£2.65m VAT recovered from reviews for a large NHS Trust 

CRSTAX led a focused VAT recovery programme for a large London NHS Trust in 2025. Working to a monthly timetable, we reviewed recent spend against COS headings, improved partial exemption position, and additional overhead VAT treatment. The work delivered £2,040,599 from retrospective COS checks, £204,222 from partial exemption reductions, and £406,920 from additional overhead input tax. We also set defensible VAT recovery percentages for 38 capital schemes, giving project teams a clear standard to follow. 

The brief 

We were asked to increase VAT recovery without slowing month-end. Priorities were to identify missed COS, calculate the yearly partial exemption position, and document decisions so Finance could claim in the next VAT return with confidence. 

How we worked 

Retrospective COS reviews 

Each month, we looked back at the latest available spend and tested high-value suppliers, cost codes, and line descriptions against the COS headings. For qualifying items, we prepared short evidence notes so the Trust could confidently recover VAT with a consultant-backed position. 

Partial exemption 

We determine partial exemption positions through a structured analysis of taxable vs. exempt activities and related input VAT, applying the optimal partial exemption method for each project. This gives a robust, defensible recovery percentage and improved VAT efficiency. 

Overhead input tax 

We also identified additional overhead input tax, reviewing indirect cost centres, and reallocating expenditure. This ensured the partial exemption calculation captured the full scope of recoverable costs and provided additional recovery beyond the standard percentages. 

Capital schemes 

For 38 projects, we agreed practical VAT recovery percentages. This supports project teams and allows VAT to be reinvested into tight budgets at the point of inception. 

Results from 2024/25 

• £2,040,600 recovered from retrospective COS reviews 

• £204,223 improvement in the partial exemption position 

• £406,920 additional overhead input tax recovery 

• 38 capital schemes with agreed VAT recovery percentages 

Beyond the totals, the Trust now has a repeatable approach that helps cash flow with VAT being recovered via monthly VAT returns. 

What this means for NHS finance teams 

• Retrospective COS checks convert past spend into current year value 

• Reducing the partial exemption position reduces liability vs HMRC methods, while providing additional overhead recovery. 

• Clear VAT positions on capital projects save time for Finance, Procurement and Estates 

Talk to the CRSTAX NHS VAT team 

If you want a straightforward view of where additional VAT recovery may exist, contact us today to discuss options that fit your Trust.    

Announcements with potential VAT implications for the NHS

The government confirmed its intention to establish up to 250 neighbourhood health centres across England, with 120 expected to be operational by 2030. Funding will be provided through a new on‑balance sheet public‑private partnership (PPP) model, details of which are to follow. Ministers have indicated that lessons from 25 years of PFI contracts will inform the design of this structure.

Discussions are ongoing over how the neighbourhood health centres will operate, but as these arrangements will involve the NHS, Local Authorities, the Voluntary, Community, and Social Enterprise sector, and other third parties working together, an early approach to reviewing the agreed structure could lead to VAT efficiencies in the model due to the varying VAT refund schemes across those involved.

A further £300 million of capital funding has been allocated to NHS technology, with the stated aim of deploying new digital tools to support staff and improve productivity. HMRC has recently updated its interpretation of COS Heading 14 in relation to computer services. It will therefore be important to scrutinise new contracts carefully to confirm whether VAT recovery is available, and to ensure that HMRC’s evidential requirements are met in full.

CRSTAX will be contacting clients shortly with further information about HMRC’s new interpretation of COS Heading 14.

Announcements with potential Employment Tax implications for the NHS

National Living/Minimum Wage rates to increase

The National Living Wage is the minimum amount a worker is entitled to be paid if they are 21 or over. It is currently set at £12.21 an hour and is set to rise by 4.1% to £12.71 an hour from next April.

The National Minimum Wage is the minimum amount for workers aged between school-leaving age (turning 16) and 20. For those aged 18 to 20 the hourly rate is £10 and this will rise by 8.5% to £10.85 an hour. And for those under 18 it’s £7.55 and will rise by 6% to £8 an hour.

If you’re an apprentice and are under 19 or in the first year of your apprenticeship, you receive a rate of at least £7.55 an hour. As above, it will increase by 6% to £8 an hour.

These changes were based on the recommendations of the Low Pay Commission, which is an independent body created to advise the government on changes to the Minimum and Living wage.

In August, the commission projected increasing the Living Wage to £12.71 an hour would ensure it didn’t fall below two-thirds of median earnings.

HMRC/Fair Work Agency – NMW enforcement

The Budget reinforced government commitment to ensuring fair pay and stronger protections for workers, which aligns with the launch of the new Fair Work Agency (FWA) in April 2026. A core priority for the FWA will be enforcing National Minimum Wage compliance, ensuring that all workers receive at least the legally mandated pay. This focus complements the Budget’s measures to raise the minimum wage and improve living standards, giving workers confidence that wage rules will be rigorously applied.

To achieve this, the FWA will establish a dedicated “hidden economy” team to tackle sectors with high rates of wage underpayment and labour exploitation, starting with hand car washes and expanding to other high-risk industries. The agency will follow up on complaints from workers, investigate employers who fail to comply with NMW requirements, and take robust enforcement action, including fines and public naming of offenders.

