Somewhere over the threshold
Raised up high
But now VAT is included
A fall is what it belies
While folklore dictates that the act of “carrying over the threshold” wards off bad luck for newly-weds, it is – for public procurement – quite the opposite.
The limits for different types of purchases are the tipping point for more complex procedures and a failure to observe these requirements above a certain point, a breach of the Public Contracts Regulations 2015 (“PCRs”), which are currently under review. Conversely, the bad luck for public bodies in crossing these thresholds could lead to procurements that are challenged and potentially annulled (or set aside, to use the sector’s terminology) with all the costs that would incur for local and central government entities.
And now, while the public sector is wedded to existing thresholds, which were pegged to EU values pre-Brexit, comes the announcement that the various levels are to be changed. But don’t be fooled: While most levels look like they may have increased, they are now global sums that are inclusive of VAT and, in most cases, will result in a drop to the thresholds, for tenders advertised from 2022.
This, of course, provides for some mental gymnastics for those planning tenders in the public sector next year and, of course, could become even more challenging, first, should the rate of VAT change at any point, and, second, for procurements of goods and services that are not subject to VAT.
Take the thresholds for goods and services. For central government departments, this has superficially risen from £122,976 to £138,760 but, once you remove the VAT element, that is actually only £115,633.33 – a significant drop when you consider inflationary pressures. The same applies for local government, where the goods and services threshold apparently went up from £189,330 to an impressive £213,477 but this – once VAT is removed – actually represents a drop to £177,897.50.
This phenomenon also applies to works where the £4,733,252 limit seemed to enjoy a generous hike to £5,336,937, only for that to fall in real terms (ex VAT) to £4,447,447.50. The impacts of this are manifold – not only is there the calculation challenge, which will lead to more conversations with the finance department, but the reduced thresholds will bring more purchases within the stricter procurement regime’s clutches, at a time when procurement departments are already under-resourced and over-stretched and while shortages, as well as inflation, are pushing the cost of supplies ever upwards.
Add to this, the complexity that there are also some goods and services that are either VAT exempt or zero-rated and these, at the time of going to press, include insurance and training. Of course, it’s also important to remember that the categories that qualify for VAT exemption could change at any time, emphasizing again the need for collaboration with finance departments.
No doubt, further guidance on the application of the thresholds will be unveiled en route to implementation, just weeks from now, when the less-than-catchy Public Procurement (Agreement on Government Procurement)(Thresholds)(Amendment) Regulations 2021 first foots its way into legislation on 1 January 2022. Until then, the public sector team at 4C is here to help you grapple with this, the wider upcoming revisions to the PCRs and any other public procurement matters.
Suzy Valentine MA LLM is a lawyer with extensive public sector and regulatory experience and Chris Robinson MCIPS is a respected procurement expert and CIPS tutor.
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