Last year, HMRC published a discussion document on improving the effectiveness of the intermediaries’ legislation (IR35). This has now been followed by a consultation document issued on 26 May with an end date of 18 August.
The proposal in the consultation document is that the Government will reform the intermediaries’ rules for ‘off-payroll’ engagements of workers who operate through an intermediary, such as their own limited company, in the public sector. This includes engagements through third parties such as employment agencies, outsourcing companies and consultancy firms who supply workers.
From April 2017, where workers are engaged through their own personal service company (PSC), responsibility to apply the intermediaries’ rules will fall to the public sector body, agency or other third party paying the worker’s company and the payer will be liable to pay any associated income tax and National Insurance.
The proposals mean that where an individual provides services to an NHS Trust through a PSC and is doing a similar job in a similar manner to an employee, both they and the Trust will be required to pay broadly the same tax and National Insurance as if they were an employee.
The Government intends to use the definition of ‘public sector’ set out in the Freedom of Information Acts. This covers organisations such as: NHS, Government departments, executive agencies and non-departmental public bodies, police and fire authorities, local authorities, devolved administrations and educational establishments.
The Government proposes to introduce a new two stage process to quickly decide whether the rules need to be considered. Firstly, the Trust will remove those ‘business to business’ relationships that are not within scope of the rules and they do not need to take any further action. Otherwise, the Trust will need to move on to consider two simple questions for the second part of the process.
They are:
- Right to personal service – is the worker required to do the job themselves?
- Control – Does the Trust decide or have the right to decide how the work should be done?
These questions are based on the current employment status tests. If the answer to both questions is ‘yes’, the worker is in scope for the off-payroll rules and the Trust will need to account for tax and National Insurance on their payments to that worker’s PSC. If the Trust is unable to answer ‘yes’ to both questions, they will need to use the digital tool.
HMRC is developing a new digital tool which draws on the experience users had of the Employment Status Indicator (ESI) but will be tailored to the specific needs of engagers in determining whether the off-payroll rules apply.
Any new rules will not come into effect until next April, but early planning is strongly recommended. All Trusts will be affected by these new rules, so please do speak to one of our Employment Taxes specialists (details below) about how we can help you to manage these significant changes.
Please contact our Employment Taxes specialists:
Duncan Groves – 07715 666764
Peter Minchinton – 07484 277870
John Harling – 07768 446381
[vc_row][vc_column][vc_column_text]As you will be aware, the VAT government and public bodies manual (VATGPB) is being transferred from the HMRC website to GOV.UK. NHS bodies received an interim document which advised them to treat its contents as current guidance for the VAT Contracted – Out Services Headings. The document included some changes to the first tranche of guidance published in March 2015. The updated guidance will be published in the VATGPB manual on GOV.UK in due course.
Below is a reproduction of an HMRC document containing answers to numerous common questions it has received following the release of the second tranche of the guidance. Some questions are still under consideration, but HMRC hope to provide a comprehensive document covering all of the issues raised in due course.
[/vc_column_text][vc_column_text css=”.vc_custom_1458755344078{margin-right: 50px !important;margin-left: 50px !important;padding-top: 50px !important;padding-right: 50px !important;padding-bottom: 50px !important;padding-left: 50px !important;background-color: #f8f8f8 !important;}”]
Frequently Asked Questions:
Q1:
Heading 14: “The supply and support of off the shelf software” is listed under exclusions. Does this mean that where an NHS body contracts for supply and support of off the shelf software the VAT is blocked but where the supply of off the shelf software is contracted for separately to the support, the VAT incurred on the supply of support is eligible for recovery?
A:
This heading applies to services supplied to a government department or NHS body in its procurement of an IT system to its own specifications or wider government/ NHS specifications and does not cover the supply and support of off-the-shelf software whether purchased together or independently. The guidance will be amended as follows:
“H14 – Excludes the supply and/or support of off-the-shelf software”
Q2:
Heading 14: “Hosting computer services” is now listed under “Includes”. Does this apply only from the start of the current financial year or the publication date? Alternatively, does this clarify what fell under the headings on a historical basis?
