VAT refunds for public bodies

The Treasury is consulting until 19 November 2020 on potential reforms to the VAT refund rules for public sector bodies. This is a consultation on VATA 1994 s 41 which covers government departments, the devolved administrations, the NHS and Highways England – rather than the slightly wider provision for refunds to various local authorities, the emergency services, BBC and other specified public bodies in s 33 in respect of goods and services used for the purposes of a non-business activity.

The consultation document notes that s 41 ‘in its current form is unduly complex, administratively burdensome and a barrier to effective financial planning’ and that the Treasury is ‘proposing to extend the scope of section 41 to permit full refunds of the VAT incurred on all goods and services during the course of non-business activities for those organisations currently falling within the scope of section 41 – this is the Full Refund Model’.

The Treasury also invites views on the timescale for implementation of the full refund model, with potential benefits of early reform balanced against the need to minimise disruption for public bodies including the NHS, given the coronavirus and other pressures. The document suggests this may take two to three years, with ‘time built into the schedule to evaluate implementation’.