In theory, if a local authority makes any taxable supplies, it must register for VAT. In practice, HMRC are unlikely to insist on registration if the amount of VAT involved is small. However, this is an important point for parish and town councils who might not have considered the issue.
If a local authority remains unregistered, there is scope to obtain a refund of VAT from HMRC, subject to the capping provisions. A claim must be for at least one calendar month, or 12 months if less than £100.
Unregistered local authorities have to apply in writing for a refund and this must be made in an agreed format, preferably on a form VAT 126. HMRC set out the format to follow in Notice 749.
It should be noted that the refund arrangement is the UK's response to the introduction of VAT and is not part of EU law. Rather, it is an attempt to deal with EU law within the needs of the UK system of government. It follows that there is no right to rely on EU VAT law in relation to refunds under VATA 1994 s 33. Indeed, there is no provision within VATA 1994 s 83 (appeals to tribunals) that deals specifically with s 33 refunds.