This blog will answer the question “Is VAT charged on council tax?” It will further expand on the relation between VAT and council tax, the charges, business rates and exemptions, and other related queries that you might have.

Is VAT charged on council tax?

No, VAT is not charged on council tax. Council tax occurs outside the scope of VAT. Value Added Tax (VAT) is a tax on the sale of goods and services. The tax is administered by Her Majesty’s Revenue and Customs. Council tax is the tax levied upon households by local authorities, based upon its value and the number of people, earning and dependant, living within it.

The money collected through these property taxes goes to local authorities or councils to pay for local services such as maintaining parks, collecting rubbish, policing and personalised care.

These taxes apply to all properties, including mobile homes, caravans and boats whether they are rented or owned, which are used as the homes of individuals, known under one head as domestic properties.

Council tax comes under exemption from VAT.

VAT Rates

The accruing of VAT is under the following rate heads:

Business

Business rate applies where a Council provides goods or services that are, or could be, in competition with the private sector.

Business rates are charged on most non-domestic properties, such as:

  • Shops 
  • Offices 
  • Pubs 
  • Warehouses 
  • Factories 
  • Holiday rental homes or guest houses

You might have to pay business rates if you use a building or part of a building for non-domestic purposes.

This provision regarding handling of business rates is a bit different in Scotland and Northern Ireland.

The following might be business properties, along with their business rates:

Those Standard rated at 20%

All transactions are taxed at 20% unless the law specifies that they should fall into one of the other categories. Therefore, this is the default business rates category.

Lower rated at 5%

This includes domestic fuel and some types of energy saving works.

Zero rated

These are supplies that are in fact, chargeable with VAT, but the charge actually to be accrued upon them is zero. Examples of this include books, children’s clothing, most of the cold foods, and public transport.

Any VAT charged on purchases relating to zero rated supplies can be reclaimed from HMRC by the Council.

Exempt

VAT is not chargeable on exempt supplies. Examples of this include various rentals or lettings, insurance, adult education fees etc. In theory VAT cannot be reclaimed on purchases relating to exempt supplies. However the Council has special concessions which enable it to do so.

Non-Business 

Non-business rates generally apply to goods and services provided by local authorities where there are the following situations:

  • No charge or other form of consideration is made; or 
  • A charge is made so that it would not lead to significant distortion of competition with other bodies.

Examples that may be treated as non-business include:

  • Statutory  licences
  • Certain testing fees, and
  • Certain welfare services.

Vat Categories and Rules

A Reduced Rate of Vat applies to purchases of electricity, gas, heating oil, solid fuels and sanitary products.

A transaction is ‘Outside the Scope’ of Vat when it is not a supply of goods or services, wages, drawings, loan repayments, on-street parking, Council Tax and Business Rates, MOT’s, gratuities and charitable donations.

A Vat registered trader can reclaim Vat on purchases as quoted on the supplier invoice. For invoices of less than £250, that do not quote Vat, but do show a Vat number and other basic information, the appropriate amount £ of Vat can be assumed, calculated and reclaimed.

Vat, although charged, cannot be reclaimed on the cost of entertainment of customers.

When not to charge VAT

You cannot charge VAT on exempt or ‘out of scope’ items.

Exempt goods or services are supplies that you cannot charge VAT on.

If you buy or sell an exempt item you should still record the transaction in your general business accounts.

Examples of exempt items include:

  • Insurance 
  • Postage stamps or services
  • Health services provided by doctors

Business rates for council tax

Your local council generally sends you a business rates bill in February or March of each year. This bill is for the following tax year. Your business rates bill can also be estimated by you yourself

.

You can get help with business rates from the following:

  • Your council in case you have questions about your bill
  • The Valuation Office Agency (VOA) in case you think your ‘rateable value’ is wrong

Heritage buildings

Council tax and business rates are based on a valuation of any property. Such a valuation is, in essence, the same for heritage assets as it is for any other property. Any limitations on alterations and use and the costs of maintenance of the heritage asset in any particular case are relevant factors in that valuation.

Business rates are payable in respect of all historic buildings except those that are listed or scheduled buildings that are unoccupied. Complications can arise, however, when the listed or scheduled building is only part of the site and/or the part of the site is occupied.

Properties exempt from business rates

Certain properties are exempt from business rates, for example farm buildings or places used for the welfare of disabled people.

If you own a stable

You usually need to pay business rates on your stables, unless you use your horses for farming.

You may pay Council Tax instead if your stables are in your garden. to check if you’re not sure which you should pay.

You may not have to pay business rates on:

  • Agricultural land and buildings, including fish farms
  • Buildings used for training or welfare of disabled people
  • Buildings registered for public religious worship or church halls
  • Unoccupied listed or scheduled historic buildings

However, there are strict legal requirements for these exemptions to be applicable.

You do not have to pay business rates on empty buildings for 3 months. After this time, most businesses must pay full business rates.

