The application of VAT on Non-Emergency Passenger Transport Services (“NEPTS”) has been the subject of two Tax Tribunal cases in the last few years.
The case of Jigsaw Medical Services Ltd in 2018 determined that VAT exemption applied to emergency ambulance transport services. More recently in 2022, the case of E-Zec Medical Transport Services Ltd determined that zero-rating was applicable to NEPTS provided in large vehicles.
As a result of this, HM Revenue & Customs (“HMRC”) has changed its stance and policy on the treatment of NEPTS, specifically conceding that zero-rating should apply to such services provided in vehicles that are large enough to accommodate 10 or more persons if they were not adapted to carry wheelchair/stretcher passengers.
HMRC now accepts there are three different VAT liabilities that could apply to NEPTS depending on the types of vehicles being used. These three liabilities by vehicle category are as follows:
1. Large van-type vehicles used for NEPTS can be zero-rated; (Item 4 and Note 4D of Group 8, Schedule 8 of the VAT Act 1994)
2. Small van-type vehicles used for NEPTS adapted for wheelchair/stretcher passengers are VAT exempt; (Item 11, Group 7, Schedule 9 of the VAT Act 1994)
3. Car-derived vehicles used for NEPTS not adapted for wheelchair/stretcher passengers are standard rated at 20%; (by virtue of not meeting either zero-rating or exemption Items referenced above)
Following a review by the industry and their advisers, we understand that providers of these services have recently made disclosures to HMRC to correct the VAT treatment applied in the past, part of which is to declare that there should have been VAT charged at 20% on the element of the services provided in car derived vehicles (category 3 above). If this is the case, the providers are raising additional VAT invoices to NHS bodies for NEPTS services provided in car-derived vehicles.
What can be done?
If a supplier has failed to account for VAT in good time and the contract for the supply is quoted as either ‘VAT inclusive’ or is silent on VAT, the recipient of the supply could legitimately reject any further VAT invoices. We would usually recommend considering this course of action if the VAT charged is not eligible for a refund, which for the NHS would typically mean not eligible under the contracted-out services (COS) rules.
However, if the VAT liability for a previous supply has been treated incorrectly and the supplier is now issuing revised VAT invoices and this is for an eligible service, then on the basis that the tax point of a new invoice falls within the current financial year, the NHS body should be able to recover the additional VAT.
Passenger transport services is an eligible service (COS heading 47) and this includes transport of NHS patients.
HMRC’s COS guidance specifically states:
‘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 VAT in the period in which you received the VAT invoice’.
As long as the new invoice relates to supplies previously received by the NHS body from the provider and these can be verified, (e.g. by reconciling to backing data or reference to previous invoices, contracts, journeys, etc), the VAT can be recovered. If your NHS body has received such invoices, you should bear in mind that you have until the June 2024 VAT return the following financial year (to March) to recover the VAT, after which the VAT would be out of time.