Draft legislation: The Value Added Tax (Refund of Tax) Order 2019

The Finance Act 2016 introduced a new s33e to the VAT Act 1994 (having been announced in the 2015 Budget). Section 33E gives HM Treasury the power to entitle non-departmental public bodies and similar organisations to refunds of Value Added Tax (VAT) incurred in the course of their non-business activities. Through this Order, it is now being used for the first time and four NDPBs have been named as eligible, subject to consultation (which closed on 14 November 2019).

VAT refunds are available to selected charities through S33A (museums and galleries) and S33C (Search and Rescue Charities) as well as S41D (hospices). CTG continues to highlight the negative financial impact of irrecoverable VAT on the sector and to call for a widening of s33 VAT refunds. The explanatory memorandum, published alongside the draft legislation highlights the desire to avoid irrecoverable VAT becoming a disincentive to contracting out public services to other providers, or to departments sharing their back-office costs. Charities face many of the same problems and do not operate within a fair playing field – VAT can an obstacle to securing funding and collaboration.

Policy background

What is being done and why?

This instrument names four bodies as entitled to recover VAT incurred in cost-sharing arrangements, or on the cost of contracting out certain services. The four bodies named are:

  • High Speed Two Ltd, a company responsible for delivering the new highspeed rail network linking London to Birmingham and the North of England. It is a Department for Transport executive non-departmental public body, presently wholly funded through grant-in-aid.
  • The East West Rail Company (EWRC), a company set up by the government to accelerate the East West Rail project – a new rail link between Cambridge and Oxford. EWRC is non departmental public body funded wholly by monthly receipts of grant-in-aid from the Department for Transport in order to carry out and manage the project.
  • Transport for Wales (TfW), a company limited by guarantee responsible for the promotion and delivery of transport infrastructure and related services on behalf of the Welsh Government. TfW will be funded primarily through grantin-aid directly from the Welsh Government.
  • The Single Financial Guidance Body (SFGB), a non-departmental public body which replaces the 3 existing providers of government-sponsored financial guidance: the Money Advice Service, the Pensions Advisory Service and Pension Wise, bringing together the provision of debt advice, money guidance and pension guidance for the first time. SFGB will be funded through grant-inaid by the Department of Work and Pensions.

Section 41 of the Act allows government departments to reclaim VAT on the cost of contracting out a number of services, or the VAT incurred in cost-sharing arrangements, listed in a Treasury direction. This scheme ensures that what would otherwise be irrecoverable VAT does not become a disincentive to contracting out public services to other providers, or to departments sharing their back-office costs.

Section 33E of the Act was introduced to allow other public bodies to recover VAT related to non-business activities on the same basis as government departments.

The Treasury will name the four bodies in a direction, entitling them to reclaim non-business VAT insofar as the direction permits.