SECTION 41 VAT
GUIDE FOR NHS
BODIES
Issued 24 April 2014 by HMRC Local Compliance, Public Bodies Group
See Enclosure H
CONTENTS
1.
Introduction
2.
General Overview of VAT
3.
Purchases made with charitable funds
4.
Completion of VAT forms
5.
Contact Details
Enclosures
A
B
C
D
E
F
G
H
Business Activities
COS Headings
COS Heading 35 and 37
Exceptions to normal COS rules
Additional notes for COS Headings 45 and 53
Heading 37 letter dated 27 February 2013
Heading 69 letter dated 5 February 2014
Guidance letter 24 April 2014 – Transition arrangements
2
1
INTRODUCTION
As a VAT registered body, the NHS is required to comply with the VAT rules and procedures
that HMRC require. Along with mainstream businesses the NHS has to consider how VAT
affects all its income and expenditure. This information booklet contains basic information
on how VAT applies to the NHS. It is not an all-encompassing VAT reference manual but it
should hopefully give you a fundamental understanding of VAT as it applies to the NHS.
Where reference is made to NHS bodies please treat as referring to all NHS bodies eligible
under Section 41 VATA 1994.
3
2
GENERAL OVERVIEW OF VAT
VAT is a tax on consumer spending and it is collected on taxable business transactions. If
an individual, firm or company is VAT registered then they have to account for VAT on their
business transactions. There are three rates of VAT - standard rate, which is currently 20%,
a reduced rate of 5% on domestic fuel and power, and a zero rate. Some supplies are
exempt from VAT which means that no VAT is payable. Supplies that are not exempt are
called Taxable Supplies. The VAT you charge your customers when you make taxable
supplies is called Output Tax. It is VAT on your sales.
As a VAT registered individual, business or body you can recover the VAT that you incur on
those purchases that are used to make taxable supplies. The VAT you are charged by your
suppliers is called Input Tax. It is VAT incurred on your purchases. In order to reclaim your
input tax your supplier must provide you with an invoice made out to your Trust, it must
quote their VAT registration number, the date, the rate of VAT, VAT charged and a
description of the supply. If you make exempt supplies then VAT you incur on purchases
relating to that exempt supply is not recoverable unless the Trust is de minimis for VAT
purposes.
All VAT registered persons, companies etc. must keep and preserve certain records and
accounts. You must keep a record of all the supplies you make and receive. Namely these
will be copies of sales invoices and purchase invoices. In addition you must keep a
summary of the totals of your input and output tax. Information from these records will be
needed in order to comply with the completion of the monthly VAT 100 form and VAT 21
form (see ‘Completion of VAT Forms’ in later section).
From a VAT point of view the NHS is basically involved in two types of activities, that being
business and non-business. It is important that you understand the difference between
business and non-business activities.
4
Business Activities of the NHS
In the majority of cases the activities carried out by NHS bodies are statutory in nature and
are treated as non-business for VAT purposes. For NHS bodies the non-business activity is
the provision of healthcare.
When we refer to the business activities of the NHS, it refers to taxable supplies that are
carried out by you in a commercial manner, in that you are charging or receiving something
in return for the service or goods you are providing. All goods and services, which are
subject to VAT, are called taxable supplies and currently there are 3 rates of VAT.
Standard Rate
20 %
Reduced Rate
5%
Zero rate
0%
(most goods and services)
(domestic fuel & power, some limited construction
works)
(sale of food newspapers children’s clothing)
Some Supplies are exempt from VAT. These supplies include private healthcare, financial
services, certain land and property transactions, and certain training and education services.
Exempt supplies must not be confused with Zero rated supplies. In the case of exempt
supplies whilst no VAT is charged on the supply, unlike zero rated supplies no input tax may
be recovered.
If you make taxable supplies in the course of business, you have to account to HMRC for the
VAT due. This is called Output Tax and is charged to your customers. If you incur VAT in
the course of making taxable supplies then you can normally recover that VAT which is
called Input Tax.
There are currently 32 activities listed in the Treasury Directions (see Enclosure A) that are
considered to be business activities of the NHS. This is not an exhaustive list but gives an
indication of the VAT rates that apply to the activities. If you are making a supply that is not
listed and you are in doubt about whether it is a business activity contact HMRC for advice.
Until 16 July 2012, this Treasury direction determined which activities of government
departments and the NHS were to be regarded as business activities on competition
grounds. The relevant primary law was then repealed and replaced by section 41A of the
VAT Act 1994. The decision is now for departments and NHS bodies to make, but they may
continue to use the direction as a guideline if this is helpful.
5
Non Business
Non-business activities are activities, which are carried out on a statutory basis (NHS
Healthcare/recovery of money under the Road Traffic Act) and/or for no consideration. This
also includes supplies within and between NHS bodies within the same Divisional VAT
registration.
There are 3 divisional registrations:
1.
2.
3.
All NHS bodies within England (with the exception of Moorfields Eye Hospital).
All NHS bodies within Scotland
All NHS bodies within Wales.
All NHS bodies VAT registration numbers start with 654 …. ..
It should be remembered that although they provide healthcare, GP’s are not considered to
be part of the NHS for VAT purposes. Therefore you should add VAT on any charges to
them (if VAT is normally applicable on that supply).
Normally VAT is charged and recovered in the course of business. As a concession,
although NHS bodies are involved in non-business activities, VAT incurred can be reclaimed
if it falls under the Contracted out Services (COS) rules as listed in the London Gazette.
Basic criteria:





Tax can only be claimed back on those type of services listed in the directions;
There must have been the capability to perform the service in-house (within
Government);
COS legislation does not apply to goods. Refunds can only be claimed on
goods if they are only an incidental, intrinsic or minor part of the services to
which they relate;
Where NHS bodies receive invoices made up of different components, they
must identify the overall supply being received and whether that overall supply
is recoverable under the COS rules. It is not appropriate to recover COS VAT
on different components within one invoice.
Contracted out services VAT must be recovered in the same financial year in
which it is paid for.
The NHS does not necessarily have to have performed the services in-house, the
determining factor is whether the capability to perform the service existed.
Examples of ineligible services would include –




External Audit fees;
Statutory inspections;
Licences;
Membership fees, etc
as these could not have been performed in-house.
Attached is a list of all the eligible services (Enclosure B), with a brief description of the
headings relevant to the NHS. Repair & Maintenance is a more complicated area. This
area has been broken down further in the attached list (Enclosure C).
6
A brief description of what HMRC consider repair & maintenance
Repairs and maintenance is work which reinstates a building, room, plant etc, or parts of
them into their original state. It is work carried out on something already in existence. It
includes the use of different or better materials where the original materials are obsolete. As
a general rule, items that are replaced are considered to be new goods and therefore nonrecoverable, however, certain items can be replaced, i.e. windows, sanitary ware as it is
impractical to repair. These are all listed on the repair and maintenance breakdown in
Enclosure C.
A job would cease to be a repair or maintenance if structural alterations take place to the
physical size or layout of the space or design.
Repairs and maintenance does not include new construction, work which alters, adds to or
improves the building. Additions or improvements of items, which are a non-structural part of
the building would be considered to be ineligible, as would the replacement of plant not
covered in any repair and maintenance contract.
Repair and maintenance does not cover any work comprising installing or building-in any
items that were not there before.
