Under current published guidelines, VAT recovery percentages calculated on capital schemes below £500K in value (excluding VAT) do not need Customs’ prior approval, however sufficient evidence and working papers must be kept available to justify VAT recovery should Customs require this.
Also at present, the ‘banding options’ can be used for schemes up to £15m in value before prior approval is required, (although the bandings are generally thought to be less advantageous in most cases). Any VAT recovery on capital schemes sought outside of these guidelines requires prior agreement.
Customs will soon be publishing revised guidance, believed to come into effect from April 2005, whereby Trusts will be required to seek prior approval to recover VAT on any capital scheme where the potential VAT recovery is likely to exceed £50,000. This is irrespective of whether the banding option is used, or whether the VAT recovery is based upon a detailed review of costs. Furthermore, Customs will be generally ‘tightening up’ VAT recovery on schemes. For example, where VAT recovery is sought based upon a review of costs, more detail will be required on larger items such as mechanical costs.
These rules apply equally where Trusts determine VAT recovery themselves or where they appoint the services of VAT advisers.
The general rules on VAT recovery also apply stringently to schemes reviewed under the ‘free’ Procure21 service, where no ‘special arrangements’ or advantageous terms have been agreed with Customs.