A:
Hosting Services are recoverable under Heading 14 where they are supplied as part of a fully managed IT system supplied to the specifications of wider government/NHS specifications. Please see below comments on time limits for recovery.
Q3:
Heading 25: Are NHS bodies able to recover the VAT incurred on Multi-Functional Devices using the 4 year cap?
A:
The HFMA approached HMRC on 21/05/2013 asking for confirmation as to whether VAT was eligible for recovery under Heading 25 on multifunctional devices (MFDs). The initial HMRC response was that they were not included. HMRC presumes that prior to the enquiry from the HFMA the NHS were claiming VAT recovery on MFDs but stopped from 21/05/2013. Therefore when HMRC confirmed on 05/06/2015 that MFDs were eligible for recovery it was agreed that claims could be backdated to the 21/05/2013.
Q4:
Heading 26: It is our understanding that in issuing the guidance, it was agreed that no fundamental changes would take place to the recovery position for NHS bodies. We have previously obtained confirmation that VAT refunds would be available where the vehicle has been hired for less than 30 days providing the supply includes repair and maintenance. The Guidance introduces a “30 consecutive days” element. Please confirm whether the original position remains or whether there has been a change to the heading.
A:
Whilst HM Treasury’s view is that they view long-term car hire as covering a period of more than 30 consecutive days this view may not have been explicit in previous version of the COS guidance so this requirement will be removed from the current version. HM Treasury’s view however will be taken into account in any future revisions to the Treasury Direction.
The current guidance for Heading 26 will be amended as follows:
“This Heading allows recovery where a government department or NHS body enters into a contract for the supply of a vehicle/vehicles and the repair and maintenance of these vehicles by the supplier is specified in the contract. HM Treasury view this as covering long-term car hire for a period of more than 30 consecutive days.
Includes:
- Contracts for the hire of pool cars, company cars or other vehicles where the contract includes repair and maintenance by the supplier
Excludes:
- Hire of vehicles alone where the contract does not include repair and maintenance, however the VAT on the separate supply of repair and maintenance will be recoverable under Heading 37
Additional information
Where you have a contract which includes both the hire of vehicles without repair and maintenance and hire with repair and maintenance for less than 30 days and hire for 30 days or more, you can only recover the VAT in relation to the 30 days or more hire contracts which include repair and maintenance”
Q5:
Heading 37: “PAT Testing” – Now listed under “Includes”. Does this apply only from the start of the current financial year or the publication date? Alternatively, does this clarify what fell under the headings on a historical basis?
A:
PAT testing is now listed in the annex to the COS guidance and confirms that it is recoverable under Heading 37. The previous version of the guidance did not list this as recoverable nor did it say it was specifically excluded. See below comments on times limits for recovery.
Q6:
Heading 41: Please confirm the date you accept that the role of ODPs changed to include a nursing service and the reasons for that change if that change occurred less than 4 years ago?
A:
The background to including ODP’s within Heading 41 is that following a consultation with the Department of Health (DH) we were told that ODP’s are not registered nurses but are separately registered on the Healthcare Professionals Councils register and that the role of the ODP is changing. ODP’s used to be employed solely to assist the anaesthetists but they are now more involved around the operating table and will act in both the recovery and scrubbing areas following a successful operation. This changing role of the ODP has, in the DH opinion, moved their services within the definition of nursing and while historically these individuals have not been eligible for recovery under Heading 41, due to the changes in their role ODP’s can be classified as performing a “nursing service” across the NHS. The current COS guidance for Heading 41 states:
“…… nursing services…… include …. Operating Departmental Practitioners (ODPs) where due to the changes in the nature of their role they now provide a nursing service. Previously ODPs were excluded from Heading 41 as they were not providing a nursing service.”
The HMRC view is that it will be down to the individual NHS bodies to demonstrate that the role of the ODP has changed to a nursing service and to have this evidence available for PBG to check if required. We cannot provide a date from which ODP’s role changed to one of nursing services as this may vary between hospitals/Trusts.
