Partner Article

HMRC attempts NHS VAT grab

NHS bodies across the UK have been given a reprieve from an estimated £500 million tax bill following HMRC’s decision to postpone its attempt to standardise VAT rules on contracted out services across all government departments.

Government departments and other Crown bodies, including NHS bodies, have a limited right to VAT recovery on certain goods and services under the special Contracted-out Services (COS) VAT refund scheme. Services eligible for COS VAT refunds are published in the London, Edinburgh and Belfast Gazettes, and these publications carry the force of law and, in theory, should determine the services where NHS (and government departments) may recover VAT on underlying expenditure.

There has however been a divergence of the VAT internal guidance issued by HMRC to government departments and NHS bodies, with more restrictive guidance being applied to government departments VAT recovery on contracted-out capital expenditure, agency staff and professional services.

HMRC stated that it would develop a single comprehensive book of guidance to meet the needs of both the NHS and government departments and where the scope for VAT recovery was consistent.

However, rather than ‘right the wrongs’ of government departmental guidance, HMRC has attempted to impose these ‘wrongs’ on the NHS by changing the COS definitions, and imposing previously unpublished guidance with the more restrictive VAT recovery upon the NHS. Despite acknowledging that this would adversely impact NHS budgets.

The government says it is committed to improving policy making and implementation with a greater focus on robust evidence, transparency and engaging with key groups earlier in the consultation process. The attempt to quietly introduce uniform guidance and implement changes on the NHS without proper consultation and transition clearly doesn’t meet these high standards.

HMRC says that the harmonised guidance will now be written over the next few months incorporating the limited feedback it has received. However, we would suggest that the starting point for this new guidance should be to announce ‘open’ consultation, inviting all impacted bodies to contribute to a meaningful clarification and implementation of HMRC policy.

We would also argue that extending eligibility for the VAT refund scheme to charities that deliver public services which replace or supplement state provisions, and extending similar VAT refund mechanisms to charitable providers of NHS services, would assist in a more cost effective (and price competitive) delivery of public services.

This was posted in Bdaily's Members' News section by George Bull .