Yesterday the Chancellor of the Exchequer, Rishi Sunak, announced specific VAT cuts to help the hospitality sector across the UK recover from the effects of lockdown. Whilst these measures have been brought in principally to support the high street they nonetheless also apply to hospitality services provided by public bodies, including the NHS.
From 15 July 2020 until 12 January 2021, the reduced rate of VAT (5%) will apply to supplies, across the UK, of:
• food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises
• accommodation and admission to attractions
Temporary VAT cut for supplies of food and non-alcoholic drinks from restaurants, pubs, bars, cafés and similar premises
HMRC has published amended VAT Notices detailing supplies to which the temporary reduced VAT rate would apply and confirmed that supplies in the course of catering shall be subject to the temporary 5% reduced rate of VAT, including:
• Hot and cold food for consumption on the premises on which they are supplied
• Hot and cold non-alcoholic beverages for consumption on the premises on which they are supplied
• Hot takeaway food for consumption off the premises on which they are supplied
• Hot takeaway non-alcoholic beverages for consumption off the premises on which they are supplied
The ‘premises’ to which HMRC refer in their guidance are the areas occupied by the food retailer or, any area set aside for the consumption of food by the food retailers’ customers, e.g. a restaurant or café area.
Supplies from vending machines follow the same general principles as food and drink supplied from catering outlets, as such where typically standard rated items (e.g. crisps, confectionery, beverages, etc) are purchased from a vending machine sited in a catering premise these supplies would benefit from the temporary reduced rate of VAT. However, the same type of supplies (crisps, confectionery, beverages, etc) purchased from a vending machine sited in thoroughfares and areas not designated for the consumption of food follow the VAT liability of the product sold, i.e. taxable at the 20% standard rate of VAT.
The zero rating for cold take away food still applies, as such if you have an agreed cold take away food percentage with HMRC this should still be used to apportion sales between the reduced rate of VAT and the zero rate of VAT when calculating the output VAT payable.
Temporary VAT cut for supplies of accommodation and admission to attractions across the UK
HMRC has confirmed that the temporary 5% reduced rate shall benefit hotels, inns, a boarding house, or similar establishments, when supplying:
• Sleeping accommodation, including bathrooms, living rooms and suites
• Accommodation used for the supply of catering
• Rooms provided with sleeping accommodation
Please note, the temporary reduced rate of VAT only applies to supplies of land and property that are currently chargeable at the standard rate of VAT. Accordingly, supplies of land and property that has not been subject to an option to tax shall remain an exempt supply, as would residential accommodation charges.
We will inform you of any further VAT easements from the Government relevant to the NHS as soon as we hear.
If you have any questions about anything in this alert or would wish to discuss further please contact us.
HM Revenue & Customs has announced today that the end date for the temporary VAT zero-rating of supplies of Personal Protective Equipment (PPE) in connection with coronavirus has been changed from 31 July 2020 to 31 October 2020.
The zero-rate came into effect from 1 May and covers supplies recommended for use in connection with protection from coronavirus in guidance published by Public Health England.
This includes:
o disposable gloves
o disposable plastic aprons
o disposable fluid-resistant coveralls or gowns
o surgical masks – including fluid-resistant type IIR surgical masks
o filtering face piece respirators
o eye and face protection – including single or reusable full-face visors or goggles
We will inform you of any further VAT easements from the Government relevant to the NHS as soon as we hear.
If you have any questions about anything in this alert, please contact us.
HMRC has announced that the introduction of the DRC for construction services will be delayed for a further period of 5 months from 1 October 2020 until 1 March 2021, citing the impact of the coronavirus pandemic on the construction sector.
There will also be an amendment to the original legislation, to make it a requirement that for businesses to be excluded from the reverse charge because they are end users or intermediary suppliers, they must inform contractors in writing of this status.