Refurbishment of a building, without alterations, would be eligible, i.e. where normal wear
and tear or lack of maintenance over the years requires work to be carried out to return the
building to its original condition.
Preventative maintenance where this results in an improvement would not be considered
eligible. For example, prevention of wet or dry rot by the first time installation of a damp
proof course or a silicone-based injection are classed as improvements because the walls
had no anti-damp protection before those measures were taken. This applies whether the
work is done before or after the damp is discovered.
The construction of something that wasn't there before would always be considered an
improvement and not, therefore, eligible.
VAT on services of construction, conversion, reconstruction, alteration or enlargement of
buildings, and on the installation of plant supplied in the course of these services is not
recoverable.
Construction projects below £5000
HMRC have agreed with the Department of Health that construction works costing under
£5000 (excluding VAT) may be treated, as repairs and maintenance and the VAT element
are refundable under the Contracted-Out provisions.
The Department of Health Circular EL (90) P64 defines such work as "individual works
schemes for the initial provision, extension improvement or adaptation (including upgrading),
renewal, replacement or demolition of buildings, building elements (e.g. roofs), external
works, engineering services or plant".
Each project must, however, be complete and self-contained. A large project cannot be split
into individual elements to bring the cost down, per element, to below £5000. It will only
apply where the project is undertaken in its own right and not as part of a larger project.
7
All claims for COS should be made within the current financial year. You have 4
months from the end of the financial year to claim back any VAT (July 31st).
All VAT recovered under COS should be included in the VAT 21 form (part 2) and VAT 100
form (box 4).
8
Capital Building Projects
By Capital building projects we mean those projects that involve building and construction
works that will more often than not include works that will comprise of both eligible and
ineligible works that qualify for VAT recovery. These works will normally take weeks/months
even years to complete.
Capital building projects are dealt with under the COS rules. VAT is only recoverable on
repair & maintenance not replacement (with a few exceptions such as: windows; sanitary
ware; carpets – all on list). On projects where there are alterations, extension, modification
there would be little scope for recovery as this ceases to be repair and maintenance. Where
for example, you are having an extension built, and your knocking through from existing
building, there would be little scope to recover VAT on making good damaged walls/plaster
as this would be considered disturbance works (16 on Enclosure C). But if you were taking
advantage of repairing e.g. wires, plumbing on the existing building at the same time, this
would be recoverable.
On new builds only professional services are recoverable where the supply is outside of the
main contract and is to the NHS body direct.
Where to start
Basically there are two ways in which NHS bodies can determine the correct VAT recovery
on capital building projects. They can either go through the relevant documents in their
possession such as bills of quantity/ schedules of work etc on a line by line basis
determining which works are eligible for VAT recovery and then following the procedure at 1
below or NHS bodies can use the ‘banding scheme’ which involves simply determining
what type of project is being undertaken and recovering that % applicable to the project
invoices/ interim certificates see page 12.
1. Recovery of VAT on a line by line basis
Go through Bill of Quantity/Tender documents etc and decide what is fully-recoverable, nonrecoverable and Pot (mixed - unable to separate).
With Preliminaries – if you have a detailed breakdown and can separately identify qualifying
items (professional services, security etc), these can be added to fully-recoverable figure,
with the rest in non-recoverable, or the whole figure can be added to Pot (mixed). This is an
either/or, what you cannot do is strip out fully recoverable and add rest to Pot.
If a piece of work can be easily differentiated between fully/non-recovery e.g. “Supply & fit 20
doors (16 replacement/4 new)”, 80% of price can be added to fully-recoverable and 20% to
non-recoverable. If the description just says “Supply & fit 20 doors”, this would be added to
the Pot.
When this is completed, the formula to find out the provisional percentage recovery on all
interim payment invoices is:
fully-recoverable
=%
fully-recoverable + non-recoverable
Headings such as Provisionals, Overheads & Profit, Contractors margin etc should be
placed in the Pot; Contingencies should be ignored until the end of the project, when it will
be come clear if any have been spent. Capital projects should be reviewed annually or at the
end of the project whichever is sooner. Where work is carried out to meet H&S or fire
regulations, this does not mean you can just claim back everything. The work must still be
listed on repairs and maintenance list to qualify for recovery.
9
Example-Refurbishment/Alteration of Ward 6B
Description.
This project is for the refurbishment and slight alteration of Ward 6B not used for 5 years and
in total need of redecoration, the floor is to be ripped up and relayed with stuck down
flooring. The old sash windows are to be replaced with same size double glazed windows.
A small office is to be built in the corner for nursing staff. All curtains/curtain tracks and
blinds are to be replaced. All walls to be painted and fire doors to replace all doors in ward.
Price
£
VAT
£ Fully
Recoverable
Preliminaries:
Site Management
Security
Temporary screens
Storage of materials
Signage
2000
400
Take up and remove existing floor
and rescreed
200
40
Supply & fit stuck down vinyl flooring
500
100
4000
800
Supply and fix double glazed windows
15000
3000
Fix 2 partitions to form walls for office
4000
800
Paint all walls and ceiling with 2 coats
of paint including partition walls.
2000
400
50
10
Repair Fire Alarm (to comply with Fire
Regulations)
200
40
Remove all old Blinds/Curtain Tracks
75
15
Supply and fit new Blinds
400
80
Supply & fit new curtain tracks
300
60
12000
2400
2000
400
42725
8545
Take out and remove all windows
Replace broken light fittings
Remove all doors and replace with
fire doors, fixing new door in office. 6
doors @ 2000.00
Contingencies
Total
10
Non
Recoverable
Mixed/Pot
Price
£
VAT
£ Fully
Recoverable
Non
Recoverable
Mixed/Pot
Preliminaries:
Site Management
Security
Temporary screens
Storage of materials
Signage
2000
400
Take up and remove existing floor
and re-screed
200
40
40
Supply & fit stuck down vinyl flooring
500
100
100
4000
800
800
Supply and fix double glazed windows
15000
3000
3000
Fix 2 partitions to form walls for office
4000
800
Paint all walls and ceiling with 2 coats
of paint including partition walls.
2000
400
50
10
10
Repair Fire Alarm (to comply with Fire
Regulations)
200
40
40
Remove all old Blinds/Curtain Tracks
75
15
15
Supply and fit new Blinds
400
80
80
Supply & fit new curtain tracks
300
60
60
Remove all doors and replace with
fire doors, fixing new door in office. 6
doors @ 2000.00
12000
2400
2000
400
Total
40725
8145
6005
1340
Take out and remove all windows
Replace broken light fittings
6005
6005 + 1340
= 81.75%
Total VAT recoverable on project = 8145 x 81.75% = 6658.54
11
400
800
400
800
2. Recovery of VAT using the banding scheme
To further reduce the burden of the tax NHS bodies have the option to determine very simply
the element of VAT recoverable on contracted out services on those capital building projects
of a total cost of up to £15,000,000. Having decided the type of project involved from the
following list, the recovery rate shown is applied to the invoiced VAT incurred on the project
for inclusion on the monthly VAT 100 and accompanying VAT21.
Type of Project
New build
Extensions
Major
Alterations
Minor
Alterations
Refurbishment
/Repair and
maintenance
Definition
Complete new construction from scratch or making use of the
foundations of an existing building, where the whole of the
former building has been demolished to ground level.
Where a building is enlarged or extended and that
enlargement or extension creates new space.
