HM Revenue & Customs (HMRC) has now published the first ‘wave’ of the revised single book of COS VAT guidance for Government departments and NHS bodies, following the review of interpretation of the rules. This has gone live on GOV.UK.

The external link which takes you directly to the Contracted Out Services guidance is http://www.hmrc.gov.uk/manuals/vatgpbmanual/VATGPB9700.htm or to access via GOV.UK go to the Revenue & Customs page > VAT > scroll down to VAT manuals > select ‘get manuals from the HMRC website > select ‘G’ > Government and public bodies > VATGPB9000 > VATGPB9700.

Although there seem to be some changes to the interpretation of several headings, HMRC has stressed that there are no policy changes, which means the guidance is simply a statement of the current rules as they stand.

There is therefore no set date from which the rules apply, so NHS bodies can apply these rules retrospectively for the current (2014/15) year.

On first reading the new guidance, notable points are:

Heading 1 – Accounting, Invoicing and Related Services

This includes general record keeping, invoicing and preparation of tax returns and other related supplies and preparation of financial accounts and/or statements and accountancy advice. However, tax planning advice is specifically excluded.

This heading therefore seems to allow general tax compliance work which is used to complement in-house tax return preparation, but not specific advice.  Reference is also made to the Treasury rules and NHS guidance which dissuades the use of tax avoidance schemes.

Heading 7 – Broadcast Monitoring Services

This now includes social media monitoring, for example Facebook postings, Twitter feeds, etc.

Heading 10 – Catering

This includes hire of agency staff relating to catering.  It also includes vending machines when supplied as part of a catering contract.

Heading 65 – Training, Tuition or Education

This has now been clarified to include on-line training.  Although most NHS bodies have claimed this VAT to-date, it is encouraging to see the guidance updated to take account of developments in technology.

We understand from HMRC that there are still several headings where technical discussions are still taking place with the policy team and other experts, including definitions within COS headings 14 and 31.

There are other headings yet to be published where HMRC are awaiting guidance from HM Treasury, including COS headings 25 (relating to photocopiers/multi-function equipment), 45 and 52.  These last two are likely to be the very last to be published.

Until the revised guidance is published, HMRC has stressed that previous guidance can still be relied upon.

All in all, there are likely to be four ‘waves’ of publication according to HMRC. We’ll keep you updated as soon as further information is available.

As most NHS bodies are aware, HM Revenue & Customs (HMRC) has been actively reviewing the interpretation of the Treasury Direction COS VAT guidance.  This is following the aborted attempt earlier this year to impose the more restrictive Government Department (GD) rules on the NHS.  At the time, HMRC was forced to back down and instead consult with the NHS before making any changes.

It was originally anticipated that the revised guidance following the consultation would be part-published in November 2014 incorporating both GD and NHS bodies, however, we have now been informed that the publication date has been put back to mid-January 2015.

Specific items which could be subject to change include:

COS Heading 52 – Professional Services

This is likely to be restricted to ‘advice’ or ‘opinion’ only.  NHS bodies may no longer be able to recover VAT on consultancy costs for implementing changes, including legal representation or professional fees related to capital projects.

COS Heading 31 – Laboratory Services

Following the GSTS Tribunal decision earlier this year that pathology testing involving patient samples is exempt from VAT, the scope of this heading is being reviewed.  This may mean that VAT charged on outsourced laboratory facilities (including equipment, management, reagents, maintenance, training, etc.) may no longer be eligible for recovery under this heading.

COS Heading 45 – Healthcare Facilities

In a letter recently issued to the HFMA, HMRC implied that a ‘healthcare facility’ was a physical building, unit or area within a building which is run/operated by the contractor which enabled the NHS body to occupy the facility to deliver healthcare.  This definition would mean that COS heading 45 would still cover PFI hospitals and other similar facilities, but may well exclude managed facility contracts which are heavily based upon the provision and availability of equipment and consumables.
Other areas potentially subject to change include:

COS Heading 10 – Catering Services

This may now be extended to supplies of catering staff.

COS Heading 14 – Computer Services

This may exclude private data lines, which were specifically included in the previous NHS guidance.

Our initial thoughts are that the anticipated changes will significantly restrict the scope for VAT recovery of NHS bodies, many of which are already in serious financial difficulty.  We will issue a further update once we have more information.