HMRC issued revised guidance to local authorities in 1998 concerning VAT recovery on behalf of youth centres.

Where a youth centre (or youth club) is part of the local authority, HMRC accept that any purchase made by the youth centre (or youth club) from funds made available to it is made by the local authority and VAT incurred may be reclaimed. However, a youth centre (or youth club) which has charitable status is considered independent and the local authority would not normally be entitled to VAT recovery on costs incurred by such a youth centre (or youth club). Equally, there would be no requirement for the local authority to account for output tax on income generated.

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