Many NHS bodies are currently undergoing a compliance check from HMRC on VAT recovered under COS heading 37.

This is a follow-up to the previous letter from HMRC of May 2012 concerning VAT recovery under COS heading 37 and whether this is in relation to leased equipment and if so, whether it is by the same supplier.

The follow up enquiries have however extended HMRC’s apparent interpretation of the rules as follows:

  • You cannot claim if a stipulation or requirement exists which states you must use a named supplier for the maintenance, repair and cleaning. This may be due to warranties, guarantees or lease/lease purchase agreements which are dependent on use of certain suppliers (this applies to both owned and leased items).
  • You cannot claim the COS VAT for leased items when the supplier of the item is the same as or connected to the one providing maintenance, repair and cleaning.

The first statement concerning owned equipment appears to be something which HMRC has never stated before in any guidance.

It is our understanding that NHS bodies would not generally purchase equipment in circumstances where a supplier stipulates that the maintenance could not be carried out in-house or by a third party. Many NHS bodies follow a purchasing process whereby a supplier of equipment is not selected unless they can provide operating manuals and/or training for in-house (i.e. EME department) or third-party maintenance staff.

Furthermore, such stipulations could be considered illegal under the Competition Act 1998 and therefore void and unenforceable even if they are included in a contract.

As such, there is likely to be no bar to recovering VAT under the COS rules covering heading 37 for owned equipment or equipment leased from a separate supplier, because there can be no legally enforceable stipulation to use a named supplier. If an in-house capability exists at the time a contract is entered into, the conditions for recovery have been met.

Please contact us if you require assistance with responding to HMRC’s enquiry.