The DRC is an anti-avoidance measure designed to remove the potential scope for VAT on construction services being ‘stolen’ from HMRC by unscrupulous contractors. The measure is designed to shift the accounting for VAT on supplies of construction services in certain circumstances onto the customer rather than the supplier.
NHS bodies are likely to be end-users in the majority of cases and given the requirement to inform contractors of this status, there is no ‘do nothing’ option. You will still need to prepare for implementation from March 2021 and getting this wrong could give rise to penalties. CRS VAT will provide further updates on the DRC and how it affects the NHS in the coming months. This will include working with clients to implement the changes and running seminars.
If you would like to read more, HMRC has published a new Revenue and Customs Brief (7/2020) about this, which can be found here:
Should you have any questions on the DRC and how it will affect your organisation please contact us.
HM Revenue & Customs announced on 30 April a temporary zero-rate of VAT on supplies of Personal Protective Equipment (PPE) in connection with coronavirus.
The zero-rate comes into effect from 1 May to 31 July 2020 and covers supplies recommended for use in connection with protection from coronavirus in guidance published by Public Health England.
These supplies are normally subject to VAT at the standard-rate, so this new relief will benefit NHS and other bodies not able to recover VAT on purchases. This puts UK and EU supplies of PPE on a level footing with imports from non-EU countries, which were given temporary VAT and duty relief on 31 March.
The relief has been enacted by a Statutory Instrument which inserts a new Group 20 to Schedule 8 of the VAT Act 1994.
Products covered by the zero rate include:
o disposable gloves
o disposable plastic aprons
o disposable fluid-resistant coveralls or gowns
o surgical masks – including fluid-resistant type IIR surgical masks
o filtering face piece respirators
o eye and face protection – including single or reusable full-face visors or goggles
These temporary changes will not affect the VAT treatment of goods donated by a charity or from charitable funds, which are already zero-rated. The supply of any goods in connection with the provision of care or medical or surgical treatment are also not affected, as such supplies remain exempt from VAT.
Details of the relief can be found here:
https://www.gov.uk/government/publications/revenue-and-customs-brief-4-2020-temporary-vat-zero-rating-of-personal-protective-equipment-ppe/revenue-and-customs-brief-4-2020-temporary-vat-zero-rating-of-personal-protective-equipment-ppe
We will inform you of any further VAT easements from the Government relevant to the NHS as soon as we hear.
HM Revenue & Customs (HMRC) has today announced some further easements in VAT accounting for the NHS due to the ongoing COVID-19 situation.
Full details of the easements are shown on the attached letter, but to summarise:
COS VAT estimation
It has been recognised that some organisations may not be able to submit accurate COS VAT claims.
Requests for estimations must therefore be made in advance of the due date for the return, with a proposed end date. HMRC accepts that the end date may need amending due to the ongoing uncertainty.
HMRC has suggested the easiest and most reasonable method of estimation will be based on a representative period.
HMRC is still considering estimations for (business) input tax and output tax and will advise further in due course.
6 month COS VAT extension
The annual COS VAT deadline for 2019/20 has been extended from the June 2020 VAT return to the December 2020 VAT return, (filing date 7th February 2021).
This means that COS VAT incurred on invoices dated within 2019/20 can be claimed on any return up to December 2020.
This is a one-off extension, but will be reviewed given the current uncertainty surrounding COVID-19.
HMRC has not made any specific mention of an extension to end-of-year business and partial exemption adjustments, which themselves include end-of-year COS VAT adjustments, but we are awaiting further clarification of this point.
If you have any questions about anything in this alert, please contact us.
The Government is allowing NHS and other state and authorised non-state bodies to pay no import duty and VAT on protective equipment, relevant medical devices or equipment brought into the UK from non-EU countries during the coronavirus (COVID-19) outbreak.
It is unclear whether this relief will apply to subsidiary companies, but a non-state body can request authorisation by contacting the National Import Relief Unit (NIRU) by emailing niru@hmrc.gov.uk for an application form.
