The HFMA has now published the minutes of the September 2013 meeting of its VAT technical sub-committee, attended by representatives of the VAT profession, HMRC and NHS Trusts.

No new VAT developments were announced, but the Committee did discuss several proposed changes to the NHS VAT rules, including the following;

  • a ‘Framework’ agreement for the calculation of business activity and partial exemption VAT adjustments by NHS bodies;
  • options for the VAT treatment of leased cars supplied to NHS employees (with the Committee preferring an option under which a 30% ‘block’ would be applied to VAT incurred on lease car costs, but no output VAT would be due on salary deductions);
  • a four-year ‘cap’ for recovery of VAT incurred on contracted-out services (‘COS VAT’).

The four-year cap proposal is intended to address a perceived disparity in the VAT rules applying to local authorities and to the NHS. At present, HMRC can issue assessments for COS VAT which has been over-recovered within the previous four years, but NHS organisations have only until 7th July following the end of a financial year to recover COS VAT incurred in that year. The Treasury is presently considering the implementation of a four-year cap as part of a wider review of Section 41 of the VAT Act 1994, which applies to government departments and NHS bodies.

The VAT treatment of leased cars has been under review by HMRC for some time, and options were discussed by the Committee. HMRC will review any feedback received in response to these options before making a final decision on which one should be implemented.

Regarding the Framework agreement, work has also been taking place for some time within HMRC, and with NHS representatives and the HFMA, on identifying suitable methods for calculating business activity and partial exemption adjustments. The agreement will be discussed in further detail at the HFMA’s ‘Tax Matters’ seminar on 6th November 2013, at which the representatives from HMRC may be able to provide further guidance on how the agreement will be applied. Representatives from CRS VAT will also be in attendance, and we look forward to seeing you on the day.