You will probably be aware that the VAT rate is due to revert to 17.5% with effect from 1 January 2010. Some opportunities may be available to benefit from the existing 15% rate, but “anti-forestalling” legislation introduced by HMRC in the 2009 Budget must be fully considered first. The aim of HMRC’s rules is to prevent purchasers of goods and services from taking an unfair advantage of the rate change. If you believe any of the transactions your NHS body undertakes or shall undertake need consideration in respect of the VAT rate reversion, please feel free to contact us.
Following are examples of how the rules shall apply:
- If goods are ordered, invoiced, delivered and paid for by an NHS body by 31 December 2009, it will not have to pay an additional VAT charge. Therefore an opportunity would exist for the NHS body to gain a VAT saving before the rate reverts to 17.5%.
- If an NHS body buys an equipment leasing contract or other services and an invoice is issued to it before 1 January 2010, then VAT should be charged at 15%. Provided that this is standard practice under the terms of the contract and payment is due within 6 months, there will be no additional 2.5% VAT charge.
- If an NHS body is engaged in an on-going construction contract (where VAT may not be eligible for recovery), it will be advantageous to ask contractors to issue invoices for work carried out up to December 2009 by 31 December 2009 so that it can be charged at the 15% rate. An advanced payment for future works could also be made (up to £100,000). (N.B., A pre-payment in excess of £100,000 which is made before the rate change (i.e. before 1 January 2010) for goods or services to be provided after the rate change, will attract an additional VAT charge of 2.5% unless it is in line with normal commercial practice ).
You can ask a supplier who raises an invoice after 31 December 2009 to split the invoice between the two rates on the value of the work undertaken before and after the rate change.
NHS Bodies Issuing Invoices
We would advise that in the build up to the VAT rate change date (31 December 2009) NHS bodies aim to keep their invoice issuing as up to date as possible. This will lead to them receiving payments sooner, and avoid difficulties which may arise if invoice issuing is delayed after goods or services are supplied.