The relief will apply to imports of protective equipment, other relevant medical devices or equipment for the COVID-19 outbreak.
Full details of the relief and the relevant commodity code list you can claim relief on can be found here:
Goods imported into the UK for donation or onward sale to the NHS are also eligible for this relief and can be imported free of import duty and import VAT.
The relief currently applies until 31 July 2020. VAT on domestic supplies is not affected by this relief and VAT will still be charged as normal.
We will inform you of any further VAT easements from the Government relevant to the NHS as soon as we hear.
If you have any questions about anything in this alert, please contact us.
From April 2020 all 206 hospital Trusts in England will be expected to provide free car parking to groups that may be frequent hospital visitors, or those disproportionately impacted by daily or hourly charges for parking, including:
• Blue badge holders
• Frequent outpatients who have to attend regular appointments to manage long-term conditions
Free parking will also be offered at specific times of day to certain groups, including:
• Parents of sick children staying in hospital overnight
• Staff working night shifts
To date, most NHS car parks in England have been used to generate income by the NHS bodies that operate them and this income has been subject to VAT. There have been very few exceptions allowing for free parking. With the changes coming in from April 2020 NHS car parks shall become a mix of fee paying business use subject to VAT and free non-business use. Accordingly when considering VAT on expenditure in relation to car parks, Trusts need to determine if the expenditure relates wholly to taxable business use (e.g. the purchase of a new pay machine) or non-business use (e.g. designated areas for free parking users only).
VAT incurred on wholly business use expenditure shall be recoverable in full as business input tax and VAT on wholly non-business use expenditure shall be determined for recovery under the contracted out services rules (“COS”).
Where the expenditure does not fall wholly as taxable business use or wholly as non-business use and is not recoverable under the COS rules the VAT will be considered as an overhead, to which the amount of deductible VAT by the NHS body shall need to be determined under the Trust’s annual business activities and partial exemption calculation.
The capital goods scheme
The capital goods scheme (“CGS”) is applied to recognise the change in use of certain items of capital expenditure over a number years as there may be variations to the extent that the items are used to make taxable supplies. For construction works costing over £250,000 (excluding VAT) the CGS adjustment period is 10 years.
As the adjustment period is 10 years capital expenditure incurred on car parks completed before 31st March 2010 can be excluded from the change, as the 10 year adjustment period would have passed by the time the new car parking charges have effect.
For capital expenditure on NHS car parks in England falling within the CGS rules, the change of use in car parks from wholly taxable business to partially non-business will trigger CGS adjustments.
For example, suppose a new car park was completed in the 2018/19 financial year for a cost of £1m plus £200k VAT which would have been claimed in full. For the 2019/20 financial year there would be no adjustment as the car park remained wholly taxable business use, but from April 2020 the car park was used consistently for free parking 10% of the time the NHS body would have to repay £2k of the VAT claimed each year over the next 8 years.
In order to determine if your Trust will be impacted by the change in parking charges through the Capital Goods Scheme you should consider:
1. If you have had capital expenditure in relation to car parks costing more than £250k in the last 10 years.
2. Will those who are entitled to free parking use this car park?
3. How will the Trust implement the new car parking charges rules? E.g. dedicated areas or will they park in the same locations?
4. Has the Trust carried out a review to estimate what percentage of car parking use shall be free from April 2020?
If you believe that these changes could affect your Trust, please contact us.
Last year, HMRC published a discussion document on improving the effectiveness of the intermediaries’ legislation (IR35). This has now been followed by a consultation document issued on 26 May with an end date of 18 August.
The proposal in the consultation document is that the Government will reform the intermediaries’ rules for ‘off-payroll’ engagements of workers who operate through an intermediary, such as their own limited company, in the public sector. This includes engagements through third parties such as employment agencies, outsourcing companies and consultancy firms who supply workers.
