NHS bodies should already be aware that when certain services are purchased from an overseas supplier, VAT must be accounted to HMRC (in Box 1 of the VAT Return) under the ‘Reverse Charge’ Procedure.

Recent changes have been made to the VAT Place of Supply rules of cross border services to business customers from 1 January 2010.  The general rule used to be that the place of supply was the country in which the supplier belonged.  Now, the place of supply is determined by the location of the customer.

There are still some exceptions to the general rule, but this procedure now applies to almost all services purchased from overseas.

The changes do not involve a new compliance procedure, but it is in the interests of NHS bodies to re-familiarise themselves as to how the Reverse Charge should be accounted for on the VAT return.

Depending upon the nature of the service, there may be scope to recover the equivalent amount in box 4 of the VAT return, if the VAT on the supply received is an eligible contracted–out service (COS).   If the VAT is not COS VAT, a proportion of it may be recovered as input tax, dependent on the extent to which the supply relates to a taxable business activity (e.g. non-NHS equipment sales, catering, etc).

If you would like further detail regarding the Reverse Charges procedure or the impact of the Place of Supply rule changes, please do not hesitate to contact us.