Budget 2015 boosted public IT suppliers' pitches

VAT charges that sting private sector contractors when they pitch for taxpayer-backed work will be removed on all bids to non-departmental public bodies, thanks to Budget 2015.

According to a Budget document, the “VAT disadvantage” that makes would-be suppliers to such bodies more expensive (at bid stage) than ‘in-house’ teams will be nullified from April 1st.

It means that no more will private sector firms have to slash their prices to cover for the extra 20 per cent they currently have to factor-in, when pitching the cost of a contract bid.

So the move will create “a level playing field”, welcomed the Business Services Association, whose members include government IT contractors like Capita, Atos and PA Consulting.

This end to “the imposition” of VAT when such firms pitch the cost of a contract bid should ‘reincentivise’ public sector outsourcing more widely, believes EY partner Audrey Fearing.

She reflected: “This [VAT] cost has now been removed, as going forward eligible public sector bodies will be able to reclaim the VAT incurred on outsourced/shared service.”

The change to VAT rules, which will result in a new section of the Value Added Tax Act, appears to be the only significant one as far as contractors are concerned (but their clients may suffer from a new avoidance measure).

In fact, VAT was kept in the Budget at 20 per cent, although the Labour party warns that a win for the Conservatives at the election in May will result in the rate being hiked.

By then, government employees will be using smartphone Apps such as Airbnb and Uber to find better “value for money” hotels and taxis, according to 2.238 of the Budget.

“All in all, this Budget had the most focus on technology of any before” TechMarketView analyst Georgina O’Toole said of Wednesday’s Red Book, which contained cash for broadband, tech clusters and the IoT.

“Of course IT has been firmly embedded in the delivery of public services for some time. But now, politicians are recognising the vast opportunities that new digital technologies represent.”

The plan for civil servants to use the ‘sharing economy’ follows criticism by National Audit Office boss Sir Amyas Morse that they have carried out “radical surgery” (spending cuts) on Whitehall without knowing “where the heart is.”

Editor’s Note: Related Reading –

What IT contractors can and can’t recover VAT on

Budget 2015 – chancellor’s full speech

Government to block expenses for ‘controlled’ contractors