Works to an existing building where major work has taken
place to the fabric of the original building including the
replacing of much of the internal/external configuration.
Work to an existing building where the alterations are
incidental to and have occurred as a result of
repair/maintenance work.
This is general upkeep to and refurbishment of existing
buildings where the works do not result in any alteration or
additions.
Proportion of
VAT
recoverable
0%
5%
20%
40%
75%
These bandings apply only to actual construction works. Subject to the normal rules, NHS
bodies may continue to recover VAT incurred on supplies received directly of professional
services (e.g. architects).
12
3
PURCHASES MADE WITH CHARITABLE FUNDS
Certain items, if purchased with charitable funds can be zero rated by the supplier of the
goods. VAT Notice 701/6 gives a detailed but not exhaustive list. It is essential that all
funds must come from charitable sources for the goods to be zero rated.
The NHS body must complete a certificate (examples in Notice 701/6 (Supplement)).
It must be remembered that it is the suppliers responsibility to ensure that the correct VAT
liability is reached, even after the NHS body has supplied a certificate for zero rating, they
may still wish to confirm with their local VAT office if the item is eligible.
13
4
COMPLETION OF VAT FORMS
VAT Return (VAT 100)
Box 1 of the VAT Return must show the total VAT you have charged to your customers on
your taxable business activities.
Box 2 of the VAT Return must show the VAT due on acquisitions from other EC member
states.
Box 3 of the VAT Return will be the total of boxes 1 and 2.
Box 4 of the VAT Return must show the total input tax for the period plus the total VAT to be
refunded under the Contracted-Out Regulations. This figure should be equal to the total
figure shown on the form VAT 21.
When calculating the figures for the VAT Return you must not "net off" output and input tax
on individual transactions. The figure for output tax must be your total output tax liability for
the period. The input tax figure must be the total input tax incurred on taxable business
activities and Section 41(3) refunds for the period.
Box 5 (net VAT to be paid or reclaimed) of the VAT Return, is the only box in which the
gross totals will be netted off to show the net liability to pay tax, or the net refund due to you.
Box 6 (value of sales) of the VAT Return must show the value, excluding VAT, of your total
outputs. That is, the net total of all your business supplies of goods and services. This
includes standard-rated, zero-rated and exempt supplies. It also includes the total of EC
supplies from Box 8.
Box 7 (value of purchases) of the VAT Return must show the value, excluding VAT, of all
your purchases of goods and services in relation to your business activities. This includes
standard-rated, zero-rated and exempt purchases and the value of EC acquisitions from Box
9. You should not include the value of services purchased under the Contracted-Out
provisions.
Boxes 8 and 9 (supplies to and acquisitions from the EC) of the VAT Return should be used
if you have supplied goods to or acquired goods from another EC member state. Again,
these figures must not include VAT.
VAT 21
Part 1 of the VAT 21 should all Input Tax to be reclaimed on Business Activities.
Part 2 should show all monies to be reclaimed under Contracted out Services legislation.
Part 3 should show all monies to be reclaimed (Part 1 plus Part 2). This is the figure you
carry forward to Box 4 of the VAT 100
14
ERRORS ON VAT RETURNS
Errors made on VAT Returns could be in relation to retrospective claims under Section 41(3)
for VAT incurred on contracted out services used for non-business purposes, as well as
output and input tax related mistakes.
Where errors on VAT returns have been made the procedure for correcting such errors
is included in Public Notice 700/45 which can be accessed here: link.
Errors should be notified to, Local Compliance, Customer Coordinator Team, Public
Bodies Group, Public Bodies Enquiries S0927, PO Box 3900, Glasgow G70 6AA for
approval. The letter of notification should include particulars such as the tax period in which
the error occurred, whether it was output tax, input tax or COS VAT and should give a
summary of the amount involved together with any relevant supporting documentation.
Where errors are found and are within the limits above they should be included in the
appropriate box on the VAT Return. For example, if the error relates to output tax it should
be included in Box 1 of the Return and if it relates to input tax it should be included in Box 4
of the VAT Return. Errors in respect of contracted-out services should be included on the
form VAT 21 and in Box 4 of the VAT Return.
TIME LIMITS FOR REPAYMENT CLAIMS
Recovery of VAT incurred on contracted out services is limited to a current-year basis. This
is because Treasury funding will have taken into account non-recoverable VAT for earlier
years. Claims should be made on the current VAT Return at the time the cost is incurred.
All retrospective claims (i.e. those for VAT incurred outside the current tax period but within
the financial year) must be submitted at the latest by 31 July following the financial year in
question.
Retrospective claims for refund based on estimation will not be accepted.
In respect of input tax (i.e. VAT incurred on purchases made for business use), the time
allowed for making retrospective repayment claims is limited to four years. This means that
no amount of tax will be recoverable if paid more than four years before the date on which a
claim is made.
15
5
CONTACT DETAILS
NHS and Charities Unit
Public Bodies Enquiries S0927
PO Box 3900
Glasgow
G70 6AA
Email
Phone
customercoordinator.pbg@hmrc.gsi.gov.uk
0300 123 1081
16
ENCLOSURE A - BUSINESS ACTIVITIES OF THE NHS
1.
Catering food or drink; tobacco products; alcoholic drinks.
2.
Laundry services.
Supplies of goods made by vending machines or of any goods supplied
in clinics, canteens or in any other way.
Professional services including those of any manager, adviser, expert,
specialist or consultant.
3.
4.
5.
Attendance of officers at court or at any similar forum.
6.
Equipment, vehicles, hospital facilities or services; any related goods.
8.
9.
Radio isotopes; recovered silver, sterile water, water products or any
goods of a medical or surgical interest.
Scrap, swill, obsolete or surplus goods.
Industrial or occupational therapy products.
10.
Mortuary, laboratory or computer services or any related goods.
11.
Agency services.
12.
Training, tuition or education; related goods or services.
13.
Goods supplied to private patients on prescription.
14.
Publications.
Grant, assignment or surrender of any interest in or right over land, or of
any licence to do anything in relation to land including the provision of
accommodation, the grant of sporting rights or any grazing rights. (This
would include Car Parking)
7
15.
16.
Copying or supply of any reproductions or of any documents.
17.
Information or information services.
18.
Postal or distribution services.
19.
Secondment of staff.
20.
Human blood; human blood products for therapeutic use; human
organs.
21.
Research services.
22.
Advertising.
23.
Facilities or services in connection with conferences.
24.
Services to other occupants in shared buildings.
25.
26.
Appliances and artificial limbs.
Telecommunications.
17
S/R
or Z/R
S/R
S/R
S/R
Exempt
S/R
Exempt
S/R
Exempt
S/R
S/R
S/R
S/R
Exempt
Exempt
S/R
Exempt
S/R, Z/R
Exempt
S/R, Z/R
S/R, Z/R
Exempt
S/R, Z/R
*
S/R, Z/R
Outside
the
scope
S/R
S/R, Z/R
Exempt
Exempt
S/R, Z/R
Exempt
S/R, Z/R
Exempt
S/R
Exempt
S/R, Z/R
Exempt
S/R, Z/R
Exempt
S/R
Exempt
27.
Commission on national contracts.
28.
Fuel and power.
29.
30.
31.
32.
S/R
S/R or
reduced
rate
Manufacture, production, distribution or supply of any foodstuff, dietary
supplement or similar article.
Waste disposal.
Administrative services.
Information or statistical services.
