Becoming More Inclusive: VAT and Public Procurement

The recently published Public Procurement (Agreement on Government Procurement) (Thresholds) (Amendment) Regulations 2021 (the “Regulations”) make a number of amendments to the thresholds within the various procurement regimes which will come into force on 1st January 2022.

What changes are made by the Regulations?

New Figures for Thresholds

The new figures are as follows:

Public Contracts Regulations 2015 (“PCR 2015”)
Works contracts: £5,336,937
Supply and service contracts awarded by central government: £138,760
Supply and service contracts awarded by subcentral government: £213,477
Utilities Contracts Regulations 2016 (“UCR 2016”)
Works contracts: £5,336,937
Supply and service contracts: £426,955
Concessions Contract Regulations (“CCR 2016”)
Concession contracts: £5,336,937

VAT Inclusive

In addition to the new rates, the Regulations also amend the relevant legislation to make the thresholds inclusive of VAT.

Although the thresholds for contracts covered by the Light Touch Regime under the PCR 2015 (£663,540 for services) and the Defence and Security Public Contracts Regulations 2011 (“DSPCR 2011”) (£4,733,252 for works contracts and £378,660 for supply and services contracts) have not changed, those figures are also now inclusive of VAT.

Why have these changes been made?

The Explanatory Memorandum published alongside the Regulations states that the threshold amounts have been changed in line with the biennial review requirements in the PCR 2015, UCR 2016, and CCR 2016 to ensure that the UK’s domestic thresholds correspond in sterling with the special drawing rights in the GPA.

Since the UK left the EU, it has become an independent party to the GPA rather than through its EU membership. The EU has an arrangement under the GPA whereby it does not include VAT in its thresholds due to the different rates of VAT across its member states, instead imposing a 13% reduction to all thresholds. This arrangement no longer applies to the UK and as such, the UK’s thresholds will now include VAT.

Commentary

Contracting authorities should bear in mind that the combination of the updated thresholds and the VAT inclusion provisions have in real terms led to a reduction of the threshold levels. As such, from 1st January 2022 more contracts will be captured by the relevant procurement regulations, meaning authorities will have to ensure they comply with the rules within the relevant regime.

The Government have stated that they intend to publish additional guidance in the form of a Procurement Policy Notice, which contracting authorities should consider carefully.

We advise contracting authorities on all manner of issues relating to public procurement and our experts are on hand to guide authorities through the intricacies of the Regulations and to advise on any other procurement related issues.

Juli Lau is a Legal Director, Natasha Barlow is a Trainee Solicitor and Beth Edwards is a Paralegal at Sharpe Pritchard LLP.

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