Q7:
Heading 57: “Vetting of staff for DBS” – Now listed under “Includes”. Does this apply only from the start of the current financial year or the publication date? Alternatively, does this clarify what fell under the headings on a historical basis?
A:
See below comments on time limits for recovery.
Q8:
VATGPB9720: “When can I re-claim VAT?” Should the word “VAT” be included in the second paragraph under “When can I reclaim VAT” to make it clearer which period the VAT should be reclaimed?
A:
The amended text will now read:
“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 COS VAT in the period in which you received the VAT invoice.”
Q9:
VATGPB9720: Does the one year or four year time limit for recovery apply?
A:
The key point in determining whether a claim falls within the one-year or four-year rule is whether HMRC were asked by an NHS body or Government department if a particular service was eligible for COS recovery:
If HMRC have not been asked for a ruling or have not denied a claim then the one-year rule applies i.e. the COS VAT should normally be claimed within the financial year in which the supply in question has been received – subject to a 3 month adjustment period – the adjustment can be made no later than the June VAT return following the financial year end.
There will be circumstances where a ruling has been given to one or a few NHS bodies/government departments that VAT cannot be recovered under COS, and then it has been promulgated to the rest of the NHS/GD sector by means of networking, adviser activity or the HFMA or Government Departments’ ‘Centre of Excellence’. Should it transpire that the ruling was incorrect and COS VAT was recoverable, it is reasonable to accept that all bodies should be given the benefit of this (where applicable) subject to the four-year cap.
There may also be circumstances where the ruling was not promulgated more widely. Here you need to ask yourself what ruling would have been given to other NHS bodies or GDs if they had enquired as well. If the answer is that they would have been given the same ruling as was given to those bodies which had enquired, then they too should be entitled to the benefit of COS VAT recovery (subject to the four-year cap) where the ruling turns out to have been incorrect.[/vc_column_text][vc_column_text]Within this reproduced version, there is reference to issues that may need to be covered by a non-statutory clearance request, where the circumstances are not suitable for a generic response. All NHS Bodies are reminded that a specific non-statutory clearance request should be made in these circumstances, provided the necessary criteria are met as set out in the guidance, to the following e-mail address:
Alternatively, you can write to:
HM Revenue and Customs
Public Bodies Enquiries S0927
Newcastle Upon Tyne
NE98 1ZZ
United Kingdom
Or call:
0300 123 1081
The contents of the following link must be considered before submitting clearance requests to HMRC: https://www.gov.uk/guidance/non-statutory-clearance-service-guidance.
[/vc_column_text][/vc_column][/vc_row]
Our newsletter dated 12th June 2014 explained that HM Revenue & Customs (HMRC) had informed the NHS that the proper tax point (time of supply) rules should be applied to Contracted-out services (COS) VAT recovery. This meant that COS VAT should be claimed on the VAT return for the period in which the invoice is dated, or by the annual deadline at the latest.
Historically, NHS bodies have recovered COS VAT on a return relating to either the period in which the invoice is dated (registration), the period the invoice was approved for payment, or the period in which the invoice is paid. This has meant that if an invoice is in dispute, the VAT may not have be claimed until several months or even years after the tax point date.
A relaxation of the rules followed and temporarily, NHS bodies were able to continue to recover COS VAT at the time an invoice was paid, irrespective of the tax point date.
HMRC has now re-iterated the proper tax point rules in their letter dated 29th July 2015 and clarified that COS VAT should be claimed in the VAT accounting period when the tax becomes chargeable (normally the time of the supply, or tax-point). HMRC has acknowledged that ‘it may present difficulties where claims have been made based on the date of payment, resulting in a possible a need to make changes to accounting systems and processes’. In such circumstances HMRC will allow an extension of time up to 31 March 2016 for NHS bodies to make necessary changes; but after this time claims must be made when the VAT in question becomes chargeable.