The FWA will also work closely with trade unions and local business groups to gather intelligence on exploitative practices, enabling proactive enforcement. Additionally, the government will explore using the Companies Directors Disqualification Act 1986 to bar directors whose repeated breaches demonstrate they are unfit to manage companies. By summer 2026, the FWA aims to eliminate the backlog of cases inherited from the previous administration, and all future breaches, including NMW violations, will be publicly reported within a year of case closure.

Together, these measures signal a strengthened enforcement regime designed to ensure that all workers are paid fairly and that employers who break wage laws face swift and visible consequences.

Income Tax & NIC thresholds frozen from April 2028 to April 2031

The Autumn Budget confirmed that Income Tax and National Insurance thresholds will remain frozen until April 2031.

• Personal Allowance stays at £12,570
• Higher-rate threshold remains at £50,270
• The additional rate threshold remains at £125,140 from April 2028 to April 2031
• Employer NIC thresholds also frozen

This extended freeze means more people will move into higher tax bands as wages rise—a phenomenon known as fiscal drag. HM Treasury estimates this will bring hundreds of thousands more taxpayers into higher rates over the coming years, increasing overall tax receipts without changing headline rates.

The Personal Allowance threshold applies UK-wide. The higher rate threshold for non-savings, dividend and property income and for property income will apply to taxpayers in England, Wales and Northern Ireland, and for savings and dividend income it will apply UK-wide. This will be legislated for in Finance Bill 2025-26.

Tax-Free Reimbursements for Health and Homeworking Costs

From 6 April 2026, employers will be able to reimburse employees for certain costs—such as eye tests, flu vaccinations, and home-working equipment—without creating a taxable benefit.

This is something we have discussed at several of our forums and currently, these items are only exempt if provided directly by the employer (e.g., via vouchers or arranged services). This change simplifies administration and supports flexible working and employee wellbeing, while removing the need for complex benefit reporting.

However, the deduction for homeworking expenses where the costs are not borne/reimbursed by an employer will be removed with effect from April 2026.

Mileage-based charge on electric and plug-in cars

A new mileage-based charge called the Electric Vehicle Excise Duty (eVED) will be levied alongside the existing Vehicle Excise Duty on electric and plug-in hybrid cars from April 2028, of 3p per mile for Electric and 1.5p for Hybrids.

The consultation issued today will provide further detail on how eVED will work and seeks views on its implementation. It proposes that drivers will provide an estimate at the start of the year or point of purchase, to be ratified as part of the annual MOT process. Where a car does not require an MOT there is suggestion that they may need to attend a separate check when the car reaches one and then two years old, perhaps as part of a routine maintenance and servicing regime.

It has not been made clear as yet how this will interface with existing approaches to company car taxation. It is possible that, as with the VED charge for other types of cars, it will not give rise to a separate benefit for company car drivers. But as this charge will vary based on travel levels employers will need to consider their approach where costs are increased by employees’ private travel, or how they might plan for a fleet incurring high business mileage.

Benefit in Kind easement for plug-in hybrid electric vehicles (PHEV)

There will be a temporary tax easement to prevent the Benefit in Kind (BIK) value increasing due to new emissions standards. To apply from 1 January 2025 to April 2028. During the easement period, the CO2 emission figure for those PHEVs will be deemed to be a nominal figure of 1g/km for the purposes of the BIK charge rather than the CO2 figure on the registration document.

This will have the effect of reducing the value of the benefit-in-kind charge that applies.

Delay to proposed changes to Employee Car Ownership Schemes

In a welcome development, planned changes to bring Employee Car Ownership Schemes (ECOS) into the scope of company car taxation have been significantly delayed until 2030/31, with transitional arrangements until April 2031.

PAYE changes for the Umbrella Market

No changes have been announced to the forthcoming introduction of joint and several liability for PAYE for users of umbrella companies and other employment businesses. As such, we are now expecting that these rules will be implemented from April 2026 with no significant changes to the previously announced proposals.

For end clients, there are scenarios whereby joint and several liability could arise and we are recommending that all users of labour undertake a review of possible exposure in advance of the rules coming in by carrying out a full due diligence of their labour supply chain.

Mandatory payrolling of benefits – revised guidance issued

HMRC has published a new manual setting out interim guidance and draft legislation for the upcoming mandatory payrolling of benefits in kind (BIK) and expenses. This manual is not final—it will be updated and amended as HMRC clarifies guidance and receives feedback during the consultation process. The aim is to help employers, payroll providers, and software developers prepare for the transition to real-time reporting.  HMRC aims to publish final drafts of all legislation by Autumn 2026.

Key Features of the Draft Guidance:

• A section on how to get ready for mandatory payrolling
• How to report a benefit in real time
• What happens when the full amount of tax cannot be collected in the pay period or tax year
• The new FPS data fields to capture benefit details and Class 1A NICs
• Guidance on complex scenarios (mid-year changes, leavers, starters)
• Penalties and interest charges

In the ‘How to report a benefit in kind in real time’ the guidance states –

“It is your responsibility to ensure that employees are paying the correct or as close to the correct amount of tax as possible on the benefits in kind provided.”

