With effect from 1 August 2004, legislation has been introduced to require VAT registered traders to notify Customs if they use schemes that Customs deem to be ‘VAT Avoidance’.
The legislation is intended to dissuade the creation and use of ‘contrived’ and elaborate schemes, whose main purpose is to avoid tax. The requirement to notify Customs will provide them with information in order to take counter action where appropriate.
There are two types of areas that Customs are targeting, these are ‘Designated avoidance schemes’ and ‘Hallmark schemes’. Customs have published a list of 8 designated schemes the use of which must be disclosed to Customs. A hallmark scheme is basically a transaction or number of transactions entered into which has, as one of its main purposes the intention to achieve a tax advantage.
Customs have also published the hallmarks of such schemes.
There are heavy penalties for traders who fail to notify Customs when they use such schemes, however as with other VAT penalties, these cannot currently be directly levied on NHS bodies. Trusts should however still be aware that certain transactions with non-NHS third parties may still come under scrutiny. It should also be pointed out that NHS bodies have in the past been specifically warned against using avoidance schemes by the DoH and HM Treasury.
Finally, the legislation is NOT intended to dissuade traders or NHS bodies from reviewing bona-fide transactions in order to ensure that you gain the correct tax advantage, (e.g. PFI arrangements, property transactions, business reviews, COS reviews, etc).
If you would like more detailed information on the legislation or are in any doubt about arrangements entered into or being suggested for your NHS organisation, please let us know at the earliest opportunity.
Customs currently allow NHS bodies to complete a partial exemption calculation annually in conjunction with a business activity claim. This is a concession, as the normal legal requirement is that the calculation is completed for each monthly VAT period, with an annual adjustment made at the end of the year.
It has been Customs’ policy in recent years not to accept annual business claims without a partial exemption calculation also being completed.
Even if Trusts choose not to submit a business activities claim, there is still a statutory requirement to carry out the partial exemption calculations to ensure that trusts meet their legal requirements regarding Partial exemption.
We wish to remind our clients and other NHS Trusts that when we calculate annual business claims, we also complete a FREE separate partial exemption calculation as part of this exercise to ensure that you meet your statutory obligations and to ensure that your partial exemption VAT liability is minimized.
Transactions involving land and property are often complex and the VAT liabilities can vary. Generally, the supply of land and property is exempt from VAT however certain supplies may be standard-rated, zero-rated or even outside the scope of VAT depending upon the circumstances.
When disposing of land and property such as surplus hospital land or staff accommodation, the NHS must apply the correct VAT liabilities in the same way as everyone else. Professional advice should therefore always be sought at the earliest opportunity in order to ensure transactions are treated correctly for VAT purposes and you don’t incur unnecessary costs.
For several years now Customs have enforced an annual 30 June deadline for VAT recovery on Contracted out services on the basis that Treasury funding for the NHS and other Government departments is designed to take account of VAT paid or recovered on an annual basis. Any deviation from this would therefore in theory distort the Treasury’s figures.
Last year, over 200 NHS bodies’ submitted a VAT return to Customs which included a 2002/03 claim but was received after 30th June 2003. HM Revenue & Customs at first refused to pay these claims however following discussions within Customs and Treasury and also considering representations from Department of Health, it was agreed that those NHS bodies that were informed they had missed the deadline for 2002/03 were permitted to recover the VAT that they were advised to repay.
Customs have now re-iterated that the 30 June deadline for 2003/04 is to be treated as an absolute deadline with no exceptions and they reserve the right to turn down claims for 2003/04 received in Southend after the deadline.
The term ‘patient appliances’ refers to items worn by patients such as footwear, callipers, wigs, etc and also applies to aids such as wheelchairs and walking frames. The following guidance aims to clarify the VAT recovery treatment under the contracted-out services rules.
Custom Made Items
The supply of bespoke surgical footwear or of a wheelchair or other appliance specifically designed for a particular patient is not eligible for VAT recovery as the supply is primarily of goods. If however, the manufacturer clearly differentiates on the invoice between the goods element and any service element of modifications and/or adaptations, Customs allow VAT recovery on the services element under contracted-out services item 52, ‘Professional services, etc.’. Examples of modifications are:
- Raising a sole or heel
- Fitting bespoke straps/supports/callipers
In these circumstances, VAT can be recovered on the parts and spares elements which form a part of the service. VAT cannot however be recovered on the main supply of the goods, (e.g. the ‘base’ shoes).
Ready Made Items
The supply of ready-made patient appliances such as standard wheelchairs or boots is not eligible for VAT recovery as these are treated as goods only.
Maintenance & Repair
Repair services such as re-heeling or re-soling is eligible for VAT recovery under item 37, ‘Maintenance, repair and cleaning of equipment, etc.’.
Orthotist/Prosthetist Session Fees
These services are exempt from VAT under item 1c, group 7, schedule 9, VAT Act 1994, therefore the suppliers should not be charging VAT on their invoices. Up until 30 March 2003, these were being treated as standard-rated by most suppliers and as such, VAT was eligible for recovery under contracted-out services item 52, ‘Professional services, etc.’
