where VAT is not charged, HMRC can levy penalties and interest on the supplier.

    Since 2008, HMRC has adopted a uniform approach towards applying penalties for taxpayer errors. The penalty regime encourages taxpayers to take compliance more seriously by looking at why a tax error has occurred rather than solely at values.

    Although HMRC accepts that errors are inevitable, it will consider the background reasons for any error, including assessing the taxpayer’s approach to tax compliance to determine whether reasonable care has been taken. Penalties are not levied on errors where reasonable care has been taken.

    Benefits

    PSTAX can assist section 33 bodies to ensure that any new or existing staffing arrangements or benefits are VAT-efficient and VAT-compliant, reducing overall project costs and negating the risk of HMRC penalties for errors.

    Who For?

    All section 33 bodies, such as local authorities, police bodies, and fire and rescue services.

    Contact Us

  • Tax Compliance

    Background

    A proactive approach is essential in a taxpayer’s attitude when discharging its VAT duties and responsibilities. Proactive VAT management can demonstrate a taxpayer’s diligent attitude to VAT. This can be done by reviewing policy and procedural documentation and staff training to raise the profile of tax compliance.

    Risks

    Since 2008, HMRC has adopted a uniform approach towards applying penalties for taxpayer errors. The penalty regime encourages taxpayers to take compliance more seriously by looking at why a tax error has occurred rather than solely at values.

    Although HMRC accepts that errors are inevitable, it will consider the background reasons for any error, including assessing the taxpayer’s approach to tax compliance to determine whether reasonable care has been taken. Penalties are not levied on errors where reasonable care has been taken.

    Benefits

    PSTAX can assist section 33 bodies to ensure that they are proactive in their approach to tax compliance by undertaking any of the following:

    • Fees and Charges Review
    • Partial Exemption Review
    • Capital Goods Scheme
    • VAT Manual
    • Compliance Checks
    • HMRC Business Risk Reviews
    • High-Level Reviews
    • Making Tax Digital Reviews
    • International Trading in Goods and Services
    • Assisting with HMRC Disputes
    • Corporate Criminal Offence

    Who For?

    All section 33 bodies, such as local authorities, police bodies, and fire and rescue services.

    Contact Us

  • Bereavement Services

    Background

    Unfortunately, the VAT liability of bereavement services is a very complex area. A range of different services are offered, and they will typically include some non-business, some VAT-exempt, and some taxable at the standard rate.

    For local authority cemeteries, there is a special legal regime in the form of the Local Authority Cemeteries Order 1977 (LACO’77). It places specific duties on ‘burial authorities’, which HMRC accepts create a non-business arena for those services it specifies (e.g. burials/interment and grave maintenance). However, the LACO’77 duties do not encompass all the activities at a cemetery. Common supplies, such as bereavement announcements in the local media, are not covered by LACO’77 and are taxable at the standard rate.

    Crematoria services are seen as being delivered in competition with private facilities and are business supplies that can be VAT-exempt when they meet strict conditions.

    Memorials come in many forms and can sometimes be supplied independently from any burial or cremation. The VAT treatment varies depending on what is being supplied.

    Risks

    The complexity of the underlying legal duty and the range of ways the services can be packaged means a high risk of error in assessing the VAT liability. Councils might fail to account for VAT by wrongly assessing a service as non-business or exempt.

    Since 2008, HMRC has adopted a uniform approach towards applying penalties for taxpayer errors. The penalty regime encourages taxpayers to take compliance more seriously by looking at why a tax error has occurred rather than solely at values.

    Although HMRC accepts that errors are inevitable, it will consider the background reasons for any error, including assessing the taxpayer’s approach to tax compliance to determine whether reasonable care has been taken. Penalties are not levied on errors where reasonable care has been taken.

    Benefits

    PSTAX can help to guard against the risks by reviewing the range of goods and services provided to identify the correct VAT treatment.

    Our review could cover the following:

    • Cemeteries
    • Crematoria
    • Memorials

    Who for?

    All local authorities (including Local Authority Joint Committees) with either cemeteries or crematoria (or both).

    Contact Us

  • Capital Assets and Spending

    Background

    The areas with the highest costs will generally also be the areas with the highest exposure to VAT. This includes spending on projects under the Capital Programme, such as those introduced because of the new targeted external funding streams, e.g. the Towns Fund and Levelling Up. High values of VAT can also be encountered on some revenue costs such as PFI Unitary Charges. However, as many current PFI contracts will be approaching their end dates over the coming years, public authorities may face unanticipated capital costs concerning the inherited assets.