This sets the tone for the rest of the manual and there are several references to employers making corrections or updates to payroll submissions. Examples include –

• If benefit information is received after the cut-off for the current payroll run, the employer can update the next FPS
• If there are no more payment dates in the tax year, employers can use the end-of-year process but will have to amend the final FPS and
• where an employee makes good on a benefit provided to them, they will have until 6 July following the end of the tax year to do this, and employers will have until 22 July to adjust the taxable values of the employee’s benefits

The existing guidance on how to fix problems with running payroll when you paid your employee the wrong amount or made incorrect deductions will be updated in Autumn 2026 for mandatory payrolling.

Amending payroll submissions is a labour-intensive task: it cannot be automated, and it has significant knock- on effects on internal finance reports, employees’ records and employer’s PAYE accounts with HMRC and it is to be hoped that HMRC will recognise this and put measures into place to ease this process before the legislation is finally passed.

After a slow start, this project is gathering pace, but there is still time to try payrolling benefits in 2026/27 before it becomes mandatory. Employers have until 5 April 2026 to register with HMRC to try payrolling benefits on a voluntary basis in 2026/27.

Apprenticeships – Simplification and funding to make training for under-25s free for small and medium enterprises

The government is making more than £1.5 billion available over the Spending Review period for investment in employment and skills support. This funds £820 million for the Youth Guarantee, which includes offering a guaranteed six-month paid work placement for every eligible 18 to 21-year-old who has been on Universal Credit and looking for work for 18 months – helping young people across Great Britain take that crucial first step into sustained employment. This also includes £725 million for the Growth and Skills Levy to help support apprenticeships for young people, including a change to fully fund SME apprenticeships for eligible people under 25.

Alongside this funding, the government will introduce new reforms to simplify the apprenticeship system and make it more efficient as short courses are introduced from April 2026, including removing the additional uplift to levy accounts; changing the expiry window to 12 months; changing the government’s co-investment rate to 75% for levy-paying employers once they have exhausted all their funds; and working with employers to streamline the suite of apprenticeship standards available. More details on the wider Youth Guarantee and Growth and Skills Levy package will be announced shortly.

CIS – Tackling Fraud

New HMRC powers will be introduced to tackle fraud and to impose liabilities on businesses operating within the construction sector that enter transactions where they knew or should have known it was connected with the fraudulent evasion of tax.

In addition to powers that will enable HMRC to immediately remove gross payment status, new provisions will include the power to impose penalties of 30% of lost tax on the business, its directors and other persons connected to the business.

Separately, draft legislation will also be included in the Finance Bill to take effect from April 2026, aimed at simplifying and improving CIS administration.

Those operating CIS will need to consider the changes carefully and reinforce existing procedures to appropriately monitor supply chains and relevant transactions.

This will not apply to NHS Foundation Trusts, who are not subject to CIS.

Overseas Workday Relief (OWR) – PAYE Cap Introduced

From 6 April 2026, employers applying OWR through a PAYE notification (under s.690) will be limited to excluding a maximum of 30% of an employee’s earnings from PAYE.

If an individual qualifies for a higher proportion of overseas workdays, the additional relief must be claimed via Self-Assessment. We believe this measure, aims to improve HMRC’s in-year tax collection and simplify compliance while ensuring employees can still access full relief.

Image rights payments

The government will legislate to clarify the tax treatment of image rights to ensure that all image rights payments related to an employment are treated as taxable employment income and subject to income tax, and employer and employee National Insurance contributions. This will be legislated for in Finance Bill 2026-27 and take effect from 6 April 2027.

This follows a tax case in which Bryan Robson successfully avoided an IR35 tax charge on income received relating to his image rights.

NIC relief on Salary Sacrifice Pension Contributions

Popular in the Private Sector, due to the flexibility of their Pension Schemes, operated under Salary Sacrifice arrangements will take a hit, albeit not quite yet.

From 1 April 2029, only the first £2,000 of Salary Sacrifice pension contributions will be exempt from NICs. Anything above will be subject to employer and employee NICs like other employee workplace pension contributions. However, the schemes will potentially still be worthwhile for higher earners who are seeking to avoid the impact of the tapers applying to child benefit and tax-free childcare.

Contributions through Salary Sacrifice, like all pension contributions, will still be exempt from Income Tax (subject to the usual limits).

Employers will need to report the total amount sacrificed through their existing payroll software. There are still many unanswered questions about how this will be enforced per pay preference period or annually for example and how will they define exactly what is caught. We understand HMRC will engage with stakeholders on this and publish further guidance accordingly.

General announcements

Mandatory tax adviser registration with HMRC

The Government has confirmed a major overhaul of how professional tax agents are identified and supervised. In short, anyone who deals directly with HMRC on behalf of clients — from traditional tax advisers to payroll providers operating PAYE systems for employers — will soon have to appear on a single HMRC-run register. The aim is to give taxpayers confidence that anyone representing them meets consistent, legally enforceable standards.

Those affected include all professionals who submit returns, claims, payroll information or other communications to HMRC for clients. Under the new rules, these advisers will be legally required to register with HMRC and demonstrate they meet minimum competency, conduct, and eligibility criteria. This brings payroll bureaux and outsourced payroll processors into scope where they interact with HMRC systems on employers’ behalf.

