A recent High Court judicial review (“JR”) case concerning The Royal Surrey NHS Foundation Trust (“the Trust”) has highlighted the ability for NHS organisations to rely upon previously published HMRC guidance and concessions concerning VAT recovery.
It is also a reminder to keep proper records of ‘intended use’ of purchases for VAT purposes, especially if the intention changes between the time of order and the time of supply.
Although the details of the JR are quite specific, it is worth considering whether you also have similar circumstances where HMRC is denying the application of their previously published guidance and concessions.
Indeed, CRS VAT has a ‘library’ of ALL of HMRC’s old newsletters, guidance, and concessions relevant to the NHS, which we use to assist clients.
The JR case looked at whether a 1998 HMRC concession allowed for the repayment of input tax paid on the purchase of two specialist radiation therapy Linacs machines.
The two machines were ordered through NHS Supply Chain (“Supply Chain”) in 2017 and the Trust had initially intended to use these for its own non-business purposes, namely NHS healthcare. However, before the machines were delivered or used, the Trust decided it would lease the machines to its wholly owned subsidiary company, Healthcare Partners Ltd (“HPL”), thereby creating an onward taxable business supply, enabling it to recover input tax on the purchase. HPL had been established by the Trust to deliver fully managed healthcare facilities to the Trust.
Both the Trust and Supply Chain were within the same NHS VAT divisional registration at the time, as such supplies between both members were deemed non-business and therefore outside the scope of VAT. Accordingly, the invoice raised by Supply Chain to the Trust was not a proper VAT invoice.
The Trust initially attempted to recover the input VAT subsumed within the invoice from Supply Chain. HMRC refused this claim arguing that the Trust did not hold a valid VAT invoice and that neither Supply Chain nor the Trust had an intention to use the Linacs for a taxable business purpose.
The Trust later submitted a claim relying on a concession published in NHS Newsletter (1/98) in support of its VAT recovery. This claim was also refused by HMRC which denied that there was any concessionary regime that would allow the recovery of input VAT in the circumstances of the case.
The Concession, Note (1/98)
Originally published by HMRC in NHS VAT News (1/98), the concession recognises that Supply Chain could not issue proper VAT invoices to NHS VAT Division customers. Accordingly, HMRC allowed for Supply Chain to issue other “VAT acceptable” documentation to its Divisional registration customers to support input tax recovery by the customer.
This concession only applies where the evidence is needed to substantiate a claim to input tax. The concession lists the purchase of confectionery as an example of a purchase relating to business activity which HMRC sought to rely on as a means to restrict the scope of the concession, however, the court’s opinion was that the concession was clearly not limited to ‘only sweets’ and would apply to all instances of input tax claims.
Intended Use
The details of this case also highlight the importance of an NHS organisation being clear about its intended use of purchases.
HMRC argued at the JR that the Trust had not been intending to use the Linacs for a business activity at the time of purchase and that the concession it was relying on could not be applicable because the machines were not acquired for a business use at the time they were supplied.
The High Court concluded that confusion had arisen between the words “purchase” and “supply”, the former not being an official VAT term. The actual tax point was established, and it was the Trust’s intended use at this time that mattered and not the Trust’s intended use at the time purchase orders were raised.
In general, input VAT is not recoverable on purchases of goods that relate to the provision of healthcare services provided by an NHS organisation. However, input VAT would be recoverable where purchases relate to taxable business use.
Why these points matter
Firstly, the case highlighted the fact that HMRC’s previously published guidance and concessions can still be relied upon, unless these have been specifically withdrawn or superseded in law.
Secondly, it shows the importance of determining the intended use of purchases and therefore the VAT treatment at the time of supply.
If you think your NHS organisation may have circumstances where these principles might apply, please get in touch, for a discussion with one of our VAT experts. We have a 100% success rate of finding additional VAT savings for NHS organisations, even where other advisers have already completed reviews.
As well as retrospective issues, we can also help with tax advice for current or future projects. Efficient planning at an early stage provides the best opportunity to utilise all available reliefs and concessions, plan compliantly and protect the organisation against future HMRC challenges.