    In most cases, mitigating steps can be taken to lessen or remove the VAT risk. But it is almost always the case that mitigating action needs to be taken in advance.

    Risks

    It might not always be the case that VAT liabilities become more complex as the spending levels increase, but it is fair to say that the level of risk does. There is a potential risk of VAT error and unforeseen irrecoverable VAT.

    HMRC’s penalty regime is linked, first and foremost, to the behaviour that caused an error, but once it has been determined that an error has happened out of carelessness, or perhaps even a deliberate act, the value of the penalty will be directly linked to the value of the tax error.

    Although public authorities have far-reaching powers of VAT recovery, these powers are not limitless. If the authority incurs VAT on an asset used to make VAT-exempt supplies, its VAT recovery will be subject to its partial exemption position. A breach of the partial exemption limit prevents recovery of the VAT of all a local authority’s VAT costs relating to its VAT-exempt supplies, not just those in the project that caused the breach.

    Benefits

    PSTAX can help to guard against the risks by reviewing the anticipated expenditure. We will identify the liabilities, implications, and required actions to avoid errors by confirming the correct compliance procedures and mitigating irrecoverable VAT by recommending steps to help secure its legitimate recovery.

    Our review could cover the following:

    • Capital Programme
    • Estate Rationalisation Projects
    • Towns Fund Projects
    • Levelling Up Projects
    • PFI contract termination

    Who for?

    All section 33 bodies, such as local authorities, police bodies, and fire and rescue services, with significant capital projects or ‘soon to terminate’ PFI contracts.

    Contact Us

  • Training and Support

    Background

    A VAT-registered entity has an obligation to ensure that the correct VAT is accounted for at the correct time.

    Access to an up-to-date VAT manual and regular training will ensure that the appropriate staff are armed with the knowledge to treat VAT correctly within their department.

    Risks

    It is crucial that staff have the relevant knowledge to understand VAT and how it affects their service area. This will ensure that VAT is treated correctly for income and expenditure purposes and help staff understand any partial exemption issues, if appropriate.

    Since 2008, HMRC has adopted a uniform approach toward applying penalties for taxpayer errors.

    Often still referred to as the ‘new’ penalty regime, it attempts to encourage taxpayers to take compliance more seriously by looking at why a tax error occurred rather than solely at the values.

    HMRC accepts that errors are inevitable, but when considering the background reasons for any error, it will consider the authority’s general approach to tax compliance to determine whether reasonable care has been taken.

    Penalties can be levied on errors where reasonable care has not been taken.

    Benefits

    Ensuring that the relevant staff members have received the appropriate training and the organisation has an up-to-date VAT manual will reduce the risk of VAT errors in the future and help prove to HMRC that the Council is taking reasonable care in its VAT processes. This will help mitigate any penalty due in the case of errors.

    All PSTAX VAT consultants are fully aware of the concerns faced by VAT and land tax practitioners in the public sector and the technical and developmental areas that are most important. Therefore, our VAT training and assistance with reviewing or creating manuals benefit from our always up-to-date and dynamic understanding of the public sector.

    Who for?

    A VAT manual is essential for all section 33 bodies, such as local authorities, police bodies, and fire and rescue services.

    VAT training is essential for all departments that are involved in finance or project management. Our bespoke training caters for all levels of experience ranging from general awareness to the more complex VAT areas.

    Contact Us

  • Leisure services

    Background

    Leisure services can be a complex area for VAT purposes. With several different outsourcing arrangements possible and the emerging consequences of the recent Chelmsford City Council appeal case, it is more important than ever that your authority understands its current position.

    Risks

    When a local authority outsources its leisure services to another party, it must ensure that all the VAT liabilities are understood. Generally, the arrangement is set up so that there is a peppercorn lease of the building running alongside a management agreement. This allows recovery under section 33 of the VAT Act 1994 of the related VAT costs. However, often we see that the ‘peppercorn lease’ will include some form of consideration, meaning the supply will be exempt from VAT (subject to an option to tax). This could result in a large, unexpected amount of VAT to be included in the partial exemption calculation, potentially breaching the de minimis limit.

    We have also encountered scenarios where local authorities have implemented the LB Ealing exemption without fully understanding the future effects. This has caused significant partial exemption issues when, for example, substantial work is needed on existing leisure centres, or a new leisure centre needs to be built.

