Since December 2002, heading 53 of the contracted-out services list has stated that VAT is recoverable on the ‘provision under a PFI agreement of accommodation for office or other governmental use, together with management or other services in connection with that accommodation’.

Customs NHS policy unit are however still considering the circumstances under which NHS organisations can recover VAT on leased accommodation.

Since this heading came into force, it is our understanding that VAT on leased accommodation which is ‘similar’ to a PFI agreement is also recoverable. In this context, similar to a PFI agreement means that NHS organisations simply occupy accommodation and all the services relating to the building are provided by the ‘landlord’ under a single supply agreement.

Customs’ Business Brief 18/03 published in September 2003 describes ‘Composite Trade’ and ‘LIFT’ arrangements as being PFI arrangements which are eligible for VAT recovery subject to the usual conditions. This is on the basis that these are also ‘similar’ to PFI.

This wider interpretation of heading 53 is still being reviewed by Customs NHS policy branch and there is likely to be further clarification and guidance in the future. In the meantime, if your NHS organisation is occupying or is intended to occupy leased accommodation, there may be scope for VAT recovery. There is however no blanket approval to recover VAT on leased accommodation either as part of PFI, LIFT, Composite Trade or otherwise. We would therefore ask that you seek our advice before any VAT is recovered.