Customs currently allow NHS bodies to complete a Partial Exemption calculation annually in conjunction with a business activity claim. This is a concession, as the legal requirement is that the calculation is completed for each monthly VAT period, with an annual adjustment made at the end of the year.
It has been Customs’ policy in recent years not to accept annual business claims without a partial exemption calculation also being completed.
Even if Trusts choose not to submit a business activities claim, there is still a statutory requirement to carry out the partial exemption calculations to ensure that trusts meet their legal requirements regarding Partial exemption.
We wish to remind our clients and other NHS Trusts that when we calculate annual business claims on behalf of our clients, we also complete a separate partial exemption calculation as part of this exercise to ensure that you meet your statutory obligations.
Some of our clients have asked us recently about the VAT treatment of land & property sales, e.g. disposal of surplus hospital sites. Transactions involving land and property are often complex and the VAT liabilities can vary. Generally, the supply of land and property is exempt from VAT unless specifically excluded from exemption. Such supplies may therefore be standard-rated or zero-rated depending upon the circumstances.
When disposing of land and property or granting other interests (e.g. leases, rents, licences, etc), the NHS must apply the correct VAT liabilities in the same way as everyone else. Professional advice should be sought in each particular case and we would therefore be happy to help in these circumstances.
We would like to draw your attention to a potential opportunity for your NHS organisation to benefit from additional retrospective VAT refunds.
The table below represents a small selection of VAT review exercises that CRS VAT Consulting have recently carried out. In each and every case, a review had already been completed by previous VAT consultants but we identified ADDITIONAL VAT SAVINGS over and above those previously recovered.
| NHS Organisation’s Annual Turnover |
Previous VAT Claim | Additional Claim Approved by Customs |
Percentage Increase |
| £92m | £14,875 | £28,770 | 193% |
| £62m | £72,565 | £12,599 | 17% |
| £65m | £1,730 | £108,680 | 6282% |
| £71m | £52,710 | £72,842 | 138% |
We are able to identify these additional savings because of our specialist NHS knowledge, innovative VAT solutions and attention to detail in areas often overlooked. All of these additional claims have been approved by Customs and we can provide references from our clients if required.
Included for VAT recovery is the supply of leased accommodation for more than 21 years combined with a service listed
A B C D E F H I M N O P R S T W
A
- Accounting, invoicing and related services
- Administration of the following:
- Career Development loans
- Certificates of Experience
- Government support payments to the Railway Industry Pension Funds
- Grants and awards
- Services supplied under the Companies Acts and the Patent and Trademarks Acts
- Teachers’ Superannuation Scheme
- Vehicle Excise Duty refunds
- Winter fuel payments scheme
- Inherited State Earnings Related Pension Scheme
- Student Loan Scheme
- Fast Track Teaching Programme
- Administration and collection of toll charges
- Aerial photographic surveys and aerial surveillance
- Agricultural services of the kind normally carried out by the Farming and Rural Conservation Agency
- Alteration, repair and maintenance of road schemes, except (a) any works carried out pursuant to an agreement made under section 278 of the Highways Act 1980, or (b) works involving construction on land not already used for road schemes
B
- Broadcast monitoring services
C
- Careers guidance, mentoring and counselling to help people into work as part of the New Deal and ONE service
- Cartographic services
- Cash in transit services
- Catering
- Ceremonial services
- Childcare services
- Collection, delivery and distribution services
- Computer services supplied to the specification of the recipient, including the provision of a fully managed and serviced computer infrastructure
- Conference and exhibition services
D
- Debt collection
- Departmental staff records and payroll systems including administration and payment of pensions
E
- Employment advisory services as directed by the Race Relations Act 1976
- Engineering and related process services
- Environmental research and protection services of the kind normally carried out for the Department of the Environment, Transport and the Regions
- Estate management services
- Export intelligence services
F
- Filming, audio-visual and production services
H
- Health promotion activities
- Hire of reprographic equipment including repair and maintenance
- Hire of vehicles including repair and maintenance
I
- Insolvency services
- Inspection of woodland sites for approval of felling licence applications and of timber imports/imports using timber packing to prevent entry of foreign tree pests and diseases
- Interpretation and translation services
- Issue of documents to, and control of, bingo halls and off-course bookmakers
- Issue of documents under Wireless and Telegraphy Act
L
- Laboratory services
- Laundry services
- Library services
M
- Maintenance and care of livestock and fauna in connection with the Royal Parks
- Maintenance, non-structural repair and cleaning of buildings
- Maintenance and repair of civil engineering works
- Maintenance, repair and cleaning of equipment, plant, vehicles and vessels
- Maintenance and repair of statues, monuments and works of art
- Medical and social surveys
- Messenger, portering and reception services
N
- Nursing services
O
- Office removals
- Operation and maintenance of static test facilities, engineering and support services and test range industrial support and security/safety services including those acquired for the purposes of research and development
- Operation and maintenance of stores depots
- Operation of hospitals, health care establishments and health care facilities and the provision of any related services