From April 2017, where workers are engaged through their own personal service company (PSC), responsibility to apply the intermediaries’ rules will fall to the public sector body, agency or other third party paying the worker’s company and the payer will be liable to pay any associated income tax and National Insurance.
The proposals mean that where an individual provides services to an NHS Trust through a PSC and is doing a similar job in a similar manner to an employee, both they and the Trust will be required to pay broadly the same tax and National Insurance as if they were an employee.
The Government intends to use the definition of ‘public sector’ set out in the Freedom of Information Acts. This covers organisations such as: NHS, Government departments, executive agencies and non-departmental public bodies, police and fire authorities, local authorities, devolved administrations and educational establishments.
The Government proposes to introduce a new two stage process to quickly decide whether the rules need to be considered. Firstly, the Trust will remove those ‘business to business’ relationships that are not within scope of the rules and they do not need to take any further action. Otherwise, the Trust will need to move on to consider two simple questions for the second part of the process.
They are:
- Right to personal service – is the worker required to do the job themselves?
- Control – Does the Trust decide or have the right to decide how the work should be done?
These questions are based on the current employment status tests. If the answer to both questions is ‘yes’, the worker is in scope for the off-payroll rules and the Trust will need to account for tax and National Insurance on their payments to that worker’s PSC. If the Trust is unable to answer ‘yes’ to both questions, they will need to use the digital tool.
HMRC is developing a new digital tool which draws on the experience users had of the Employment Status Indicator (ESI) but will be tailored to the specific needs of engagers in determining whether the off-payroll rules apply.
Any new rules will not come into effect until next April, but early planning is strongly recommended. All Trusts will be affected by these new rules, so please do speak to one of our Employment Taxes specialists (details below) about how we can help you to manage these significant changes.
Please contact our Employment Taxes specialists:
Duncan Groves – 07715 666764
Peter Minchinton – 07484 277870
John Harling – 07768 446381
[vc_row][vc_column][vc_column_text]As you will be aware, the VAT government and public bodies manual (VATGPB) is being transferred from the HMRC website to GOV.UK. NHS bodies received an interim document which advised them to treat its contents as current guidance for the VAT Contracted – Out Services Headings. The document included some changes to the first tranche of guidance published in March 2015. The updated guidance will be published in the VATGPB manual on GOV.UK in due course.
Below is a reproduction of an HMRC document containing answers to numerous common questions it has received following the release of the second tranche of the guidance. Some questions are still under consideration, but HMRC hope to provide a comprehensive document covering all of the issues raised in due course.
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Frequently Asked Questions:
Q1:
Heading 14: “The supply and support of off the shelf software” is listed under exclusions. Does this mean that where an NHS body contracts for supply and support of off the shelf software the VAT is blocked but where the supply of off the shelf software is contracted for separately to the support, the VAT incurred on the supply of support is eligible for recovery?
A:
This heading applies to services supplied to a government department or NHS body in its procurement of an IT system to its own specifications or wider government/ NHS specifications and does not cover the supply and support of off-the-shelf software whether purchased together or independently. The guidance will be amended as follows:
“H14 – Excludes the supply and/or support of off-the-shelf software”
Q2:
Heading 14: “Hosting computer services” is now listed under “Includes”. Does this apply only from the start of the current financial year or the publication date? Alternatively, does this clarify what fell under the headings on a historical basis?
A:
Hosting Services are recoverable under Heading 14 where they are supplied as part of a fully managed IT system supplied to the specifications of wider government/NHS specifications. Please see below comments on time limits for recovery.
Q3:
Heading 25: Are NHS bodies able to recover the VAT incurred on Multi-Functional Devices using the 4 year cap?