We would therefore recommend that the tax point rules are adopted as soon as possible. Any NHS body which has already adopted the tax point rules should continue to use this method.
In summary, at present any COS VAT incurred on invoices paid within the 2014/15 financial year must be claimed by the 31 July 2015 deadline irrespective of the tax point. Going forward, it is recommended to adopt the tax point rules as soon as possible to avoid any potential loss of VAT recovery.
HM Revenue & Customs (HMRC) has now published the second ‘wave’ of the revised single book of COS VAT guidance for Government departments and NHS bodies, following the review of interpretation of the rules. This has gone live on GOV.UK.
The external link which takes you directly to the Contracted Out Services guidance is http://www.hmrc.gov.uk/manuals/vatgpbmanual/VATGPB9700.htm or to access via GOV.UK go to the Revenue & Customs page > VAT > scroll down to VAT manuals > select ‘get manuals from the HMRC website > select ‘G’ > Government and public bodies > VATGPB9000 > VATGPB9700.
Although there seem to be some changes to the interpretation of several headings, HMRC has stressed that there are no policy changes, which means the guidance is simply a statement of the current rules as they stand.
There is therefore no set date from which the rules apply, NHS bodies should ensure that any VAT incurred on such contracts during the 2014/15 financial year is recovered on a VAT return before the 31st July 2015.
On first reading the new guidance, notable points are:
COS Heading 28 – Interpretation and translation services
This covers interpretation of documents. It also includes simultaneous translation services. For example in person, at events/meetings/interviews, via telecommunication media, etc. Furthermore, it includes situations where an interpreter is needed during the course of treatment of an NHS patient, and where sign language services are provided.
COS Heading 40 – Messenger, portering and reception services
This heading covers messenger, portering and reception services. It includes collection and distribution of internal mail by a private company, patient appointment/reminder services, portering services such as the movement of patients and equipment around hospitals; and movement of corpses by funeral directors to or from the hospital site. It excludes the hire of telephone equipment/telephone lines or switchboard equipment alone, and the hire of agency staff to supplement in-house services during peak times or to cover leave.
COS Heading 47 – Passenger transport services
This heading includes:
Taxi firms that supply taxis to staff on request provided the government department or health authority has entered into a contract with the firm and receives a tax invoice, e.g. late night car services;
chauffeur driven cars provided the government department or health authority has entered into a contract with the firm and receives a tax invoice;
services of an outside contractor to transport passengers/patients; and
where a hospital hires or leases a vehicle with a driver for transporting in-patients, outpatients, hospital staff or other individuals (e.g. private specialists/consultants), providing it is in connection with the non-business activity of the provision of NHS health care.
It has also been noted that the hire or lease of a vehicle without a driver would not be covered under this Heading, but may be eligible for a refund under Heading 26.
On the other hand, this heading excludes:
public transport costs (as these are already zero-rated),
road tax,
passenger insurance,
staff members hailing cabs in the street or picking up a taxi from a taxi rank, and
Passenger transport services used for the transport of private patients or for a consultant providing health care to a private patient would not be eligible for a refund as it would be in connection with an exempt business activity and the normal VAT rules would apply
We understand from HMRC that there are still several headings where technical discussions are still taking place with the policy team and other experts, including definitions within COS headings 14 and 31. We would also expect confirmation of the inclusion of the updated COS Heading 25.
There are other headings yet to be published where HMRC are awaiting guidance from HM Treasury, including COS headings 45 and 52. These last two are likely to be the very last to be published.
Until the revised guidance is published, HMRC has stressed that previous guidance can still be relied upon.
We’ll keep you updated as soon as further information is available.
As part of the ongoing review of the COS VAT guidance, HM Revenue & Customs (HMRC) has advised us that the next batch of COS guidance will confirm that VAT incurred on the hire, lease or rental of multifunctional devices which serve as printers, photocopiers and faxes is eligible for recovery under COS Heading 25. This is following consultation with HM Treasury on the definition of this heading. This is welcome news as it is a further example of the COS guidance being updated to take account of developments in technology.
