April 2008
NHS VAT NEWS BULLETIN
Contents
- COS VAT update
- HMRC COS disclosure changes
- Increase in voluntary disclosure de-minimis limit
- Correction of errors on VAT returns
- HMRC authorisation letters
- NHS purchases/payments on behalf of GPs
- Capital business apportionment
- Staff hire concession
- Three-year cap update
1. COS VAT update
1.1 ‘Imminent’ changes
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.
1.2 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.
2.
HMRC COS disclosure changes
For the financial year 2007/08, net COS recovery corrections of £10,000 or more in any 3 month period required submission to HMRC for prior approval, together with copies of invoices where VAT corrections exceed £500.00.
This disclosure requirement has been removed for periods commencing 1 April 2008 but may be reinstated in the future.
Our Review Service
We can conduct a systematic review of all income generation streams, both debtor and cash in order to determine the correct VAT treatment. Our work would involve talking to the relevant staff at the Trust to gain a good understanding of your income streams and reviewing a given list of financial reports, contracts, sales invoices and other supporting documentation which we would ask you to produce.
The results of this review would then be used to produce a tailored report including tables and flowcharts to be used to determine the correct VAT liability to be applied to your income streams. This can then be referred to by your staff on a regular basis to ensure that VAT is accounted for correctly on all income.
Please contact us if you are interested in having a review carried out.
3. Increase in voluntary disclosure de-minimis limit
The March 2008 Budget increased the £2,000 voluntary disclosure de-minimis limit for errors to the greater of £10,000 or 1% of turnover, subject to an upper limit of £50,000 of VAT. For adjustments above £10,000, the limit for correcting errors on the next return is calculated by reference to the net turnover for the return period.
For the NHS, the net turnover is the total business turnover (taxable and exempt) only, as should be declared in Box 6 of the VAT return. The turnover figure should not include non0business healthcare funding and this funding should not be shown in Box. 6
HMRC have stated that these revised changes will not apply to annual Business Activities reviews or annual Partial Exemption calculations as these are not strictly corrections of errors. This is because the practice of calculating business input tax and partial exemption liabilities annually rather than monthly is a concession allowed by HMRC.
4. Correction of errors on VAT returns
The current procedure adopted by NHS bodies and accepted by HMRC for correcting errors is to enter any overclaim or payment in Box 1 of the VAT return and any underclaim or repayment in Box 4.
This is incorrect, since Box 1 should only be used to account for additional output tax due. It should not be used for example to repay overclaimed COS VAT.
In future, VAT adjustments should be made in the following way:
Underpaid output tax is declared in Box 1
Underclaimed business input tax is declared in Box 4 and section 1 of the Form VAT 21
Underclaimed COS VAT is added to the appropriate COS heading in section 2 of the Form VAT 21
Overclaimed COS VAT is deducted from the appropriate COS heading in section 2 of the Form VAT 21
If a partial exemption repayment is due (of previously claimed COS VAT), it may not be possible to identify the individual COS headings to be adjusted. In these cases, the total amount due for repayment can be shown as a negative amount on Form VAT 21 under COS heading 100.
5. HMRC authorisation letters
It has always been a requirement that anyone submitting a VAT claim or other representation to HMRC on behalf of an NHS body must present evidence that they have authority to make such representation.
CRS VAT Consulting has always adopted the practice of asking our clients to sign authorisations specific to the claim being made. HMRC have now emphasised that this practice is correct and they will not accept ‘blanket’ authorisations.
Furthermore, they have tightened up this requirement and have stated that authorisations must be original (i.e. photocopies or faxes are no longer acceptable), of a current date, on headed notepaper and signed by a 'responsible' member of the NHS body. These must also include their position and a contact telephone number, with the nature of the representation quoted in the authorisation.
6. NHS purchases/payments on behalf of GPs
For VAT purposes, GPs remain outside of the NHS Divisional VAT Registrations for England, Scotland and Wales. This means that if a supply is made to a GP and an NHS body merely pays for the goods or services on behalf of a GP, then the supply is not being made to the NHS body and VAT will not be eligible for recovery by the NHS body under COS.
If however the responsibility lies with the NHS body to secure the service in question, e.g., the collection of clinical waste or IT infrastructure and it is the NHS body which has entered into the contract and pays for the service, then the supply is being made to the NHS body and VAT can be recovered under COS.
7. Capital business apportionment
HMRC have re-emphasised the requirement to determine any business and non-business apportionment of the VAT on capital schemes. Once this has been done, the non-business portion of the scheme can be considered under COS rules in the normal way.
The effect of this is could mean an increase in VAT recovery where the scheme is associated with taxable income generation, or a decrease in VAT recovery where exempt income is generated. It could also mean that not all of the professional fees incurred will be eligible for COS VAT recovery under Heading 52 – only that percentage of the fees that relate to the non-business portion of the scheme. This would however need to be taken into account in the annual partial exemption adjustment so that VAT recovery on COS is not restricted twice.
8. Staff hire concession
By concession, HMRC currently allow certain supplies of temporary workers by employment agencies to exclude the wages element when charging VAT, i.e. VAT is only due on the commission. It was announced in the March 2008 Budget that this concession will be withdrawn from 1 April 2009.
This will have the effect of further increasing irrecoverable VAT for the NHS on supplies of agency staff that are not eligible for COS VAT recovery.
9. Three-year cap update
In our January VAT update, we wrote about the House of Lords judgement in the cases Conde Nast and Fleming, which obliged HMRC to now repay VAT refunds accrued but not claimed for periods before 1996 right the way back to when VAT was introduced in 1973.
HMRC have since confirmed that this relates to underclaimed input tax and overpaid output tax. This represents a real opportunity for NHS organisations to submit claims in areas such as private patient drugs (input tax) or cold take-away food (output tax) for these periods.
Claims must be made by 1 March 2009 however at present, HMRC are withholding such claims by the NHS until further guidance is obtained by the Policy Branch. We are currently in the process of formulating and submitting claims of behalf of our clients and would urge other NHS organisations to contact us at the earliest opportunity to discuss potential claims.
CRS VAT Consulting is a firm of chartered tax advisers specialising in pro-active and innovative VAT solutions. Since 2002 we have grown to become a leading provider of VAT services to the NHS. We have achieved this by consistently identifying increased levels of VAT recovery and providing flexible services tailored to the specific needs of our clients.
Our credentials can be checked with the Chartered Institute of Taxation, which is the senior professional body in the United Kingdom concerned solely with all aspects of taxation.
For further advice about items in this newsletter, or to find out about our comprehensive range of NHS VAT services, please contact us.
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This newletter is designed to keep readers up to date with current vat developments but is not intended to be a comprehensive statement of law. No liability is accepted for the opinions it contains or for any errors or omissions.
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