Question to the HM Treasury:

To ask Mr Chancellor of the Exchequer, whether it is his policy that the Highways Agency, following its transfer from being a civil service agency to a government-owned company will be liable to pay (a) corporation tax and (b) additional payments of VAT.

I refer the Honorable Gentleman to my earlier replies about VAT [DN: please insert correct reference]. Special provisions apply to Government Departments and health authorities that refunds VAT incurred on certain non-business activities. These are set out in section 41(3) of the VAT Act 1994.

New bodies are not automatically covered by the above provisions. However, the Department for Transport and HM Treasury are considering this issue.

Government departments are exempt from Corporation Tax, while Non-

Departmental Public Bodies (which the Highways agency will become) are subject to Corporation Tax on any trading and investment income and on any capital gains.