HM Revenue & Customs (HMRC) has now confirmed in a new letter issued to NHS Trusts that it does not intend to raise assessments to claw back VAT said to have been over-recovered under COS heading 69 in periods prior to 1st April 2014. This is following the previous letter issued in February 2014, which clarified that heading 69 did not allow for the recovery of VAT on supplies of clerical or administrative staff provided by employment agencies. Heading 69 was only meant to allow for the recovery of VAT on outsourced typing, secretarial, telephonist or clerical services, by a supplier which uses its own staff or agency staff, who are under the direction of the supplier/agency.
HMRC’s February 2014 letter stated that the revised interpretation was effective from 1 April 2014, but they did not rule out the possibility of applying the clarification retrospectively. NHS bodies had historically been allowed to reclaim VAT incurred on certain grades of clerical and administrative staff provided by agencies. Although this has been described as a ‘misunderstanding’ by HMRC, the previous published guidance, newsletters and actions of visiting HMRC officers clearly allowed this heading to be interpreted in this way. It is therefore not entirely surprising that following a review, HMRC has now decided not to assess years up to and including 31 March 2014.
HMRC state that they may still pursue inaccuracies up to 31 March 2014 and for subsequent years should it be discovered that NHS bodies have claimed VAT recovery outside of the job roles indicated in the heading in respect of supplies of staff or of services.