* Outside the scope for the 1st copy.
18
S/R, Z/R
S/R. Z/R
S/R
S/R
ENCLOSURE B – COS Headings
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
38.
Accounting, invoicing and related services
Administration of the following: Career
development loans Certificates of Experience
etc.
Administration and collection of toll charges
Aerial photographic surveys and aerial
surveillance.
Agricultural services of the kind normally
carried out by the Farming and Rural
Conservation Agency.
Alteration, repair and maintenance of road
schemes, except (a) any works carried out
pursuant to an agreement made under
section 278 of the Highways Act 1980, or (b)
works involving construction on land not
already used for road schemes.
Broadcast monitoring services.
Cartographic service.
Cash in transit services.
Catering.
Ceremonial services.
Childcare services
Collection, delivery and distribution services.
Computer
Services
supplied to the
specification of the recipient, including the
provision of a fully managed and serviced
computer infrastructure
Conference and exhibition services.
Debt Collection.
Departmental staff records and payroll
systems
including
administration
and
payment of pensions.
Employment advisory services as directed by
the Race Relations Act 1976.
Engineering and related process services.
Environmental research and protection
services of the kind normally carried out for
the Department of the Environment,
Transport and the Regions.
Estate management services.
Export intelligence services. .
Filming, audio visual and production services.
Health promotion activities.
Hire of reprographic equipment including
repair and maintenance.
Hire of vehicles including repair and
maintenance.
Insolvency services.
Interpretation and translation services.
Issue of documents to, and control of, bingo
halls and off-course bookmakers.
Issue of documents under Wireless and
Telegraphy Act.
Laboratory services.
Laundry services.
Library services.
Maintenance and care of livestock and fauna
in connection with the Royal Parks.
Maintenance, non-structural repair and
cleaning of buildings
Maintenance and repair of civil engineering
works.
Maintenance, repair and cleaning of
equipment, plant, vehicles and vessels.
Maintenance and repair of statues,
monuments and works of art.
39.
40.
41.
Medical and social surveys.
Messenger, portering and reception services.
Nursing services.
42.
43.
Office removals.
Operation and maintenance of static test
facilities etc.
Operation and maintenance of stores depots.
Operation
of
hospitals,
health
care
establishments and health care facilities and
the provision of any related services
Operation of prisons, detention centres and
remand centres, including medical services.
Passenger transport services
Pest control.
Photographic, reprographic, graphics and
design services.
Preparation and despatch of forms.
Press cutting services.
Professional services, including those of any
manager, adviser, expert, specialist or
consultant.
Provision under a PFI agreement of
accommodation
for
office
or
other
governmental
use,
together
with
management or other services in connection
with that accommodation
Publicity services
Purchasing and procurement services
Radio services
Recruitment and relocation of staff and other
related services
Research, testing, inspection, certification
and approval work for the Health and Safety
Executive.
Scientific research of the kind normally
carried out for the Ministry of Agriculture,
Fisheries and Food Standards Agency.
Security services.
Services of printing, copying, reproducing or
mailing any documents or publications,
including typesetting services.
Share Registry Survey.
Storage, distribution and goods disposal
services.
Surveying, certification and registration in
connection with ships and relevant record
keeping and verification, issue of certification,
cards, discharge books and campaign
medals to seamen.
Training, tuition or education.
Transport research of the kind normally
carried out for the Department of the
Environment, Transport and the Regions.
Travel
services,
excluding
hotel
accommodation and fares.
Travel and transport surveys, including traffic
census counts.
Typing, secretarial, telephones and clerical
services including Agency staff.
Waste disposal services.
Welfare services.
Career Guidance, Mentoring and Counselling
to help unemployed people back into work as
part of the New Deal.
Services relating to Action Teams for Jobs
and Employment Zones
44.
45.
46.
47.
48.
49.
50.
51.
52.
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
69.
70.
71.
72
73.
19
74.
75.
Original research undertaken in order to gain
knowledge and understanding
Inspection of woodland sites for approval of
felling licence applications and of timber
imports/imports using timber packing to
prevent entry of foreign tree pests and
diseases
20
ADDITIONAL NOTES
1.
Accounting, invoicing and related services
VAT is refundable on accountancy services. This includes general record keeping,
invoicing and preparation of tax returns and other related supplies. It would also
include the preparation of financial accounts and/or statements and accountancy
advice. It would not include VAT incurred on external audit fees as, by their very
nature, they cannot be performed in-house, nor would it include the VAT on a value
for money audit where this is carried out as a result of a statutory requirement.
2.
Administration of the following:
Career development loans
Certificates of Experience etc
3.
Administration and collection of toll charges
4.
Aerial photographic surveys and aerial surveillance.
5.
Agricultural services of the kind normally carried out by the Farming and Rural
Conservation Agency.
6.
Alteration, repair and maintenance of road schemes, except (a) any works
carried out pursuant to an agreement made under section 278 of the Highways
Act 1980, or (b) works involving construction on land not already used for road
schemes.
The type of situation applicable to this heading would be, for example, where an NHS
body alters the layout of existing roads surrounding a hospital in order to facilitate
easier and/or safer access to the accident and emergency department. It would also
extend to the repair and maintenance of such a road scheme.
7.
Broadcast monitoring services.
8.
Cartographic service.
9.
Cash in transit services.
The secure transport of monies (including wage packeting case deliveries).
21
10.
Catering.
Refunds of VAT may be reclaimed under the Contracted-Out provisions on supplies
of catering where the catering is provided in connection with the non-business
activities of the NHS. For example, VAT incurred on catering services bought-in to
provide catering for NHS patients in the course of care would be eligible for refund
under this category.
Where catering services are bought-in for the purpose of a taxable business activity
(for example, the operation of a hospital canteen where staff, visitors etc are charged
for their meals and drinks), any VAT incurred will not be refundable under these
provisions, but may be reclaimed as input tax under the normal VAT rules. Where
catering services are bought in for the purpose of a VAT exempt business activity
(eg. Provision of private (non-NHS) healthcare) VAT incurred is exempt input tax and
is unlikely to be recoverable.
11.
Ceremonial services.
This heading refers to the use of a private firm to provide ceremonial services. You
may claim a VAT refund under this category if, for example, you were to open a new
hospital or a new wing in a hospital, or if a hospital were to be visited by important
guests (e.g. members of the royal family).
12.
Childcare services
When you contract out to a private body the provision of childcare services, and are
charged VAT by the supplier, then you may reclaim it under this heading.
The provision of crèche facilities is normally exempt from VAT. You should ensure,
therefore, that VAT has, in fact, been charged by the supplier by checking the
invoice. You should not just assume that the fee charged by the supplier includes an
element of VAT.
13.
Collection, delivery and distribution services.
VAT incurred on the above services would be refundable under the Contracted-Out
provisions, regardless of the nature of the item(s) being collected, delivered, stored
or distributed. Courier services would, for example, include the use of courier firms
for the delivery of specimens, materials, papers etc.
Where you make an arrangement for goods to be delivered, the carriage may be
treated as a Contracted-Out service. If, however, you have no option but to pay a
delivery charge, this is considered to be part of the supply of the goods and not a
separate supply. In this case the VAT would not be eligible for a refund.
See newsletter item 2000/1.
22
14.
Computer services in connection with the collection, preparation and
processing of data.
