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) 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.