Historically, this heading was restricted to photocopiers only. NHS bodies should ensure that any VAT incurred on such contracts during the 2014/15 financial year is recovered on a VAT return before the 31st July 2015.
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.
HM Revenue & Customs (HMRC) has now published the first ‘wave’ of the revised single book of COS VAT guidance for Government departments and NHS bodies, following the review of interpretation of the rules. This has gone live on GOV.UK.
The external link which takes you directly to the Contracted Out Services guidance is http://www.hmrc.gov.uk/manuals/vatgpbmanual/VATGPB9700.htm or to access via GOV.UK go to the Revenue & Customs page > VAT > scroll down to VAT manuals > select ‘get manuals from the HMRC website > select ‘G’ > Government and public bodies > VATGPB9000 > VATGPB9700.
Although there seem to be some changes to the interpretation of several headings, HMRC has stressed that there are no policy changes, which means the guidance is simply a statement of the current rules as they stand.
There is therefore no set date from which the rules apply, so NHS bodies can apply these rules retrospectively for the current (2014/15) year.
On first reading the new guidance, notable points are:
Heading 1 – Accounting, Invoicing and Related Services
This includes general record keeping, invoicing and preparation of tax returns and other related supplies and preparation of financial accounts and/or statements and accountancy advice. However, tax planning advice is specifically excluded.
This heading therefore seems to allow general tax compliance work which is used to complement in-house tax return preparation, but not specific advice. Reference is also made to the Treasury rules and NHS guidance which dissuades the use of tax avoidance schemes.
Heading 7 – Broadcast Monitoring Services
This now includes social media monitoring, for example Facebook postings, Twitter feeds, etc.
Heading 10 – Catering
This includes hire of agency staff relating to catering. It also includes vending machines when supplied as part of a catering contract.
Heading 65 – Training, Tuition or Education
This has now been clarified to include on-line training. Although most NHS bodies have claimed this VAT to-date, it is encouraging to see the guidance updated to take account of developments in technology.
We understand from HMRC that there are still several headings where technical discussions are still taking place with the policy team and other experts, including definitions within COS headings 14 and 31.
There are other headings yet to be published where HMRC are awaiting guidance from HM Treasury, including COS headings 25 (relating to photocopiers/multi-function equipment), 45 and 52. These last two are likely to be the very last to be published.
Until the revised guidance is published, HMRC has stressed that previous guidance can still be relied upon.
All in all, there are likely to be four ‘waves’ of publication according to HMRC. We’ll keep you updated as soon as further information is available.
The First Tier Tribunal (FTT) has published its findings in respect of North Lincolnshire and Goole NHS Foundation Trust appeal.
This is encouraging news for NHS Trusts which still have outstanding ‘Fleming’ VAT claims which are dependent upon HMRC accepting ‘entitlement’.
We submitted claims to HMRC on our client’s behalf back in 2009, for various types of overpaid or under recovered VAT dating as far back as 1973. This was following the judgment of the House of Lords in the joined cases of Fleming/Condé Nast in 2008, which found that the way HMRC introduced the capping provisions (back in 1996 and 1997) had been unlawful at the time. These were commonly referred to as the ‘Fleming claims’.
Some of these claims have already been paid in part, in particular those for overpaid catering output tax, but only where HMRC agreed the quantum of the claim and the entitlement from the date of the Trust formation.
Claims for earlier periods were rejected on the grounds that HMRC did not believe the entitlement for earlier periods relating to predecessor NHS bodes was transferred to the Trusts.
Other types of claims were rejected in full, in particular, those for input VAT on drugs and prostheses supplied to private patients, (referred to as Wellington/BUPA VAT claims). This was following the Nuffield FTT decision in 2013 where HMRC’s argument that these claims were invalid was upheld. The Nuffield appeal was the lead case for all appeals against HMRC’s rejection of the drugs and prostheses claims, including NHS appeals.
The North Lincoln and Goole case was the lead case dealing with the question of whether there was a transfer of rights to VAT claims from predecessor bodies to the current NHS Trust.
