HM Revenue & Customs (HMRC) has today announced some further easements in VAT accounting for the NHS due to the ongoing COVID-19 situation.
Full details of the easements are shown on the attached letter, but to summarise:
COS VAT estimation
It has been recognised that some organisations may not be able to submit accurate COS VAT claims.
Requests for estimations must therefore be made in advance of the due date for the return, with a proposed end date.  HMRC accepts that the end date may need amending due to the ongoing uncertainty.
HMRC has suggested the easiest and most reasonable method of estimation will be based on a representative period.
HMRC is still considering estimations for (business) input tax and output tax and will advise further in due course.  
6 month COS VAT extension
The annual COS VAT deadline for 2019/20 has been extended from the June 2020 VAT return to the December 2020 VAT return, (filing date 7th February 2021).  
This means that COS VAT incurred on invoices dated within 2019/20 can be claimed on any return up to December 2020.
This is a one-off extension, but will be reviewed given the current uncertainty surrounding COVID-19.
HMRC has not made any specific mention of an extension to end-of-year business and partial exemption adjustments, which themselves include end-of-year COS VAT adjustments, but we are awaiting further clarification of this point.

If you have any questions about anything in this alert, please contact us.

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.