Some properties can get extended empty property relief, such as:

  • Industrial premises (for example warehouses) are exempt for a further 3 months
  • Listed buildings – until they’re reoccupied
  • Buildings with a rateable value under £2,900 – until they’re reoccupied
  • Properties owned by charities – only if the property’s next use will be mostly for charitable purposes
  • Community amateur sports clubs buildings – only if the next use will be mostly as a sports club

How to claim exemption from business rates

If your property is in England, you can report that you think it should be exempt using the Valuation Office Agency service. You can check the ‘rateable value’ of your property – this is set by the Valuation Office Agency (VOA) and used by your local council to calculate your business rates bill.

You can also do the following:

  • Request changes to property or valuation details if you think they’re wrong
  • View the valuation details of other properties
  • Challenge the rateable value if eligible

You need to contact your local council to let them know when your property becomes vacant.

VAT Reduction on empty properties

Domestic building work is usually charged at the standard VAT rate of 20%. However, there are concessions which can reduce project costs if the property has been empty for more than 2 years.

The Council’s Empty Homes Team can help provide supporting evidence, about the length of time that a property has been empty.

You can include this with your application to HM Revenue and Customs for a VAT reduction or refund.

You can request a letter of evidence for VAT reduction by applying for it through the online link available on the website. 

Here, you have to provide the following details:

  • Address of the property with its postcode
  • Date when it became empty
  • Owner’s details like his full name, address, contact number and email address

You may be able to get a money off your bill if:

  • Your property is empty and unfurnished and
  • Needs, or is undergoing major repairs

For this also, you need to provide evidence such as photos of the property, estimates and invoices. After this, a 50% discount is awarded on the property for up to twelve months.

100% discount can be awarded for up to one month where a property is unoccupied and unfurnished. Also, if a property has been unoccupied and unfurnished for a period of 2 years or more, a 100% empty homes premium is payable on it. 

Conclusion

This blog answered the question “Is VAT charged on council tax?” It  further expanded on the relation between VAT and council tax, the charges, business rates and exemptions, and other related queries that you might have had regarding the topics.

Please feel free to contact us for any suggestions or queries, or comment in the space provided below.

FAQs

Do local councils pay VAT?

Yes, local councils do pay VAT, in those situations where they make any taxable supplies, doesn’t matter the value of those supplies.

What is VAT not charged on?

VAT is not charged on Sporting activities and physical education. Education and training. Some medical treatments. Financial services, insurance and investments.

What is VAT charged on in the UK?

VATis charged on several things in the UK. these include, various goods and services, children;s car seats and home energy, food and children’s clothes. All these goods are divided into three categories – 20% reduction, 5% reduction and 0% reduction.

Are government bodies VAT registered?

Most of the government activities and departments are outside the scope of VAT. This can be due to one of the following two reasons:

  • They are not carried out by way of business or,
  • They are outside the scope of VAT as they are statutory in nature

Are government agencies VAT exempt?

No. It is a rule that the government or any of its political subdivisions, instrumentalities, or agencies, including government-owned or controlled corporations are mandated to withhold 5% out of the 12% VAT on VATable sales upon payment to value added tax sellers of goods or services.

Citation

https://sumup.co.uk/invoices/dictionary/vat-exemption/
https://www.gov.uk/guidance/local-authorities-and-similar-bodies-notice-749
https://www.local.gov.uk/topics/finance-and-business-rates/local-taxation-council-tax-and-business-rates
https://www.accountingandgeneral.co.uk/vat-categories-rules-guide/#:~:text=A%20transaction%20is%20’Outside%20the,MOT’s%2C%20gratuities%20and%20charitable%20donations.&text=Motor%20cars%20%E2%80%93%20purchased%2C%20Vat%20cannot,Subsequent%20sale%20is%20exempt.
https://www.gov.uk/vat-businesses/when-not-to-charge-vat
https://www.gov.uk/rates-of-vat-on-different-goods-and-services
https://ec.europa.eu/taxation_customs/what-vat_en
https://www.citizensadvice.org.uk/housing/council-tax/council-tax/
https://www.gov.uk/introduction-to-business-rates
https://www.gov.uk/apply-for-business-rate-relief/exempted-buildings-and-empty-buildings-relief
https://www.gov.uk/correct-your-business-rates
https://historicengland.org.uk/advice/hpg/assistanceforowners/taxrelief/
https://www.thisismoney.co.uk/money/news/article-2295989/How-VAT-council-tax-fuel-wine-duty-tax-18-000-year.html
https://www.book-keepers.org.uk/t43361560/council-tax-property-rates-sage-vat-code/
https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/council-tax-and-rates
https://www.cornwall.gov.uk/housing/private-housing/empty-property-vat-savings-and-council-tax-discounts/
https://www.taxpayersalliance.com/council_tax_briefing

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.

John has 22 years of experience in financial services. This spans across financial research, financial services (As a qualified mortgage broker and underwriter), financial trading and sales at global investment banks. While working as a publishing research analyst, he covered European bank credit and advised institutional clients on investment strategies at both JP Morgan and Societe Generale. John has passed all three levels of the CFA (Chartered Financial Analyst) programme.