The Budget announced that mandatory registration will begin in May 2026, supported by a government investment of £36 million to update and modernise HMRC’s registration infrastructure. A transition period of at least three months will follow, and HMRC will publish more detailed timelines and guidance for different types of advisers ahead of implementation. The policy’s objective is to raise standards across the tax advice and payroll services market by giving HMRC clearer oversight of who is acting for taxpayers. It will help HMRC identify and intervene where advisers fail to meet required standards or are not legally allowed to operate, addressing long-standing gaps in the current fragmented system. The new rules will be legislated for in the Finance Bill 2025–26.

Why Not All Pay Elements Count Towards NMW

National Minimum Wage compliance is becoming a growing issue across the NHS. Trusts often assume their payroll structure is sound, only to find during an HMRC review that some pay elements have been included incorrectly. Even a small mistake can produce a large backdated liability, interest, and penalties.

A common problem is the belief that every pound paid to a worker counts towards their National Minimum Wage pay. HMRC is very strict about what can and cannot be included, and any misunderstanding puts an NHS body at risk of a compliance check.

This update sets out the core rules so payroll and finance teams can sense-check where risks may sit before HMRC does.

What Can Be Counted in NMW Pay

When reviewing your payroll for NMW compliance, each pay element must be considered on its own terms. Some payments can be included if they form part of standard pay and are structured correctly.

Included in NMW pay:

• Basic pay for hours worked
• Performance-related bonuses and incentive payments
• Most annual bonuses, if allocated proportionally
• Consolidated allowances that form part of routine pay

For many NHS roles, these elements are straightforward. Issues usually arise where additional enhancements are common.

What Must Be Excluded from NMW Pay

Several payments that appear helpful to the employee cannot be included in the NMW calculation.

Excluded from NMW pay:

• Overtime and shift premiums above basic rate
• Tips, gratuities, and service charges
• Allowances for unsocial hours or high-risk work
• Expense reimbursements
• Benefits in kind other than the permitted accommodation offset
• Employer pension contributions, loans, and redundancy payments

For NHS Trusts, the volume of enhancements and allowances can make this review more complex than it seems.

The Overtime and Premiums Trap

One of the most common pitfalls in NHS payroll is the treatment of overtime and shift premiums.
Only the basic rate can count towards NMW.

For example, if a worker is paid a basic rate of £12 per hour and £15 per hour for overtime, the NMW calculation can only use £12 per hour for every hour worked. The additional £3 per hour must be excluded.

HMRC takes a firm view on this because including premiums could give the appearance of meeting the minimum wage when the underlying basic rate is below it. These errors are easy for HMRC to identify in a compliance review and can generate significant backdated liabilities for NHS bodies.

Why This Matters for NHS Organisations

NHS payroll structures involve a wide range of enhancements, allowances, flexible working arrangements, and historic pay variations. This means NMW risks often sit unnoticed until HMRC makes contact.

A compliance review can be resource-intensive and difficult to resolve once HMRC has identified an issue. Early checks reduce the chance of avoidable costs and help ensure the Trust can evidence compliance if asked.

Support for NHS NMW Compliance Checks

CRSTAX works with NHS bodies to review pay elements, identify where the rules have been applied incorrectly, and help reduce risk before HMRC reviews arise. A clear view of what counts, what does not, and how this plays out across your payroll structure can prevent avoidable costs and administrative pressure.

If you want reassurance on your NMW position

We can carry out a confidential compliance review, highlight any areas of concern, and help you resolve them before they lead to a backdated liability.

Contact the CRSTAX team to arrange a review or to discuss your current NMW approach.

More on Employment Taxes | Expenses and Benefits | IR35/Off Payroll for the NHS

VAT Reviews | HMRC Business Approval Methods

HMRC Extends Deferral for Making Tax Digital (MTD): What NHS Finance Teams Need to Know 

HMRC has confirmed that public bodies and NHS Trusts using the GIANT (Government Information and NHS Trusts) VAT return system will not need to migrate to MTD for VAT until at least April 2027. This extends the previous deferral (to April 2026) by a further year and means Trusts should continue filing via GIANT for the time being. While we await HMRC’s formal public guidance, this aligns with earlier HMRC correspondence to GIANT users and sector updates.  

What’s changing (and what isn’t) 

• No MTD for VAT mandation for GIANT users until at least April 2027. Continue filing VAT returns through the existing GIANT process until HMRC instructs otherwise.  

• Digital record-keeping exemption remains in place for now under Regulation 32B (SI 2018/261). This is the statutory basis for exempting certain entities (including public bodies using GIANT) from digital records pending mandation.  

• HMRC has historically written directly to GIANT users to confirm deferrals (to 2025, then 2026). 

HMRC has indicated in previous GIANT letters that it will update bodies ahead of any switchover. You should expect advance notice before you’re required to move off GIANT (typically through letters and HMRC notices).  

Why this matters for NHS Trusts 

• Breathing space for planning and budgets. The extension provides time to plan for MTD alongside ERP upgrades/finance-system changes (e.g., ledger, e-invoicing, data warehouses). 

• Opportunity to align with potential s.41 VAT reform. HMRC/HMT has continued to work on public-sector VAT reforms. Aligning MTD plans with any Section 41 changes may reduce duplicated work.  

• Reduce “cliff-edge” risk. Adopting digital record-keeping disciplines early (even while exempt) lowers transition risk once a definite mandation date is set. HMRC’s core MTD requirements for digital links and functional-compatible software are already outlined in VAT Notice 700/22.  