A:
The HFMA approached HMRC on 21/05/2013 asking for confirmation as to whether VAT was eligible for recovery under Heading 25 on multifunctional devices (MFDs). The initial HMRC response was that they were not included. HMRC presumes that prior to the enquiry from the HFMA the NHS were claiming VAT recovery on MFDs but stopped from 21/05/2013. Therefore when HMRC confirmed on 05/06/2015 that MFDs were eligible for recovery it was agreed that claims could be backdated to the 21/05/2013.
Q4:
Heading 26: It is our understanding that in issuing the guidance, it was agreed that no fundamental changes would take place to the recovery position for NHS bodies. We have previously obtained confirmation that VAT refunds would be available where the vehicle has been hired for less than 30 days providing the supply includes repair and maintenance. The Guidance introduces a “30 consecutive days” element. Please confirm whether the original position remains or whether there has been a change to the heading.
A:
Whilst HM Treasury’s view is that they view long-term car hire as covering a period of more than 30 consecutive days this view may not have been explicit in previous version of the COS guidance so this requirement will be removed from the current version. HM Treasury’s view however will be taken into account in any future revisions to the Treasury Direction.
The current guidance for Heading 26 will be amended as follows:
“This Heading allows recovery where a government department or NHS body enters into a contract for the supply of a vehicle/vehicles and the repair and maintenance of these vehicles by the supplier is specified in the contract. HM Treasury view this as covering long-term car hire for a period of more than 30 consecutive days.
Includes:
- Contracts for the hire of pool cars, company cars or other vehicles where the contract includes repair and maintenance by the supplier
Excludes:
- Hire of vehicles alone where the contract does not include repair and maintenance, however the VAT on the separate supply of repair and maintenance will be recoverable under Heading 37
Additional information
Where you have a contract which includes both the hire of vehicles without repair and maintenance and hire with repair and maintenance for less than 30 days and hire for 30 days or more, you can only recover the VAT in relation to the 30 days or more hire contracts which include repair and maintenance”
Q5:
Heading 37: “PAT Testing” – Now listed under “Includes”. Does this apply only from the start of the current financial year or the publication date? Alternatively, does this clarify what fell under the headings on a historical basis?
A:
PAT testing is now listed in the annex to the COS guidance and confirms that it is recoverable under Heading 37. The previous version of the guidance did not list this as recoverable nor did it say it was specifically excluded. See below comments on times limits for recovery.
Q6:
Heading 41: Please confirm the date you accept that the role of ODPs changed to include a nursing service and the reasons for that change if that change occurred less than 4 years ago?
A:
The background to including ODP’s within Heading 41 is that following a consultation with the Department of Health (DH) we were told that ODP’s are not registered nurses but are separately registered on the Healthcare Professionals Councils register and that the role of the ODP is changing. ODP’s used to be employed solely to assist the anaesthetists but they are now more involved around the operating table and will act in both the recovery and scrubbing areas following a successful operation. This changing role of the ODP has, in the DH opinion, moved their services within the definition of nursing and while historically these individuals have not been eligible for recovery under Heading 41, due to the changes in their role ODP’s can be classified as performing a “nursing service” across the NHS. The current COS guidance for Heading 41 states:
“…… nursing services…… include …. Operating Departmental Practitioners (ODPs) where due to the changes in the nature of their role they now provide a nursing service. Previously ODPs were excluded from Heading 41 as they were not providing a nursing service.”
The HMRC view is that it will be down to the individual NHS bodies to demonstrate that the role of the ODP has changed to a nursing service and to have this evidence available for PBG to check if required. We cannot provide a date from which ODP’s role changed to one of nursing services as this may vary between hospitals/Trusts.
Q7:
Heading 57: “Vetting of staff for DBS” – Now listed under “Includes”. Does this apply only from the start of the current financial year or the publication date? Alternatively, does this clarify what fell under the headings on a historical basis?
A:
See below comments on time limits for recovery.
Q8:
VATGPB9720: “When can I re-claim VAT?” Should the word “VAT” be included in the second paragraph under “When can I reclaim VAT” to make it clearer which period the VAT should be reclaimed?
