Section 137 grant

Question

Good afternoon  
We are in the process of granting a local group approx 450 to purchase some new Theatre Curtains.  Can we actually purchase them as they are unable to claim VAT back and we can.  It would save nearly £100

Answer 1

You should get VAT advice, the Council can purchase the curtains, but they would have to place the order, the invoice would need to be in the councils name and the funds would have to come from the Council.  You can then gift them but then it comes down to any benefits you might gain from donating the curtains, for example if you were then allowed to use them for free, that would be a benefit and reclaiming the VAT would be fraudulent.  If you decided to give a grant, you don’t necessary have to use s.137 because that is the power of last resort, there are plenty of other powers you can use instead and there is one for the arts and entertainment.

Comments

They applied for the grant (137) for the curtains.   The council would not use the curtains as they are plays and pantomine (stage curtains) they will be put away after each show .  Not for general use.  we have a budget for 137 -  advice ?

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Thanks Dave.  We have now agreed to follow the formal route.

Answer 2

The council's VAT exemption is for the council's own business, so in this case, I'd advise that you make the larger grant and let the recipient pay the VAT.  There are many cases where councils use their VAT exemption as a VAT-free shopping service for local organisations, but this is not legal and one day, when they've got nothing better to do, HMRC will start looking into this.  The consequences of that will be very serious for the offending councils, but have potential ramifications for the sector as a whole.

Comments

Thank you for comment.  Totally agree.

Answer 3

See you in jail, I'm afraid - this is almost certainly fraudulent.

Comments

If it is  a grant the surely it has to be paid to the entity  applying for the grant ?

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There are many ways of helping out a local organisation provided the size of the grant is proportionate (there is a limit on s137 payments for example and some argue it is an aggregate limit, others that each grant should be capped at £x per benefitting resident).
It is wrong for the PC to reclaim VAT on a purchase that will blatantly be used elsewhere and it might even push the amount reclaimed above the nominal s... allowance.
It is possible to purchase the curtains then gift them; it is the VAT reclaim that is wrong.