Recommended next steps (NHS-ready checklist) 

1. Stay on GIANT for VAT submissions. 
2. Gap-assess your digital records. 
3. Map an MTD pathway within your ERP roadmap.
4. Strengthen VAT controls now.  
5. Plan communications.  

How CRSTAX can help 

• MTD-for-VAT Readiness Review (NHS): A targeted review to map your current VAT processes, data flows and digital links, and produce a GIANT→MTD migration plan. 

• ERP & Tax Controls Alignment: We sense-check VAT codes, partial exemption data, and evidence packs so you’re not retrofitting controls under pressure. 

• Section 41 Reform Watch: Briefings on the interaction between Section 41 changes and VAT recovery, plus what that means for MTD sequencing. 

• Training for NHS finance teams: Bite-size sessions on digital links, evidence, and VAT adjustments under MTD. 

What next? 

The extension to April 2027 at the earliest gives NHS bodies welcome time, but it’s not a reason to pause. Trusts that embed digital record-keeping now, tidy VAT controls, and align plans with ERP changes will have a smooth, low-risk transition when HMRC sets the date. 

Need a quick sense-check? Book a 30-minute MTD Readiness Call with our NHS VAT specialists today. 

In a significant judgment today, the UK Supreme Court has ruled in favour of HMRC in its long-running dispute with Northumbria Healthcare NHS Foundation Trust (“Northumbria”) about VAT on hospital car parking charges. This decision upholds HMRC’s position that income from NHS-operated car parks is subject to VAT, with broad financial implications for NHS Trusts across England.

Background

Car parking income generated by NHS Trusts has always been treated as subject to VAT at the standard rate (currently 20%). In February 2024, the Court of Appeal ruled in favour of Northumbria’s position that the income is non-business. It found that parking services provided by NHS Trusts fell outside the scope of VAT because they were supplied under a “special legal regime” and did not distort competition. However, HMRC appealed to the Supreme Court, which has now overturned that decision.

Key Findings

The Court found that while NHS Trusts must follow government guidelines on pricing and concessions, these are flexible recommendations, not legally binding rules. As such, the NHS is not operating under a “special legal system” for the income to be treated as non-business for VAT purposes.

Hospital car parks also compete directly with nearby private ones, as both offer the same basic service, i.e. convenient parking. If the NHS avoided VAT, it could lower prices or keep more profit, giving it an unfair edge, especially when demand far outstrips supply. This real risk of distorting competition means VAT must apply.

What This Means for NHS Trusts

This ruling creates a binding precedent requiring NHS Trusts to continue charging and accounting for VAT on car parking income. Trusts that had paused VAT payments or submitted refund claims based on the earlier Court of Appeal ruling will not recover that VAT and will now need to consider withdrawing or amending their claims.

The judgment means Northumbria’s claim will not be paid. Nor will the claims of around 70 NHS Trusts awaiting this judgment, which amounted to up to £100 million.

Effect on Car Park Construction Costs

The decision affirms that NHS car parking remains a taxable business activity, allowing Trusts to continue recovering VAT costs on construction and operational expenses. For those with substantial investments in car park infrastructure, this mitigates the risk of large VAT adjustments under the Capital Goods Scheme.

Trusts planning new car park developments can proceed with greater clarity, knowing VAT incurred on construction costs should be recoverable. However, they should still carefully assess contractual and operational models, particularly where third-party involvement is contemplated.

Recommended Next Steps

NHS Trusts should now take the following actions following the Supreme Court ruling:

• Ensure VAT is correctly accounted for on car parking income going forward.
• Consider withdrawing or revising any outstanding claims for VAT refunds on past income.
• Review input tax recovery assumptions on car park capital expenditure.
• Evaluate Partial Exemption methods in light of continued business treatment.
• Confirm third-party contracts align with VAT obligations and determine if restructuring is required.

Need Support?

The NHS VAT team at CRSTAX is available to help Trusts assess the implications of this ruling and provide ongoing VAT compliance support.

Read more on Car Parking

Updated: 28 October 2025 (UK).

Executive summary

• In February 2024, the Court of Appeal found that income from an NHS-operated car park is outside the scope of VAT, because the NHS is acting as a public authority under a “special legal regime” (including the NHS 2015 Parking Principles).
• HMRC appealed. The Supreme Court heard the case in April 2025, and judgment is still pending at the time of writing.
• Around 50 NHS Bodies are understood to have claims “stood behind” the Northumbria case, with tens of millions of pounds of VAT potentially recoverable across the NHS. The Court of Appeal’s reasoning concerns NHS-operated car parks only.

While the final position awaits the Supreme Court outcome, NHS Bodies should protect their claims, evidence their “public-authority” framework, and plan for both outcomes to minimise risk and preserve value.

What the dispute is about (in plain English)

The question: Are NHS hospital car-parking charges a taxable supply for VAT, or are they outside the VAT system because the NHS provides parking as a public authority under a special legal regime?

The Court of Appeal’s answer (Feb 2024):

• The provision of hospital parking operated by an NHS trust is sufficiently bound up with the NHS statutory framework (including the 2015 Parking Principles), so the NHS Body is acting as a public authority for this activity and is not a taxable person in that context.
• There is no material distortion of competition from this treatment, given the nature of hospital parking (primarily for patients, visitors and staff) and the limited overlap with commercial car parks.

