Following consultation with the DoH and HM Treasury, Customs have now published revised guidance on the scope for VAT recovery under these two headings.
This follows uncertainty about whether VAT can or cannot be recovered where property related supplies are involved.
Heading 45
Heading 45 is for the operation of hospitals, healthcare establishments and healthcare facilities and the provision of any related services.
Customs have now clarified that if these types of facilities are provided under a PFI or LIFT arrangement, VAT will be recoverable irrespective of the level of associated services, i.e., PFI or LIFT arrangements which are similar to a ‘bare’ commercial lease will be eligible for VAT recovery.
If however, the facilities are provided under arrangements which are not strictly PFI or LIFT, then they must include a full package of services necessary for the ‘operation’ of the facility for VAT to be recovered. This should be the core services of cleaning, maintenance, security, etc.
If there is a minimal level of services, no VAT will be recoverable unless the services are separate from the lease, in which case VAT can be recovered on the services only and not the lease.
Heading 53
Heading 53 is for the provision under a PFI agreement of accommodation for office or other governmental use, together with management or other services in connection with that accommodation.
In the past Customs have generally allowed VAT recovery on leased accommodation which is ‘similar’ to a PFI arrangement. In this context, ‘similar’ was taken to mean serviced or managed accommodation.
In the latest guidance, Customs now state that VAT is recoverable under heading 53 only on PFI arrangements with a lease of serviced or managed accommodation. VAT is not recoverable under heading 53 on PFI arrangements with no services nor is it recoverable on non-PFI arrangements, unless the services are separate from the lease, in which case VAT can be recovered on the services only and not the lease.
Transitional Period
If an NHS body has been recovering VAT on an existing agreement without Customs’ approval and the agreement does not meet the above criteria, continued VAT recovery will be allowed until 31 March 2006.
If however you have been recovering VAT on an existing agreement which does meet the above criteria, VAT can be recovered until the end of the lease.
Finally, VAT recovery on any pending or proposed contracts will only be allowed if they meet the above criteria.