30 June 2015

VAT: Section 33 and Section 41 status

Section 33 and Section 41 VAT status allows a number of public sector and government bodies to recover the VAT they incur on expenditure.

A number of organisations have a special VAT status that allows them to recover the VAT they incur on expenditure (for example, public sector and government bodies, local authorities, national collections, NHS bodies, some emergency services and national parks). This allows them to recover VAT that would ordinarily be blocked from recovery and result in additional costs. In the VAT world, this is referred to as Section 33 and Section 41 status.

In theory, this special VAT status ensures that the cost of irrecoverable VAT does not become a burden to the public purse. In a world where increased pressure is being placed on public services (from a financial and service delivery point of view) this special VAT status ensures that budgets and financial models are not distorted by the additional cost of VAT. If Section 33 and Section 41 status were not available, public sector bodies would need to source additional income to fund the additional VAT cost they would incur. If the special status was to be removed, government funding may need to be increased to cover some of the funding shortfall. 

As public sector bodies have evolved, a number of organisations have lost their special VAT status. This has resulted in them incurring the additional cost of irrecoverable VAT. These organisations have had to find additional funding or make cuts to fund the cost of irrecoverable VAT. In some cases, the loss of Section 33 and 41 VAT status could have a significant impact on the ability to deliver a full range of public services.

The Government can increase the number of bodies that benefit from Section 33 and Section 41 status. In England, academy schools were granted Section 33 status to allow them to recover the VAT they incur on expenditure. This action was taken to retain the VAT position of the academy schools while they were local authority controlled. In the last budget, the Government gave Section 33 status to palliative care bodies. Whilst this was generally welcomed, in practice the special status applies in limited circumstances. We would like to see this benefit extended to a wider range of services and organisations. If special VAT status was automatically given to all public bodies, additional government funding could be available and used to benefit both the general public and public services. It appears that the government has recognised that special VAT status is appropriate in particular cases and we would hope that, in future, the special status will be extended to ensue the efficiency and effectiveness of all government funded public sector services.

We have advised and assisted a number of bodies throughout the country to confirm or extend their Section 33 and Section 41 status. The rules and information associated with special VAT status can be confusing and hard to find. We have therefore been able to assist public sector bodies to confirm their VAT status and the applicability of Section 33 and Section 41 benefits. Our specialist VAT team is available if you have any questions or concerns over the VAT status and VAT recovery position of your organisation.

Bookmark and Share