The current Treasury Direction on COS VAT recovery has not changed since December 2002, however HM Treasury has been conducting a ‘review’ of the list for at least a year. In advance of any revised Direction being published which has been ‘imminent’ for some time now, HMRC announced changes last year to COS heading 14 and COS heading 37.
It is widely expected that when the new list is finally published, there will be further restrictions to VAT recovery on agency staff (COS heading 69) and professional services (COS heading 52). In particular, COS heading 52 is rumoured to be clearly worded to restrict VAT recovery to a limited range of ‘advisory’ services only.
Until the direction is published, NHS bodies should continue to apply the headings and HMRC interpretations currently in force.
COS Heading 41
Further to previous newsletters, HMRC and HM Treasury are currently reviewing heading 41 with a view to determining (once & for all) which staff fall within this heading. While the review is in progress, NHS bodies may continue to recover VAT on nurses, nursing auxiliaries, and nursing/healthcare assistants.
This represents a slight widening of the previous ruling in that VAT recovery can be extended to non-qualified nurses/healthcare assistants as well as qualified nursing grades.
If NHS bodies have previously restricted recovery or had VAT disallowed by HMRC for these services, you may recover the restricted VAT on the next appropriate VAT return. Remember that corrections to COS VAT incurred in the 2007/08 financial year must be claimed before the end of June 2008.