In our April update, we informed NHS bodies about some potentially wide sweeping changes to the COS recovery headings.   The current Treasury Direction on COS VAT recovery has not changed since December 2002, however HM Treasury has been ‘reviewing the situation’ concerning the list for a couple of years now.  In advance of any revised Direction being published, HMRC announced changes last year to COS heading 14 and COS heading 37 with immediate effect.

It is widely expected that if or when the new list is finally published, there will be further restrictions to VAT recovery on agency staff, with the possible removal of COS heading 69.  Also, COS heading 52 is rumoured to be clearly worded to restrict VAT recovery to a limited range of advisory services only.

This puts the NHS VAT regime more in line with other Crown bodies.  Other speculation (although not confirmed) is that partial recovery of services such as quantity surveyors and architects would be in line with the proportion of VAT recovery on related capital projects.

We liaise constantly with HMRC regarding NHS VAT matters and can confirm that there is currently no date set for these changes to take effect.  Any suggested dates for the implementation of these new rules is pure speculation at this point and HMRC expect that there is likely to be a notice period to allow NHS bodies to budget for the changes.

There is no need to act at present with regard to these potential changes as they will not affect budgets immediately.  Going forward, it may be prudent to allow a contingency for the possible non-recovery of VAT on these headings.  Until the direction is published NHS bodies should continue to apply the headings currently in force.