This heading allows VAT recovery on computer services supplied to the specification
of the NHS body, including the provision of a fully managed and serviced computer
system.
Refunds of VAT may be claimed on the purchase of bespoke software. Bespoke
software is software that has been designed from scratch. It excludes software
licenses; software packages designed for general use in the NHS; ready made off
the shelf software packages; and packages that have been specially designed for
somebody else.
Sometimes an all inclusive charge is made for the supply of computer services
including services on which, if supplied separately, VAT would be eligible for refund
(eg. Software maintenance, professional services such as computer consultancy
work, including contract software development, which could include modification and
adaptation to existing software packages). You may extract that part of the cost and
claim the VAT incurred under the Contracted Out Services provisions only when
eligible services are represented by an agreement separately ordered, negotiated
and contracted.
VAT is not recoverable on the hire/purchase/ installation of computers or equipment
on their own. VAT incurred on the hire of land lines used to link up computers is
eligible for refund only in instances where private wires link computers in different
locations. VAT is not refundable when incurred on telephone calls or telephone line
rental, pager rentals; car radio systems; connection charges; management and/or
maintenance of provider’s lines.
15.
Conference and exhibition services.
In order to recover VAT incurred under this heading a composite facility must be
supplied e.g. staff, the room, equipment, accommodation, catering etc. The NHS
body must be receiving more than just accommodation and catering and receiving
the services in connection with their non-business activities. If an NHS body intends
to charge delegates who are outside their own division then the services may be
being received in the course of business and VAT incurred will need to be considered
as to whether it is recoverable as input tax or not recoverable as exempt input tax.
Excludes The hire of a room on its own.
VAT incurred when a civil servant stays in a hotel room and receives a supply of
hotel accommodation on its own. This charge may sometimes be referred to as
“conference” or “delegate” rates
By conference we would mean a planned large scale organized event usually at
which external delegates would attend. This heading would not include meetings held
in hotels, solely for the NHS bodies inter-departmental sections.
16.
Debt Collection.
VAT is recoverable if you were to use the services of professional debt collection
agencies.
23
17.
Departmental staff records and payroll systems including administration and
payment of pensions.
Where you employ the services of an outside contractor to deal with departmental
personnel services, staff records and payroll systems the VAT would be eligible for
recovery under this heading.
18.
Employment advisory services as directed by the Race Relations Act 1976.
19.
Engineering and related process services.
20.
Environmental research and protection services of the kind normally carried
out for the Department of the Environment, Transport and the Regions.
21.
Estate management services
This heading applies where you use a private company to manage an estate. For
example, you may use a private firm to manage a hospital complex. The supplier’s
services would probably include dealing with any repairs and maintenance, arranging
cleaning etc. The estate management company will usually charge a monthly fee for
such services.
The VAT charged would be refundable under these provisions to the extent that it
relates to the non-business activity of providing NHS health care. If the hospital
complex included shops, a restaurant and a private hospital ward, for example, which
are deemed to be business activities, then the VAT incurred would need to be
apportioned accordingly to fairly reflect the non-business use of the estate
management services. Only that which reasonably relates to the non-business
provision of NHS health care may be reclaimed under the Contracted-Out Directions.
Any VAT relating to business activities may be reclaimed as input tax, subject to the
normal VAT rules, but only to the extent that it relates to taxable business activities.
Using the above example, a proportion of the VAT incurred would not be recoverable
either under these provisions or as input tax, as it relates to the exempt business
activity of private health care.
22.
Export intelligence services
23.
Filming, audiovisual and production services
This category is self-explanatory. The important this to remember here, as with all
contracted-out services, is to what use the services are being put. For example, if
you buy in the services of a film and production company to make a film or video to
be used as part of an internal education seminar then VAT would be recoverable
under this heading. However if the pupils were charged a fee for attending, the VAT
would not be reclaimable as it would be a purchase made in connection with an
exempt business activity.
24.
Health promotion activities
This heading is self explanatory, an example would be where the NHS body
commissions an external provider to deliver a health promotion campaign, but has
limited NHS application.
24
25.
Hire of reprographic equipment including repair and maintenance
VAT incurred on the hire or rental of reprographic equipment would be considered to
be eligible for a refund, but only where the hire or rental agreement/contract provides
for repairs and maintenance. The hire of reprographic equipment where there is no
element of repairs and maintenance would not be eligible for VAT recovery.
This heading does not allow VAT recovery incurred for fax machines or
consumables.
26.
Hire of vehicles including repair and maintenance
Applies only where an NHS body places a contract with a trader to supply vehicles
and provide repair and maintenance. The supplier must be carrying out the repair
and maintenance.
Includes
Pool cars
Excludes
Hire of vehicles on their own.
Arrangements where the NHS body carries out the repair work itself or contract this
out to another body or Government department
Short-term car hire
27.
Insolvency services
28.
Interpretation and translation services
VAT would be eligible for a refund under these two categories, if you used a private
interpreter or translator. For example, if an interpreter were needed during the
course of treating a non-English speaking NHS patient.
Before you reclaim any VAT you should ensure, by checking the suppliers invoice
that VAT has been charged. Few translators or interpreters have reached the VAT
registration threshold and may, therefore, not be required to register for VAT. You
must not simply assume that there is a VAT element included in the charge.
29.
Issue of documents to, and control of, bingo halls and off-course bookmakers
30.
Issue of documents under Wireless and Telegraphy Act
31.
Laboratory services
This heading covers the VAT charged for the use of laboratory facilities such as drug
testing/forensic testing and the provision, by an outside contractor, of laboratory
services.
It excludes the supply of consumables.
25
32.
Laundry services
VAT is refundable on the contracting out of cleaning and laundering of clothing, linen
and fabrics. It is also refundable on dry cleaning services, towel cleaning services
and linen only services.
The VAT on the provision of linen, which is exchanged on a regular basis for
laundering, but remains the property of the company providing the service, is eligible
for a refund.
The purchase of clothing, linen and fabrics, however, constitutes a supply of goods
and as such the VAT incurred cannot be recovered.
The cleaning or redressing of wigs by external contractors (for example, for cancer
units) would also be eligible for a refund under this heading.
33.
Library services
Where you are charged VAT for the use of external libraries such as University or
independent academic libraries and it is in respect of the non-business activities of
the NHS, then the VAT will be eligible for a refund under this heading. This does not
include subscription to Web sites.
34.
Maintenance and care of livestock and fauna in connection with the Royal
Parks
35.
Maintenance, non-structural repair and cleaning of buildings
Includes
Repairing what already exists
Contract cleaning/window cleaning
Redecoration
Excludes
Repair by replacement
Installation of goods
Supply of goods
Structural alterations
Conversions
36.
Maintenance and repair of civil engineering works
Includes
Repairing and maintaining existing drains.
37. Maintenance, repair and cleaning of equipment, plant, vehicles and vessels*
This heading allows departments to recover VAT on repair and maintenance costs as
follows:
Includes:
26




equipment, plant, vehicles and vessels owned by a department
equipment, plant, vehicles and vessels which are leased. This is provided
that the repair and maintenance work is supplied under a separate contract
or agreement from the lease of the equipment, plant, vehicles or vessels. It
does not have to be made by a different supplier
spare parts which are provided as part of the eligible repair and
maintenance services
Repairs to existing lifts
Excludes:

the lease arrangement itself

Installation of new lifts

Complete replacement of central heating and air conditioning systems
VAT incurred on the leasing or hire of equipment, plant, vehicles and vessels is NOT
recoverable. The only exceptions to this are headings 25 ‘Hire of reprographic
equipment including repair and maintenance’ and 26 ‘Hire of vehicles, including
repair and maintenance’. In both these cases the VAT is only recoverable on
contracts for the supply of the equipment / vehicles together with full repair and
maintenance services.