Scope matters: This decision focused on NHS-operated car parks.  Car parking provided by an outsourced provider or by a PFI company is unaffected, as they are not public authorities.

Current status and why it matters

• Timeline so far: First-tier and Upper Tribunals originally found for HMRC; the Court of Appeal reversed that in February 2024; HMRC appealed to the Supreme Court; the hearing took place in April 2025; judgment is pending.
• Financial exposure/opportunity: Many trusts have lodged “stood-behind” claims. Sector commentary has placed the historic VAT at stake in the tens of millions of pounds, with some trusts facing material cash impacts depending on the final outcome.
• Operational impact: Pricing displays, signage, websites, back-office systems, and communications with patients and staff may all need rapid changes once the final decision lands.

Practical guidance for NHS VAT officers

1) Claims management and deadlines

• Protect time limits now. If your Trust has historically accounted for VAT on car-park income, ensure protective claims (or updates to existing claims) are submitted on time. Late claims risk being out of time.
• Keep claims live and evidenced. Maintain a clear technical narrative, calculations/interest workings, and supporting documents so your claim can be processed quickly once the court position is final.

2) Review how each car park is operated

• NHS-operated sites: Assemble an evidence pack that links operational decisions to the NHS statutory framework and the 2015 Parking Principles (governance, pricing policies, concessions, patient-first considerations, equality and access measures, board minutes, SOPs).

3) VAT accounting and future treatment

• Interim approach: Where the treatment is uncertain pending judgment, document your position, maintain robust reconciliations, and keep system changes scoped so you can pivot quickly.
• Pricing & comms readiness: Prepare two switch plans (NHS wins vs HMRC wins) covering: POS systems, e-commerce, tariff boards/signage, patient and staff communications, and website copy.

4) Wider impact and planning

• Look beyond parking. Map other income streams that may share public-authority characteristics or sit within a special legal regime and assess whether similar arguments might apply—and where competition concerns could differ.
• Consistency of evidence. Create a standard “SLR evidence bundle” across sites: policy documents, concession frameworks, traffic/occupancy data, clinic patterns (e.g., oncology/renal), and local transport context.

Action checklist (this month)

Protect the past

• Catalogue car-park income by site and operating model (NHS-operated vs outsourced).
• Submit or update protective claims with schedules, calculations and interest.

Evidence the “public authority” framework

• Collate the Parking Principles compliance trail (policy approvals, pricing rationale, concessions, patient/staff priority, equality/access considerations).
• Keep meeting notes and decisions that show the statutory and patient-first lens.

Plan for both outcomes

• If HMRC wins: prepare to re-impose VAT swiftly, refresh signage/web copy, re-train cashiers and update POS.
• If the NHS wins: prepare to remove VAT, consider tariff recalibration, and trigger repayment workflows where appropriate.

Align stakeholders

• Brief Finance, E&F, Procurement, Patient Experience and Comms teams. Establish a single source of truth for treatment, evidence, and messaging.

NHS Car-Parking VAT FAQs

Does this apply if our car park is fully outsourced?
Not automatically. The Court of Appeal focused on NHS-operated car parking. Outsourcing, PFI or PPP structures may point to a different supplier, pricing control, and risk profile, which can change the VAT analysis.

Can we stop charging VAT now?
Some Trusts have adjusted in anticipation; others are awaiting the Supreme Court decision. Your decision should balance litigation risk, cash impact, operational change costs, and the strength of your evidence, and it should be documented.

We’ve already filed a claim—what next?
Keep it current and well-evidenced. The best-prepared claims will progress faster once judgment is released.

How CRSTAX can help (NHS-specialist VAT)

Parking VAT Rapid Review (2–3 weeks)

• Site-by-site operating model map, claims triage, and an SLR evidence pack aligned to the Court of Appeal reasoning.

Protective Claims & Calculations

• End-to-end quantification (including interest), technical narrative, and ready-to-file schedules.

Board & Audit Committee Briefing Pack

• A balanced risk/options paper, cash-flow modelling, signage/website changeover plan, and communications templates.

Ready to protect your position before judgment?

1) Rapid Parking VAT Review (free scoping call)

Get a 20-minute triage with our NHS VAT lead: confirm eligibility, map your operating models, and agree next steps. [Button] Book your slot

2) Claims & Evidence Pack Builder

We compile the SLR evidence bundle (Parking Principles, governance, pricing, concessions) and quantify recovery with interest. [Button] Request a proposal

3) Outsourcing/PFI Diagnostics

Not NHS-operated? We’ll analyse contracts, pricing control and supply chains to validate treatment, or design the compliant alternative.

 

Payrolling Benefits Postponed for a Year

After listening to feedback, the government has delayed the introduction of mandatory payrolling benefits and taxable employment expenses until 6 April 2027. 

Currently, taxable benefits in kind, (BiKs) and expenses are administered through the submission of annual forms P11D, for the tax, and form P11D(b) for Class 1A NICs. These forms are submitted after the end of the tax year. 