A:
The amended text will now read:
“In circumstances where you have received a supply on which no VAT has been charged by the supplier and they subsequently issue you with a VAT only invoice, you can recover the COS VAT in the period in which you received the VAT invoice.”
Q9:
VATGPB9720: Does the one year or four year time limit for recovery apply?
A:
The key point in determining whether a claim falls within the one-year or four-year rule is whether HMRC were asked by an NHS body or Government department if a particular service was eligible for COS recovery:
If HMRC have not been asked for a ruling or have not denied a claim then the one-year rule applies i.e. the COS VAT should normally be claimed within the financial year in which the supply in question has been received – subject to a 3 month adjustment period – the adjustment can be made no later than the June VAT return following the financial year end.
There will be circumstances where a ruling has been given to one or a few NHS bodies/government departments that VAT cannot be recovered under COS, and then it has been promulgated to the rest of the NHS/GD sector by means of networking, adviser activity or the HFMA or Government Departments’ ‘Centre of Excellence’. Should it transpire that the ruling was incorrect and COS VAT was recoverable, it is reasonable to accept that all bodies should be given the benefit of this (where applicable) subject to the four-year cap.
There may also be circumstances where the ruling was not promulgated more widely. Here you need to ask yourself what ruling would have been given to other NHS bodies or GDs if they had enquired as well. If the answer is that they would have been given the same ruling as was given to those bodies which had enquired, then they too should be entitled to the benefit of COS VAT recovery (subject to the four-year cap) where the ruling turns out to have been incorrect.[/vc_column_text][vc_column_text]Within this reproduced version, there is reference to issues that may need to be covered by a non-statutory clearance request, where the circumstances are not suitable for a generic response. All NHS Bodies are reminded that a specific non-statutory clearance request should be made in these circumstances, provided the necessary criteria are met as set out in the guidance, to the following e-mail address:
Alternatively, you can write to:
HM Revenue and Customs
Public Bodies Enquiries S0927
Newcastle Upon Tyne
NE98 1ZZ
United Kingdom
Or call:
0300 123 1081
The contents of the following link must be considered before submitting clearance requests to HMRC: https://www.gov.uk/guidance/non-statutory-clearance-service-guidance.
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Our newsletter dated 12th June 2014 explained that HM Revenue & Customs (HMRC) had informed the NHS that the proper tax point (time of supply) rules should be applied to Contracted-out services (COS) VAT recovery. This meant that COS VAT should be claimed on the VAT return for the period in which the invoice is dated, or by the annual deadline at the latest.
Historically, NHS bodies have recovered COS VAT on a return relating to either the period in which the invoice is dated (registration), the period the invoice was approved for payment, or the period in which the invoice is paid. This has meant that if an invoice is in dispute, the VAT may not have be claimed until several months or even years after the tax point date.
A relaxation of the rules followed and temporarily, NHS bodies were able to continue to recover COS VAT at the time an invoice was paid, irrespective of the tax point date.
HMRC has now re-iterated the proper tax point rules in their letter dated 29th July 2015 and clarified that COS VAT should be claimed in the VAT accounting period when the tax becomes chargeable (normally the time of the supply, or tax-point). HMRC has acknowledged that ‘it may present difficulties where claims have been made based on the date of payment, resulting in a possible a need to make changes to accounting systems and processes’. In such circumstances HMRC will allow an extension of time up to 31 March 2016 for NHS bodies to make necessary changes; but after this time claims must be made when the VAT in question becomes chargeable.
We would therefore recommend that the tax point rules are adopted as soon as possible. Any NHS body which has already adopted the tax point rules should continue to use this method.
In summary, at present any COS VAT incurred on invoices paid within the 2014/15 financial year must be claimed by the 31 July 2015 deadline irrespective of the tax point. Going forward, it is recommended to adopt the tax point rules as soon as possible to avoid any potential loss of VAT recovery.