See Enclosure F.
38.
Maintenance and repair of statues, monuments and works of art
Includes
cleaning
restoration costs
removal & resiting costs.
39.
Medical and social surveys
The use of a private firm to carry out medical and/or social surveys on behalf of the
NHS, where the results are to be used for the non-business activity of providing NHS
health care, would qualify as a service eligible for a refund of VAT. This would also
include information supplied by a private company from general surveys that have
already been carried out.
40.
Messenger, portering and reception services
Included in this category are internal mail collection and distribution and portering
services such as the movement of patients and equipment around hospitals. VAT
incurred on the movement of corpses by funeral directors to or from the hospital site
is covered by this heading.
27
41.
Nursing services
Where you are charged VAT on the provision of nursing services or agency nursing
staff, whether on an agency commission basis or otherwise, the VAT would be
reclaimable under this heading. You should not, however, assume that there is a
VAT element included in the charge made to you, as the supply may be exempt from
VAT. You should check the suppliers invoice carefully first to ensure that VAT has, in
fact, been charged.
42.
Office removals
includes
Office relocation contractors
Provision of removal services
Crate hire when part of a removal contract
Excludes
Crate hire alone
43.
Operation and maintenance of static test facilities etc.
44.
Operation and maintenance of stores depots.
If you employ an external operator to operate and maintain your stores depot the
VAT charged would be reclaimable under this heading. An example of this would be
if you contracted out the running of your stocks of items and equipment required in
the day-to-day provision of health care (eg dressings, medicines, lotions, stationery
etc). You should note that this heading applies to the charge made for operating and
maintaining such a service and not for the supply of the goods being stored.
45.
Operation of hospitals, health care establishments and health care facilities
and the provision of any related services*
This heading is concerned with the provision under a PFI (or similar) agreement of a
fully operational and managed hospital or healthcare facility, where all services
relevant to that facility short of medical and nursing services are supplied to the NHS
by the PFI provider. It includes the ancillary provision of equipment together with the
service of operating and maintaining that equipment, and it includes utilities when
provided as a part of the whole package and paid for within the single unitary charge.
*See Enclosure E
46.
Operation of prisons, detention centres and remand centres, including medical
services.
28
47.
Passenger transport services
Under this heading, you may reclaim VAT charged to you where you use the services
of an outside contractor to transport passengers. For example, where a hospital hires
or leases a vehicle with a driver for transporting in-patients, outpatients, hospital staff
or other individuals (eg private specialists/consultants), providing it is in connection
with the non-business activity of the provision of NHS health care.
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.
The hire or lease of a vehicle without a driver would not be included under this
heading, but may be eligible for a refund under the heading 26"Hire of vehicles
including repair and maintenance".
48.
Pest control.
VAT is eligible for a refund on pest control services, such as disinfestation, but would
not be eligible on the purchase of products designed for pest control, being the
purchase of goods.
49.
Photographic, reprographic, graphics and design services.
This heading would include hire of a photographer, design & printing or reports. Also
this would include the initial design of a web site.
50.
Preparation and despatch of forms.
51.
Press cutting services.
If you use an outside contractor to provide you with a press cutting service, for
example to supply you with copies of all articles in the national and/or local press of
particular relevance to NHS health care, then the VAT incurred on this service would
be refundable under this heading.
52.
Professional services, including those of any manager, adviser, expert,
specialist or consultant.
VAT is recoverable on the professional services of managers, advisers, experts,
specialists and consultants for advice or information on how to affect something.
This does not include the affecting of that service themselves. In relation to building
works and construction, the professional fees of architects and structural engineers
are included, as is consultancy advice on planning site layouts and the services of
solicitors, valuers and surveyors. VAT is eligible for a refund irrespective of whether
the fees relate to repairs and maintenance or new construction or improvements or
refurbishment etc.
This category is not restricted to professional fees in connection with construction
work. It also covers professional fees such as those in connection with computer
consultancy work, including contract software development.
29
53.
Provision and management of accommodation, including leased
accommodation, for office use or as part of any other listed service*
This heading covers PFI arrangements under which NHS bodies are supplied with
fully serviced and managed accommodation by a single PFI provider. The most
distinct element will be that risk is transferred from the NHS body to the PFI provider.
Consequently, the heading does not include leases granted by commercial landlords,
even where they are landlord repairing and insuring leases.
If the building is used for …
Standard-rated business activities – Input Tax can be reclaimed under the normal
VAT rules. .
Exempt business activities – Input Tax cannot be recovered
Government Non-business activities If building is occupied under a normal commercial lease The type of lease will
invariably include, the landlord’s obligation to maintain the building (for example,
heat, light, utilities, cleaning, repairs and maintenance, and insurance); and, among
the tenants obligations, a covenant to pay rents and service charges– you cannot
claim a refund under section 41(3)
If you occupy the building under a PFI or similar arrangement - you may claim a
refund of VAT under Heading 53 of the Treasury’s (contracting out) direction.
More than one type of use.
The VAT must be apportioned between the difference uses.
*See Enclosure E
54.
Publicity services
The use of a private publicity agency for dealing with the media on behalf of the NHS
would be an example of the type of service falling within this category. The direct
placing of an advertisement by an NHS body is not recoverable.
55.
Purchasing and procurement services
If you were to use a buying agent or private firm to carry out your purchasing, then
any VAT incurred would be eligible for recovery under this heading.
56.
Radio services
This heading refers to the contracting out of radio services, such as the contracting
out of services connected to the running of a hospital radio.
This heading does not include the supply of car radios or radio masts.
30
57.
Recruitment and relocation of staff and other related services
If you use an agency to arrange for the recruitment of staff, the VAT would be
refundable under this heading. This would include services provided as part of a
recruitment drive, for example if you were to open a new hospital or new department
within a hospital, or for the recruitment of staff on an individual post-filling basis. The
direct placing of an advertisement by an NHS body is not recoverable.
Again, this category would only apply where the recruitment relates to the nonbusiness activities of the NHS. VAT incurred in respect of the recruitment of canteen
staff, for example, would only be eligible for a refund under these provisions to the
extent that it relates to the supply of catering for NHS in-patients as part of the
provision of NHS Health care.
You may incur VAT, which would be eligible for a refund under this category, if, for
example, you were to open a new hospital or move to a new building and used a
private company to deal with the relocation of the hospital staff.
58.
Research, testing, inspection, certification and approval work for the Health
and Safety Executive.
59.
Scientific research of the kind normally carried out for the Ministry of
Agriculture, Fisheries and Food Standards Agency.
60.
Security services.
Services eligible for VAT recovery under this heading would include the provision of
security guards and staff security surveillance equipment, security patrols and the
secure transport of equipment.
The provision of security equipment only would not be eligible as this would be a
supply of goods. VAT incurred on the repair and maintenance of security equipment
would, however, be recoverable under heading 37 "Maintenance and repair of plant,
equipment and furniture, including surgical appliances and wheelchairs".
61.
Services of printing, copying, reproducing or mailing any documents or
publications, including typesetting services.
