On 1st November 2021, the government laid before Parliament new legislation which provides for new minimum financial thresholds to apply from 1 January 2022. These new thresholds will remain fixed for the next two years.
We note that not only have new thresholds been set, but importantly how they apply has also altered.
The Public Contract Regulations 2015, the Utilities Contracts Regulations 2016 and the Concession Contracts Regulations 2016 regulate the procurement activities of ‘contracting authorities’ and ‘utilities’ in England and Wales. ‘Utilities’ include ports, airports and energy providers while ‘contracting authorities’ includes governmental bodies, councils and other public bodies such as universities and registered providers for social housing. Under the above sets of regulations, for contracts with estimated values over the prescribed thresholds, contracting authorities must publish notices on the Find a Tender service. This is the first time the UK Government has set its own thresholds following the UK’s exit from the European Union.
At first glance, the new financial thresholds will be increased. That said, the new values will be inclusive of VAT, instead of being net of VAT (as they currently are). This will mean that contracting authorities will now need to consider whether the requirement is subject to VAT and, if so, at what rate, before calculating whether a particular requirement is above or below threshold.
Based on the current standard rate of VAT therefore, in effect, the thresholds will be lower from January than they currently are. For example, any local authority contract for supply or services that is above £177,897.50 before VAT will, at a standard rate of 20% VAT, now fall within the scope of the Public Contracts Regulations 2015.
Set out in the tables below are the new financial thresholds which will apply from 1 January 2022. The new rates are set out in bold texts whereas the current (ie, pre-2022) threshold rates are set out in brackets. As an aide memoir, we have also set out the actual before-VAT thresholds in italics (based on the current 20% VAT rate).
Public Contracts Regulations 2015
Central government bodies
| Supplies |
Services |
Works |
|
£138,760
(£122,976)
|
£138,760
(£122,976)
|
£5,336,937
(£4,733,252)
|
| £115,633.33 |
£115,633.33 |
£4,447,447.50 |
Other contracting authorities
| Supplies |
Services |
Works |
|
£213,477
(£189,330)
|
£213,477
(£189,330)
|
£5,336,937
(£4,733,252)
|
| £177,897.50 |
£177,897.50 |
£4,447,447.50 |
The threshold for Light Touch (Social and Similar Services) remains unchanged. However, the Light Touch threshold will also become inclusive of VAT.
Utilities Contract Regulations 2016 (UCR 2016)
|
|
Supplies
|
Services
|
Works
|
|
All Sectors
|
£426,955
(£378,660)
|
£426,955
(£378,660)
|
£5,336,937
(£4,733,252)
|
|
|
£355,795.83
|
£355,795.83
|
£4,447,447.50
|
Concession Contracts Regulations 2016
The threshold for concession contracts has increased to £5,336,937 inclusive of VAT, up from £4,733,252.
Based on the current standard VAT rate of 20%, this threshold would be £4,447,447.50 before VAT.
The latest decision on thresholds provides a further level of complexity for contracting authorities, who will need to exercise care when calculating the estimated value of procurements from 1st January 2022. It will also be fundamental for the contracting authorities to not only monitor the changes to thresholds but any changes to the rate of VAT.
For more information on public procurement issues, please contact Michael Winder or speak to a member of our Public Procurement Team.
