News / HFMA raises concerns over VAT proposals

By Steve Brown


The HFMA has written to the Department of Health to raise concerns about changes to rules concerning VAT recovery on contracted out services.

The NHS incurs VAT on many goods and services. However, as it does not charge VAT on its services, it cannot normally reclaim any of this VAT. However, under special rules, it can claim back VAT on certain contracted out services (COS).

A letter from HMRC to NHS providers at the end of February called for trusts to apply new guidance, which changes the definition of some key contracted services. HMRC said the change – which replaces specific NHS guidance from 2005 with 2012 guidance issued to all government departments – reflected a desire to ensure ‘consistency of treatment’ across all customers.

HMRC had already issued a letter at the start of February to correct some NHS bodies’ ‘misinterpretation’ of the definition of typing and secretarial staff – covered under heading 69 of the COS rules.

The more recent letter effectively extends the changes to a number of other headings. Trusts have suggested that two – headings 35 (maintenance, non-structural repair and cleaning of buildings) and 52 (professional services) – will have the biggest financial impact on trusts.

In a letter to Department director general of finance and NHS Richard Douglas, HFMA director of policy and technical Paul Briddock said the proposal could lead to significant additional costs for providers over and above efficiency requirements.

Anecdotally, initial assessments by some organisations suggest they could face additional costs of more than £1m.

However, as a result of discussions at the HFMA Foundation Trust Technical Issues Group in March, a data collection exercise was being undertaken to get a better understanding of the likely impact.

 ‘In our view, as forward plans must be submitted by 4 April, notification of such a significant change at that stage in the process does not give sufficient time to plan for and mitigate against the additional costs,’ Mr Briddock said.

The HFMA called for a consultation period to work through the issues in detail.