Public procurement – new thresholds for 2022

The public procurement thresholds have changed for the United Kingdom (England and Wales, Northern Ireland and Scotland), effective from 1 January 2022. These changes are communicated in Procurement Policy Notes published by the UK Government here and the Scottish Government here.

The thresholds were previously set at an EU level and thereafter transposed into domestic legislation. As a result of Brexit, the UK Government and devolved administrations must now ensure procurement thresholds are aligned with the World Trade Organisation’s (“WTO”) thresholds, which are contained in its Government Procurement Agreement (“GPA”). One of the most notable impacts of this change to GPA alignment is that contract value estimations must now be inclusive of VAT. Under previous EU rules, procurement thresholds were net of VAT.

Key changes

When applying the new thresholds, contracting authorities and utilities must now ensure that contract value estimates include an allowance for VAT. This will include instances where VAT is initially payable but later recoverable. Where a purchase is exempt from VAT, or is zero rated VAT, no allowance needs to be made for VAT. Contracts with attached EU funding should consult with funding providers in order to understand the applicable contract value estimation methodology, although it is likely that EU procurement rules and thresholds will remain applicable to such contracts.

These changes do not however apply when applying below GPA thresholds. For example, contracting authorities in Scotland do not need to apply VAT when applying the below GPA thresholds under the Scottish public procurement rules.

It is notable that while some thresholds have increased, where VAT is payable the thresholds have in practical terms actually decreased. The table below sets out these new thresholds with an accompanying indicative value of the contract where VAT is payable.

It should also be noted that the Scottish regime for regulated procurements below these thresholds will not be subject to the GPA requirements and the rules under the Procurement Reform (Scotland) Act 2014 remain applicable. The thresholds under this Act have not changed and remain at £50,000 for goods contracts and £2 million for works contracts. These thresholds also remain exclusive of VAT.

The new thresholds came into force on 1 January 2022. Any procurements commenced prior to this date should be calculated in line with the previous thresholds.