Therefore, any Trust with an outstanding claim which is dependent upon the entitlement issue could now receive a further VAT refund.
HMRC could still seek to argue that this does not set a precedent, but we will let you know as soon as HMRC’s view of the decision to the wider NHS becomes known. If HMRC does now agree that this decision has wider application for the NHS, we will make arrangements to agree the quantum of the claims now due to our clients.
As most NHS bodies are aware, HM Revenue & Customs (HMRC) has been actively reviewing the interpretation of the Treasury Direction COS VAT guidance. This is following the aborted attempt earlier this year to impose the more restrictive Government Department (GD) rules on the NHS. At the time, HMRC was forced to back down and instead consult with the NHS before making any changes.
It was originally anticipated that the revised guidance following the consultation would be part-published in November 2014 incorporating both GD and NHS bodies, however, we have now been informed that the publication date has been put back to mid-January 2015.
Specific items which could be subject to change include:
COS Heading 52 – Professional Services
This is likely to be restricted to ‘advice’ or ‘opinion’ only. NHS bodies may no longer be able to recover VAT on consultancy costs for implementing changes, including legal representation or professional fees related to capital projects.
COS Heading 31 – Laboratory Services
Following the GSTS Tribunal decision earlier this year that pathology testing involving patient samples is exempt from VAT, the scope of this heading is being reviewed. This may mean that VAT charged on outsourced laboratory facilities (including equipment, management, reagents, maintenance, training, etc.) may no longer be eligible for recovery under this heading.
COS Heading 45 – Healthcare Facilities
In a letter recently issued to the HFMA, HMRC implied that a ‘healthcare facility’ was a physical building, unit or area within a building which is run/operated by the contractor which enabled the NHS body to occupy the facility to deliver healthcare. This definition would mean that COS heading 45 would still cover PFI hospitals and other similar facilities, but may well exclude managed facility contracts which are heavily based upon the provision and availability of equipment and consumables.
Other areas potentially subject to change include:
COS Heading 10 – Catering Services
This may now be extended to supplies of catering staff.
COS Heading 14 – Computer Services
This may exclude private data lines, which were specifically included in the previous NHS guidance.
Our initial thoughts are that the anticipated changes will significantly restrict the scope for VAT recovery of NHS bodies, many of which are already in serious financial difficulty. We will issue a further update once we have more information.
HM Revenue & Customs (HMRC) issued a letter to the NHS in December 2013 stating that the proper tax point (time of supply) rules should be applied to Contracted-out services (COS) VAT recovery. This meant that COS VAT should be claimed on the VAT return for the period in which the invoice is dated, or by the annual deadline at the latest. In the same letter, the annual COS deadline was extended a further month to 31 July.
Historically, NHS bodies have recovered COS VAT on a return relating to either the period in which the invoice is dated (registration), the period the invoice was approval for payment, or the period in which the invoice is paid. This has meant that if an invoice is in dispute, the VAT may not have be claimed until several months or even years after the tax point date.
Following various representations made about the timing of HMRC’s proposed changes and the lack of any transitional period, HMRC has now ‘relaxed’ this tax point rule for the time being. This means that NHS bodies can continue to recover COS VAT at the time an invoice is paid, irrespective of the tax point date.
HMRC has told us that as part of the ongoing review of NHS and Government VAT following the recent publication of interim guidance, further guidance will be issued in the coming months making it compulsory for the NHS to adopt the tax point rules, with a likely start date from April 2015.
We would therefore recommend that the tax point rules are adopted as soon as possible, to ensure that COS VAT on invoices dated prior to April 2014 but not yet approved or paid is not lost. Any NHS body which has already adopted the tax point rules should continue to use this method.
In summary, at present any COS VAT incurred on invoices paid within the 2013/14 financial year must be claimed by the 31 July 2014 deadline irrespective of the tax point. Going forward, it is recommended to adopt the tax point rules as soon as possible to avoid any potential loss of VAT recovery.