However, since 2017, employers have had the choice to voluntarily payroll most BiKs, (loans and accommodation have been excluded), and as part of the tax simplification project, HMRC intends to get rid of P11Ds entirely. This was meant to be from 6 April 2026 but has now been pushed back for a year, to allow software designers and employers more time to prepare. Given the significant number of extra information fields that will be introduced on the FPS report, this is understandable. 

The extra fields are similar to those on P11Ds and the P11D(b) and will include information on the benefits being provided and BiK values for the tax year. There will also be fields to show the benefit value and Class 1A NIC for the pay period, and cumulative values for the year to date. 

The effect of these new data fields on the FPS will be to merge the forms P11D into payroll, so that tax on BiKs and salary can be collected in real time. The additional details will also help HMRC to check compliance. 

What else is new in payrolling benefits? 

• HMRC will not charge penalties for payrolling benefit errors but only for the first year. 
• Registration to voluntarily payroll loans and accommodation for 2027-28 will open from November 2026. 
• Where the information to determine tax and Class 1A NICs is not available during the tax year, an Update Process (UP) will be introduced. Employers are expected to use a reasonable estimate for the value to be payrolled then use the UP to record any over-or-underpayments of tax by 6 July following the end of the tax year. 
• Employees experiencing financial difficulties, because of more than one tax year’s BiK liability being collected at the same time, can ask HMRC to spread the tax due over more than one tax year. 

HMRC has clarified instances where they will collect underpaid tax through other systems available to them, i.e. P800’s, (the end-of-year reconciliation process for PAYE), Simple Assessment and Self-Assessment. They are – 

• when the tax due is over 50% of the employee’s gross salary, 
• if employees have not received income, and 
• where BiKs have been provided after an employee has left 

Draft legislation, guidance and technical information will be provided from this autumn, and initial software technical information will be made available to software developers for feedback in December 2025.

It’s been four months since CRS VAT joined forces with PSTAX and S3TAX within the Opto Group, and we are excited to share the progress and growth we’ve experienced together. Our strategic partnership signifies a new chapter for CRS VAT while strengthening our commitment to delivering market-leading VAT and, now, Employment Taxes, consultancy to the NHS bodies.

As we continue this journey, we are thrilled to unveil our rebrand as part of the Opto Group. This fresh new look reflects our unified approach, deeper expertise, and commitment to innovation across public sector taxation. Our clients can now enjoy the same exceptional VAT services they trust but with enhanced access to a broader range of public sector tax solutions under the Opto Group umbrella.

Enhanced Public Sector Tax Services

The integration has already proven to be a significant milestone, enhancing our ability to offer comprehensive VAT services. Here’s how the partnership has been delivering for our clients:

• Comprehensive Expertise: Combining the unmatched VAT knowledge of CRS VAT with the expertise of PSTAX and S3TAX means our clients benefit from the most comprehensive, proactive tax solutions available in the market.
• NHS Focused: CRS VAT’s longstanding commitment to the NHS remains unchanged. With this rebrand, NHS clients can now access broader services across VAT reviews, Business Activities & Partial Exemption, Technical VAT support, and training – all designed to maximise VAT recovery and ensure compliance.
• Unified Support for Collaborative Projects: Our integration creates a single provider for public sector bodies under sections 33 and 41, offering seamless tax advisory and consultancy services. Whether working with local authorities or the NHS, our unified team is here to support your collaborative initiatives with trusted, specialised expertise.
• Continued Innovation: Alongside our rebrand, we remain focused on using cutting-edge technology to uncover VAT savings and streamline processes, aligning with our commitment to delivering top-tier services.

Our Rebrand – A Reflection of Growth

As we rebrand under the Opto Group, our new visual identity symbolises this exciting chapter of growth and innovation. This fresh, cohesive look underscores our unwavering commitment to providing unparalleled VAT and Employment Tax consultancy while continuing to prioritise our NHS clients’ financial well-being.

Looking Ahead

Our first four months as part of the Opto Group have been filled with achievements, and the new branding marks a continued commitment to growth. CRS VAT, together with PSTAX and S3TAX, will remain dedicated to maximising VAT recoveries, ensuring Employment Tax compliance, delivering specialised training, and ensuring that public funds are optimised. We look forward to continuing this journey with you and exploring new opportunities to serve our clients.

HMRC has introduced new penalties for late submission of VAT returns and late payment of VAT for periods starting 1 January 2023.  For NHS organisations which submit monthly VAT returns, the new penalty regime applies from the January 2023 VAT return due on or before 7th March 2023.

The new late return penalty

The new late return penalty works on a ‘points-based’ system.  For each VAT return you submit late, you’ll receive a penalty point until you reach the penalty point threshold.  There are various point thresholds and period conditions which apply depending upon your accounting period, so we have outlined below only those which apply to NHS organisations which submit monthly VAT returns.  The late return penalty will apply even on net repayment returns, where money is due from HMRC.

The penalty point threshold is 5 for NHS organisations. 

If you reach the 5-point threshold, you’ll receive a £200 penalty.  You’ll also receive a further £200 penalty for each subsequent late return while you’re at the threshold.  If you have not reached the threshold, each individual penalty point will expire automatically on the last day of the 24th month after the date on which the late return was due.  However, once you’ve reached the threshold, there are conditions which need to be met to remove the points to avoid further £200 penalties. 

