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Giving a grant to discharge a statutory duty...

Can an entity that has a statutory duty to provide a service give a grant to discharge that duty?

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I'm working with a charity looking to establish the VAT treatment of a project.

The commissioner of the project is a government funded department and they have an issue with VAT being added to the price, so they wish to issue the funding as a grant.  The supplier though,  has the obligation to get the VAT treatment correct.

The statutory duty that the commissioner must provide the service is very clear.  Not directly linked to this duty, they also have a general power to subcontract and they have the power to give grants. So they are claiming they can therefore give a grant to discharge the stat duty as they have the power to give a grant.

So the question is - as the commissioner is receiving a benefit from a supplier who discharges the statutory duty on their behalf and the supplier is receiving a fee then by definition this must be a contract and cannot be a grant.  In my mind a grant cannot be given where the funder is receiving a benefit.

And as it is a contract for services it must be in scope of VAT.

Any thoughts?

 

 

Replies (3)

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By memyself-eye
16th Aug 2018 11:09

I've seen many situations where a statutory body (the Arts Council, Ministry of justice) commissions a project by way of a grant - if the charity receives the grant and then engages the contractor that contract is between the charity and the body that undertakes that work - who will if applicable charge VAT in the usual way.
If the statutory body will not want pay the VAT element then that cost is borne by the charity, or is that not the case here?

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Replying to memyself-eye:
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By chicken farmer
16th Aug 2018 12:45

Agreed.

Would the body make the 'grant' if the charity did not provide the service? - No

Would the charity provide the service without receiving the 'grant'? - No

So whatever name the body chooses to put on the payment, it is consideration for the supply of services. Is the body prepared to stand any irrecoverable VAT that may be due? If not the charity needs to consider whether it should stand the VAT itself or kick the contract into touch.

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By hairyfingers
03rd Sep 2018 10:34

Hi

Thanks for your responses (been away on holiday hence delay in replying)

that's helpful

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