The new VAT issues facing the Public Sector

There are changing times ahead in the Public Sector, so I have taken the opportunity to sit down with Steve McIntyre our Public Sector Director to get his thoughts. Here's what he had to say:

Many of the public spending decisions and initiatives being announced by the Coalition Government are bound to have VAT implications. History shows us that VAT can have a major impact on Government plans, and strategies to deal with this had to be put in place.

For example; a concession was introduced to deal with problems on the zero-rating of wave 1 Acadamies, then further waves have been built using Local Authority peppercorn arrangements. Children's Centres also posed VAT recovery problems when the budget for them was first passed to Local Authorities.

I think that the following initiatives are likely to cause VAT headaches in the coming months;

State funded independent schools - like academies, these are likely to be charities or trusts and therefore will come within the restrictive charity VAT rules - zero-rating of capital projects only available to a new build or annexe. VAT registration may also be required if business activities are undertaken.

Cancellation of BSF - The Governments capital plans to replace BSF have yet to be announced, but there are indications that existing empty commercial/retail premises may be used to create "education space". Again, there could be VAT problems for the new independent schools and trust schools.

Further Out-Sourcing - I think that there could be a new phase of out-sourcing projects as severe cuts to Local Authority budgets materialise over the coming years. VAT savings can be made on certain services, such as Sport and Leisure moving into a trust, but other areas may incur additional VAT costs which need to be taken into account. Also, there can be some complex land and property transactions involved where VAT, again, becomes an issue.

As always with VAT I would always recommend the earlier these issues are discussed and addressed the better - VAT is a transaction tax and therefore it can often be too late to remedy things once a supply takes place.