The type of services under this category that would be eligible for a refund of VAT
would include photocopying services supplied by outside firms, the services of
mailing agencies and any printing or reproduction of documents or publications and
typesetting services. It includes the printing of bespoke forms, labels, cards, reports,
letterheads etc. (Excluding names badges and signs.) By bespoke we mean
designed from scratch specifically for the NHS body.
In the case of printing services, although the supply of the paper is a supply of goods,
it is considered to be an intrinsic part of the service being provided (for example, it is
impossible to receive the service of printed letterheads without the paper on which
the letterhead is printed). The VAT would, therefore, be eligible for recovery on the
total contract price, which will normally include that of typesetting, paper and the use
of the printing or embossing machinery.
The initial supply of signs and names badges (also the complete replacement of) is
not eligible for recovery, as they are seen as goods. Signs replaced as a result of
NHS bodies merging would be recoverable, as would repairs to existing signs.
31
62.
Share Registry Survey.
63.
Storage, distribution and goods disposal services.
Includes
Records sent for archiving or destruction.
Storage of employees’ possessions when they are relocated.
Incineration services
64.
Surveying, certification and registration in connection with ships and relevant
record keeping and verification, issue of certification, cards, discharge books
and campaign medals to seamen.
65.
Training, tuition or education.
Training is exempt from VAT when provided by eligible bodies (see Notice 701/30),
however if VAT is incurred in the course of training in the course of non-business, it
can be recovered under this heading. However, where separate supplies of
accommodation, meals, room hire etc are made there are no provisions for a VAT
refund.
66.
Transport research of the kind normally carried out for the Department of the
Environment, Transport and the Regions.
67.
Travel services, excluding hotel accommodation and fares.
This heading includes the cost of services of agencies contracted to make travel
arrangements for which a fee is charged.
68.
Travel and transport surveys, including traffic census counts.
69.
Typing, secretarial, telephones and clerical services including Agency staff.*
Under this heading VAT would be eligible for a refund on fees incurred where work is
contracted out to agencies providing typing, secretarial, telephonist and clerical
services. As is the provision of typing services by a word processing bureau.
VAT is not recoverable on the supply agency staff if they are being used because of
recruitment difficulties in filling permanent posts.
This heading does not include:
 hire of telephones, telephone lines, switchboard equipment etc.
 secondees
 employee expenses
*See also COS Heading 69 letter dated 5 February 2014 at Enclosure G.
32
70.
Waste disposal services.
Included as eligible for a refund of VAT under these headings would be collection
and disposal services, including the removal of ash, refuse disposal, clinical waste
disposal, incineration services and sludge disposal. It also includes VAT incurred on
the supply of incineration of waste products, or for the use or hire of incineration
facilities. The removal, conveyance, treatment or disposal of the contents of
cesspools, septic tanks or similar receptacles would be considered to be eligible for a
refund. Also included under this category is the hire of rubbish skips and wheelie
bins, where full containers are exchanged for empty ones by an outside firm.
Specifically excluded, however, would be VAT on the purchase of waste disposal
equipment, being the supply of goods. This heading does not include disposal of
construction waste in the course of repair & maintenance, which may be incorporated
within heading 35-37.
71.
Welfare services.
Welfare services include the provision of care, treatment or instruction designed to
promote the physical or mental well being of elderly, distressed or disabled persons,
including children and young persons. However a lot of these services may be
exempt from VAT
72
Career Guidance, Mentoring and Counselling to help unemployed people back
into work as part of the New Deal.
73
Services relating to Action Teams for Jobs and Employment Zones
74
Original research in order to gain knowledge and understanding
Research may be taxable or exempt. This heading allows for recovery of VAT if
charged.
75
Inspection of woodland sites for approval of felling license applications and of
timber imports/imports using timber packing to prevent entry of foreign tree
pests and diseases.
33
ENCLOSURE C – COS Heading 35 and 37
* Please also see exception list below at Enclosure D
Subject
1
2
3
4
5
6
Alarms
Asbestos
Ceilings
Construction
Decorating
Doors*
Description
Recovery
Repairing existing fire/burglar alarms
Installation of fire/burglar alarms
Extension to current systems
Repair by partial replacement of parts within
existing fire/burglar alarm
The complete replacement of an existing
system
Removing asbestos
Sealing in asbestos
Repairing existing ceiling/suspended ceiling
Replacing existing damaged tiles in same
location (within existing grids structure)
Forming fire breaks in ceiling voids
Construction of new ceiling/suspended ceilings.
Complete replacement of suspended ceiling
structure
Building new cool room
Construction of a new room
Building new extension
Major building improvements
Installation of a new damp proof course
Installation of a silicone based injection.
Single supply of scaffolding
Structural repairs not traditionally performed inhouse, as the work requires highly specialised
skills.
Painting and decorating existing walls, windows
etc to restore decorative order
First time decoration
Resealing against damp and draughts
Fitting fire doors in corridors to form a fire break
Widening doors to allow wheelchair access
Blocking up old/existing doorways
Installing new doors/door frames where non
existed previously
Installation of automatic/electric doors
First time fitting of fire doors in new buildings/
extensions
Fitting fire doors in new partitions
Yes
No
No
Yes
35
No
Yes
Yes
Yes
35
35
35
Yes
35
No
No
No
No
No
No
No
No
No
No
No
Yes
No
Yes
No
No
No
No
No
No
No
34
COS
heading
35
35
35
Subject
7
8
9
10
11
12
13
Electrical*
Fire Escapes
Flooring
Grounds
Incinerators
Insulation*
Kitchen*
Description
Recovery
COS
heading
Electrical works would include items such as installation of luminaries,
general lighting, small power, nurse call systems, electrical connections to
other systems. VAT recovery will be dependant upon the context of the
specific job being undertaken, e.g. if purely refurbishment, more scope
expected for VAT recovery. If major alteration/reconfiguration, limited
scope for recovery.
Extension of wiring into new areas
Installation of new emergency lighting/fire signs
Installation/replacement of Building
Management System
Installing new/additional wiring and/or sockets
Installing new/additional wiring and/or light
fittings
Installing new/addition cables/wiring for
telephone/data lines
Complete removal and replacement of wiring
back to distribution boards
Repairing fire escapes
Replacing fire escapes
Building new fire escapes
Breaking up existing concrete floors and
subsequent relaying at a slight different floor
level.
Repairing existing stuck down flooring by
rescreeding and resurfacing bonded fitted
flooring, including stuck down carpet, carpet
tiles, floor tiles and vinyl.
Supplying first time flooring
Installing plywood base to level floor
Replacing fitted carpets (i.e. not stuck down)
Gardening
Grass cutting
Tree surgery
Landscaping/redesigning grounds
Repair of incinerator
Installing new incinerator
Construction/extending height of chimney
Replacement of incinerator
Increasing thickness of existing lagging on
incinerators
First time installing of insulation
Installing sound proofing panels
Repair by resurfacing existing worktops and
units
Installing/building new kitchen units, cupboards
etc.
Installing/building new work tops
No
No
No
No
No
No
No
Yes
No
No
35
Yes
35
Yes
35
No
No
No
Yes
Yes
Yes
No
Yes
No
No
No
37
No
No
No
Yes
No
No
35
35
35
35
35
Subject
14
Lift
15
Mechanical*
16
Miscellaneous
17
Ramps
Description
Recovery
COS
heading
37
Repair of lift
Yes
Replacement of lift
No
Installing a new lift
No
Mechanical works would include items such as pipe work, ductwork,
heating units, chiller units, chilled water plant, air handling units, hot and
cold water plant, compressed air systems, medical gases and soil and
waste pipe work.