    Benefits

    PSTAX has vast experience reviewing local authority leisure arrangements and can help avoid unexpected VAT bills and penalties while ensuring the most efficient route has been taken. By being proactive, you can ensure leisure centres are minimising their exposure to additional VAT liabilities and penalties.

    Who for?

    All local authorities who make supplies of leisure and sporting services.

    Contact Us

  • Agreements covering partnership working

    Background

    Partnership working covers a huge range of potential arrangements. This could include grant-funded projects, outsourcing, subcontracting the delivery of responsibilities, and so on.
    How closely do you review the VAT position of your authority’s agreements?

    Although a written agreement usually contains a VAT clause, it is insufficient to look only at it. You need to review the entire agreement to ensure any VAT due is charged and declared on time.

    Risks

    A poorly understood agreement can result in additional VAT liabilities for all parties involved and, in some cases, may make a project unfeasible.

    Therefore, your organisation must first understand if there is a supply. When a public body provides grant funding to other parties, it does not receive a supply. However, whether the grant recipient is providing a service in return for the funding is often unclear. The agreements and the “substance and reality” of the arrangements must be investigated to determine whether there is a supply.

    If there is a supply, it must be established what is being supplied, who is making the supply, where the supply is taking place and the value of that supply.

    Additional VAT liabilities are common in the following arrangements:

    • Grants vs Services
    • Collaborations with NHS
    • Shared Services
    • Delegation of Duties
    • Operation of Elections
    • Insourcing
    • Outsourcing
    • Trading Companies

    Benefits

    PSTAX has significant experience reviewing public body agreements, and we can help minimise your exposure to unintended VAT liabilities and penalties. Crucially, by being proactive, you can ensure an unexpected VAT liability does not derail vital projects.

    Who for?

    All section 33 bodies, such as local authorities, police bodies, and fire and rescue services.

    Contact Us

  • Cultural services

    Background

    Do you know how to protect your authority’s cultural venues from financial hardship?

    Cultural venues suffered during COVID and now face additional challenges from the cost-of-living crisis. Local authorities must carefully consider the VAT treatment of their admissions fees and theatre agreements to ensure unexpected tax liabilities do not add to the financial strain.

    Risks

    Local authorities can treat admission fees charged at specific cultural events as exempt from VAT. However, VAT and penalties become due when the exemption conditions are not met or fully documented.

    In addition, many theatres and venues work within agent or principal agreements. VAT can be particularly complicated when three parties are involved, and it is vital to understand what you are providing to ensure the correct VAT is declared.

    Additional tax liabilities may arise in the following arrangements:

    • Cultural admissions charges
    • Acting as the principal in arranging an event
    • Acting as an agent in arranging an event
    • Donation vs entrance fee
    • Donation vs sponsorship

    Benefits

    PSTAX has significant experience reviewing local authority cultural activities and agent/principal agreements and can help avoid unexpected VAT bills and penalties. By being proactive, you can ensure your cultural venues minimise their exposure to additional VAT liabilities and penalties.

    Who For?

    All local authorities with cultural venues.

    Contact Us

Some of our current and recent projects include:

Helpline

As part of PSTAX’s Club and other subscription packages, we resolve over 3,000 VAT and indirect tax queries a year from 300 local authority, police and fire clients

Consultancy

Ranging from single-issue assignments such as partial exemption calculations and fees and charges reviews, to complex multi-partner and multi-tax development projects

Local government reorganisation specialists

Sole taxation advisors for all recent (Dorset, Buckinghamshire, and Northamptonshire), and current (Cumbria, North Yorkshire, and Somerset) local government reorganisation projects,

Overpayment refunds

Reclaiming overpaid tax (normally on a contingent fee basis) from:

  • SDLT acquisitions funded by retained RTB receipts and other external funding
  • VAT on leisure services
  • VAT on emergency service vehicles
  • VAT on disabled facility grant admin fees

Training

Practical and relevant training on subjects relevant to public bodies, specific to the special VAT regimes governing their activities (these are done in-house as well)

Special projects

Examples include Value Added Tax and indirect tax advice and support for:

  • care contract novation due diligence
  • Alternative Dispute Resolution (ADR) and Tribunal appeals
  • outsourcing children’s services
  • leisure outsourcing and insourcing
  • estate rationalisation, including emergency service co-location
  • levelling up funded developments
  • local authority/NHS joint projects
  • Corporate Criminal Offence training and consultancy

Upcoming Courses

All Training Courses