Social value and tax

Registered providers have an obligation to consider social value when tendering and contracting for suppliers.

This can take a number of forms but commonly includes providing additional services alongside the core service. Examples include a commitment to hire apprentices from the local area, support for local charities or use of greener transport, as well as a financial contribution (often called a donation), either to the registered provider or a nominated charity.

These arrangements can be structured in a number of different ways, some of which have different VAT and corporation tax treatments. The correct treatment depends on economic reality and contractual terms, so we would recommend that finance teams review carefully the tax implications of the social value services included by their procurement colleagues.

For VAT, potential treatments can include outside of the scope as a true donation, a supply subject to 20% VAT made by the registered provider or a rebate or price reduction in the price of the core service. Each will lead to a different VAT liability, as well as potentially having an impact on VAT recovery for the registered provider.

For corporation tax, the treatment can be exempt (either as a receipt of a true donation or a rebate/price reduction of charitable expenditure) however some forms give rise to miscellaneous income, which is subject to corporation tax unless all sources of otherwise taxable income are below the small scale trade exemption. As a result, even where the value of the social contribution is small, it could have a more significant impact when combined with other sources - like the feed-in tariff - if it tips a registered provider over the threshold.