HMRC has just released revised guidance on COS heading 37, which supersedes guidance that it had previously issued to NHS organisations in May 2012.
This previous guidance stated that VAT could only be recovered on the supply of maintenance services for leased equipment if this maintenance was provided by a separate supplier to the one making the supply of the lease hire.
HMRC now say that, provided the maintenance is supplied under a separate contract from that of the lease hire, the VAT can be recovered under COS heading 37, even if the maintenance is provided by the same supplier.
HMRC explain that this change in policy is necessary following the decision of the First-Tier Tax Tribunal in the case of Goals Soccer Centre plc. The Tribunal held that the appellant, which owned and operated five-a-side football pitches, was making separate supplies of VAT-exempt pitch hire and standard-rated league participation services for those customers who were in a league. It was not, as HMRC argued, making a single composite supply of league participation/management services which was wholly standard-rated.
The Tribunal placed heavy emphasis on the contractual arrangements for these services, noting that pitch hire and league participation services were subject to separate contracts, with separate terms and separate prices, and that a breach of one contract did not automatically mean a breach of the other.
HMRC has confirmed that the change in policy based upon this decision which was released on 10th September 2012 only supersedes the guidance stated in its May 2012 letter concerning leases and maintenance and not more general COS heading 37 guidance.
Many NHS organisations have already received further correspondence from HMRC reiterating its previous stance on leased equipment and heading 37, and requesting details of VAT recovered on the maintenance of this equipment. In light of the revised policy, NHS organisations can now recover any unclaimed VAT incurred on the maintenance of leased equipment in the current financial year, if the maintenance is provided under a separate contract. This VAT must be reclaimed on a VAT return which is submitted no later than 7th July 2013. NHS organisations should also use this method to recover VAT on qualifying maintenance which may have been repaid to HMRC in the current financial year following the issue of the May 2012 letter.
It should be noted that VAT incurred on the leasing or hire of equipment, plant or vehicles remains non-recoverable, with the exceptions of the ‘hire of reprographic equipment including repair and maintenance’ (COS heading 25) and the ‘hire of vehicles , including repair and maintenance’ (COS heading 26). In both these cases, VAT is only recoverable on contracts for the supply of the equipment/vehicles together with full repair and maintenance services.