These are:

Condition A – complete a period of compliance For NHS organisations, you’ll need to submit 6 monthly VAT returns on time starting from the monthly period after the late return was due.

Condition B – Submit all outstanding returns You will also need to submit any outstanding returns for the previous 24 months. The 24 months will include the period of compliance. 

Penalty points will be reset to zero on the first day where both condition A and condition B are met. You can check penalty points in your online account, and it will also be possible to appeal a point or financial penalty. 

The new late payment penalties 

The new late payment penalties apply to any payments of VAT not paid in full by the relevant due date and will be charged at different rates based on when payment is received.  This means the penalties increase proportionate to the length of time a payment is outstanding – the sooner you pay, the lower the penalty.

Late payment penalties apply to VAT due:

• On VAT returns
• Following an amendment to a return or correction
• From a VAT assessment issued by HMRC when you did not submit your return
• From a VAT assessment issued by HMRC for another reason

You’ll get a first late payment penalty if your payment is 16 or more days overdue.  When your payment is 31 or more days overdue, your first late payment penalty increases, and you get a second late payment penalty. 

The escalation of penalties can be summarised as follows:

• Payment up to 15 days overdue – none
• Payment between 16 and 30 days overdue – 2% of the VAT you owe at day 15
• Payment 31 days or more overdue – a further 2% of what was outstanding at day 15, plus 2% of what is still outstanding at day 30, plus a daily rate of 4% per year on the outstanding balance, charged every day from day 31 until the outstanding balance is paid in full

Late payment interest

As well as the potential late payment penalties, late payment interest will also be charged from the first day that the payment is overdue until the day it’s paid in full, calculated at the Bank of England base rate plus 2.5%. 

This includes amounts overdue on:

• VAT returns
• Amendments or corrections of a return
• A VAT assessment made by HMRC
• A missed VAT payment on account 

Interest will also be charged on the value of penalties if these are overdue including late submission penalties and late payment penalties.

What this means to the NHS

The late return penalty will apply even on net repayment returns, where money is due from HMRC. 

Given that NHS organisations submit monthly VAT returns, usually with COS VAT repayments, (as opposed to quarterly returns for most VAT payment businesses), NHS organisations are arguably more exposed to the new penalty regime than most commercial organisations. 

If an NHS organisation owes VAT to HMRC on either a return (such as an end-of-year partial exemption adjustment) or on an assessment of any kind, it is crucial that the VAT is paid on time in order to avoid a penalty and interest charge.

Please contact us at the earliest opportunity if you wish to discuss how these changes may affect your NHS organisation.

Gloucestershire Hospitals NHS Foundation Trust has successfully argued through judicial review in the Upper Tribunal against HMRC’s decision to block contracted-out services (COS) VAT recovery on elements of a managed healthcare facilities contract. The findings of this case could lead to increased VAT recovery on current and future contracts for other NHS bodies and an opportunity to submit retrospective claims for VAT.

Background

The Trust had contracted with a supplier, Genmed, under a single agreement for the management of operating theatre facilities.

The contract included:
• Services, consisting of maintenance, sterilisation, data analytics, training, stock contract and management.
• Goods, consisting of structural items such as furniture and plant, and re-usable medical equipment such as ventilators and microscopes.
• Consumables, consisting of single-use items such as sutures and bandages, and prostheses, such as hip and knee joints all of which are used and provided to patients during surgery.

The consumables made up around 70% of Genmed’s contract charge. The Trust had sought HMRC’s agreement to recover the VAT under COS heading 45, Operation of hospitals, health care establishments and health care facilities and the provision of any related services. HMRC agreed that the Trust could recover VAT on the services and goods, but refused VAT recovery on the consumables on the grounds that these were a separate supply of goods not closely related to the supply of the services.

The decision

The Trust was granted permission for judicial review challenging the lawfulness of HMRC’s decision, arguing that all the component parts of fully managed theatre facilities, including consumables, are integral to each other and indispensable to the achievement of the Trust’s aims. Therefore, the Trust argued there was a single supply made by Genmed, and VAT was recoverable on the whole agreement.

After reviewing both the Trust’s and HMRC’s arguments, the Tribunal agreed with the Trust. It stated that on an objective basis and from the point of view of a typical consumer, the supply by Genmed of the services and consumables are so closely linked that they form a single composite supply, being a fully managed theatre facility, that it would be artificial to split. The Tribunal then stated that the single supply of services falls under COS 45, therefore HMRC’s decision to refuse a VAT refund was unlawful.

How does this affect NHS organisations?

COS VAT recovery is generally limited to the financial year, subject to a 3-month adjustment period. However, where HMRC has instructed an NHS body that it cannot claim COS VAT on a particular supply and this turns out to be incorrect, the four-year time limit applies.

Therefore, if your NHS organisation has entered into a similar contract to the one highlighted in this case and has either been refused or assessed for VAT recovery by HMRC, you may be able to make a claim. There may also be the opportunity to review current and future contracts for VAT recovery in light of this case. This case also highlighted that HMRC has ‘limited power’ to interpret, narrow or extend the right to VAT recovery under COS. This means that many more refusals or assessments by HMRC in respect of COS VAT could be open to challenge.

Please contact us at the earliest opportunity if this affects your NHS organisation.