- Operation of prisons, detention centres and remand centres, including medical services
- Original research undertaken in order to gain knowledge and understanding
P
- Passenger transport services
- Pest control services
- Photographic, reprographic, graphics and design services
- Preparation and despatch of forms
- Press cutting services
- Professional services, including those of any manager, adviser, expert, specialist or consultant
- Provision under a PFI agreement of accommodation for office or other governmental use, together with management or other services in connection with that accommodation
- Publicity services
- Purchasing and procurement services
R
- Radio services
- Recruitment and relocation of staff and other related services
- Research, testing, inspection, certification and approval work for the Health and Safety Executive
S
- Scientific research of the kind normally carried out for the Ministry of Agriculture, Fisheries and Food Standards Agency>
- Security Services
- Services of printing, copying, reproducing or mailing any documents or publications, including typesetting services
- Services relating to Action Teams for Jobs and Employment Zones
- Share Registry Survey
- Storage, distribution and goods disposal services
- Surveying, certification and registration in connection with ships and relevant record-keeping and verification, issue of certification, cards, discharge books and campaign medals to seamen
T
- Training, tuition or education
- Transport research of the kind normally carried out for the Department of the Environment, Transport and the Regions
- Travel services, excluding hotel accommodation and fares
- Travel and transport surveys, including traffic census counts
- Typing, secretarial, telephonist and clerical services including agency Staff
W
- Waste disposal services
- Welfare services
The following published Treasury (Taxing) Direction confirms the list of activities that are to be treated as business activities (therefore either standard-rated, zero-rated or exempt depending upon the type of supply) when supplied by NHS bodies.
Please feel free to contact us if you wish to confirm the correct VAT liability of any business supplies you make or intend to make.
The relevant NHS bodies are:
- Health Authorities – including Primary Care Groups, Local Health Groups (Wales) and Community Health Councils
- Special Health Authorities
- Special Health Boards (Scotland)
- Area Health Boards (Scotland)
- National Health Service Trusts
- Primary Care Trusts
- The Common Services Agency (Scotland)
- Dental Practice Board
The list of activities are:
A B C D E F G H I M N O P R S T V W
A
- Accommodation, including property acquisition and disposal and any related services
- Administration services
- Admission to premises and to events, eg entertainments, air displays etc
- Advertising or publicity services
- Archives
- Attendance of staff at court or any similar place
B
- Bankruptcies and insolvency services
- Broadcasting services
C
- Catering, including supplies from vending machines
- Car leasing
- Computer services or goods
- Concessions for catering or other services
- Conferences, exhibitions and any related facilities or services
- Construction, alteration, demolition, repair or maintenance work, civil engineering work, any related services or goods
- Contract or procurement services
- Copying or supply of any reproductions or of any documents
- Copyright, patents or licences to manufacture
D
- Delivery or distribution services
- Drainage work
E
- Electronic transfer of data
- Export of goods and related services
F
- Filming, replay or recording services
- Financial and any related services
- Fishing licences or permits
- Fire service assistance
- Freight transport
- Fuel and power
G
- Government car service
- Grant, assignment or surrender of any interest in or right over land, or of any licence to do anything in relation to land
- Grant of a right to inspect records
- Goods, including goods manufactured within a Government department and sold to its staff and to other customers, stores surplus or other equipment
- Grave maintenance
- Grounds maintenance
H
- Hairdressing
- Heating
- Hire of vehicles, machinery or equipment, with or without operator or crew
- Hydrographic, cartographic and similar services
I
- Information or statistical services
- Inspection services
L
- Laboratory services including analysis and testing of any substance
- Laundry services
- Licensing, certification, authorisation or the granting of any rights other than rights over land
M
- Manufacturing, assembling and other services
- Medical services
- Membership subscriptions
- Meteorological and related services
- Mineral or prospecting rights
- Mortuary services
N
- Nursery and day-care facilities
O
- Occupational health services
P
- Passenger transport
- Payroll and pension administration services
- Pest or animal control
- Photocopying services
- Photographic services
- Port, airport or harbour services and related goods
- Postal, packing or distribution services
- Professional services, including those of any manager, adviser, expert, specialist or consultant
- Publications
R
- Radio or communication services
- Recruitment services
- Research, testing, experimentation, sampling or other related laboratory services
- Repair or maintenance of machinery, equipment or other goods
S
- Searches
- Secondment of staff where such services could also be obtained from the private sector
- Secretarial services
- Security services and related goods
- Shipping services
- Slaughter, rendering and disposal of animals
- Social services
- Statistical services, including the collection, preparation and processing of data
- Storage facilities and related services
T
- Telecommunications
- Training, tuition or education and any related services or goods
- Transfer of milk quota leases
- Translation services
- Tree planting and afforestation
V
- Vehicle conversions
- Vehicle servicing and maintenance
- Verification of particulars of births, marriages or deaths
W
- Waste disposal
- Water
- Weighbridge services