Question to the HM Treasury:

To ask the Chancellor of the Exchequer, with reference to the HMRC guidance, Local authorities and similar bodies (VAT Notice 749), whether local authorities will be able to recover VAT on private hire for school transport.

Local authorities have a duty to provide free transport from home to school, in certain circumstances. This is a non-business activity for VAT and where a local authority purchases the services of private hire companies in order to fulfil their statutory obligations, the VAT can be recovered under the section 33 refund scheme for local authorities.

However, if a VAT-registered local authority is charging for transport services, and VAT is due on the fee, that is a taxable business activity. In these circumstances, the local authority can reclaim the VAT on its costs as input tax, under the normal rules.

Guidance on when a local authority’s activities are regarded as non-business for VAT purposes is covered in section 2 of VAT Notice 749, which is available on GOV.UK. Section 4 of the Notice provides guidance on the section 33 refund scheme.