Repairs to faulty systems (including parts)
Yes
37
Replacement of system
No
Installation of new system
No
Alterations/additions and extensions to existing
No
system
Fixing values and/or meters to existing/new
radiators, pipes and taps to regulate temperate
Yes
37
of hot water for patient safety/energy
conservation purposes
Repair existing pipes/radiators
Yes
37
Installation of new/addition pipes/radiators
No
Replacing water tanks
No
Building/installing new water tanks
No
First time installation of boiler
No
Replacement of boiler
No
Repair to boiler (including parts)
Yes
37
Complete replacement of central heating
No
system
Installation of new central heating system
No
Testing and Commissioning
No
Minor works of a repair and maintenance
Yes
35
nature
Disturbance works, where those works only
need to be undertaken as a result of alterations
No
to a building or as a result of new building
works.
Fitting of fire hoses/extinguishers
No
Fitting of grilles, bars, locks, window film and
No
security cameras
Installation of shelves
No
Replacement of shelves
No
Repair existing ramps/handrails for access for
Yes
35
the disabled
Replacing/altering of ramps/handrails
No
Initial provision of ramps/handrails including
replacement of stairs/steps by ramps
No
36
Subject
18
19
.
20
21
22
Roads
Roofs
Sanitary ware*
Signs
Walls
Description
Recovery
Breaking up and removal of covers to existing
manholes and their re-provision in the same
place at a higher level
Resurfacing existing non-fee paying car parks
Resurfacing existing footpaths
Relaying down to foundation of existing
footpaths
Road cleaning
Building new car park/footpath where one did
not previously exist.
Maintenance of roofs including necessary
access works
Resurfacing/replacing/reslating existing roof
Re-felting of flat roofs
Altering existing pitch i.e. replacing flat roof by
pitch
Roofing over previous open space
Installation of canopy
Repair of existing damaged washbasins and
sanitary ware.
Fitting new washbasins and sanitary ware.
Replacing existing systems in new locations or
replacing bath by shower, toilet by wash basin
etc
Replacement of sanitary back and side panels,
vanity units, shower cubicles.
Repairs to existing signs
Repair by replacement signs
New signs necessary only as a result of a Trust
merger
Repairing existing partitions
Restoration of damaged plaster work/brick work
Constructing new partitions/walls, altering
partition layout
First time fitting of partitions in new
buildings/extensions
Painting new walls/partitions
Repairing damaged tiles
Tiling new areas
Repairs to wall-cladding
Provision of wall-cladding/wall panels/wall
protection rails
Replacement wall-cladding/wall panels/wall
protection rails
Yes
35
Yes
Yes
35
35
No
Yes
35
No
Yes
35
Yes
Yes
35
35
No
No
No
Yes
35
No
No
No
Yes
No
37
Yes
37
Yes
Yes
35
35
No
No
No
Yes
No
Yes
No
No
37
COS
heading
35
35
Subject
23
24
Windows*
Woodwork
Description
Recovery
Repairing existing window frames and glass
with similar items
Bricking up windows or forming new
window/window frames.
Installation of fitted blinds, curtains and curtain
tracks
Replacement of fitted blinds, curtains and
curtain tracks
Installation of combination window/blind units
Repair to fitted blinds, curtains and curtain
tracks
Repairs to dado /picture rail and skirting boards
Replacement of dado /picture rail and skirting
boards
38
Yes
COS
heading
35
No
No
No
No
Yes
37
Yes
35
No
ENCLOSURE D - Exceptions to normal COS rules, where we accept the concept of
repair by replacement for the listed items only
Subject
6
Doors
7
Electrical
12
Insulation
13
Kitchen
15
Mechanical/
Pipe work
20
Sanitary ware
23
25
Windows
X-rays
Description
Repairing by replacing existing doors/fire
doors/ door frames
Replacing existing doors with fire doors
Repair by replacing existing wiring/cabling,
individual sockets and light fittings, if in exactly
the same location.
Repair by replacing lagging
Repair by replacing existing kitchen units,
cupboards etc within kitchens/tea points
Repairing by replacing existing pipes/radiators
in same location.
Replacement of existing damaged washbasins
and sanitary ware in exactly the same place,
i.e. toilet cistern by toilet cistern, sink by sink,
bath by bath. This would not include
replacement of sluices and hoppers.
Replacement of windows within same aperture
Replacement of an X-ray tube or CT Tube
39
Recovery
COS
heading
Yes
35
Yes
35
Yes
35
Yes
35
Yes
35
Yes
35
Yes
35
Yes
Yes
35
37
ENCLOSURE E – Additional notes for COS Headings 45 and 53
COS Heading 45 Operation of hospitals, health care establishments and health care
facilities and the provision of any related services
Heading 45: Covers the provision of both PFI or LIFT and non-PFI (or LIFT) hospitals and
healthcare establishments and healthcare facilities.
For these arrangements you should be looking first to see if it is a PFI arrangement and for the
non-PFIs establish if there are sufficient services to facilitate the operation of a hospital,
healthcare establishment or healthcare facility. When assessing the level of services provided
with the building, it is important to consider the actual use of that building and that the services
provided are consistent with that usage.
Situation.
PFI or LIFT arrangements.
Services element irrelevant – can be “hard”
PFI, similar to ‘bare’ lease
Non-PFI or LIFT hospitals and healthcare
establishments and healthcare facilities.
Minimal or no services.
VAT treatment.
VAT recoverable under the COS heading 45
rules.
No VAT recoverable under COS heading 45.
If the services are supplied separately from
the lease and are separately contracted for
then the service elements may themselves
be recoverable if they fall under any of the
COS headings.
Non-PFI or LIFT hospitals and healthcare
establishments and healthcare facilities.
Full package of services necessary for the
operation of that hospital etc. - for example
estate management, reception, porterage,
cleaning, laundry, catering, security, equipment
maintenance, technicians.
VAT recoverable under COS heading 45.
Arrangements for MRI scanners and similar medical equipment that is supplied with staff
presence of labour and expertise remains eligible to be recovered under heading 45.
40
COS heading 53
Provision under a PFI agreement of accommodation for office or
other governmental use, together with management or other services in connection with
that accommodation.
Heading 53: Covers PFI arrangements for offices, and other government buildings that are
serviced or managed (excluding hospitals and health care establishments)
Situation.
VAT treatment.
All non-PFI arrangements.
No VAT recoverable under
COS heading 53. If the
services are supplied
separately from the lease and
Level of services provided irrelevant.
are separately contracted for
then the service elements may
themselves be recoverable if
they fall under any of the COS
headings.
PFI arrangements with lease of serviced or managed office
or other public sector accommodation (other than hospital
and healthcare falling under heading 45) of any duration.
PFI arrangements for the lease of accommodation only (i.e.
no management and other services)
41
VAT recoverable under COS
heading 53.
No VAT recoverable
ENCLOSURE F - Heading 37 letter dated 27 February 2013
Local Compliance
Individuals & Public Bodies
Public Bodies Group
Customer Coordinator Team
Custom House, The Dockyard
Pembroke Dock
SA72 6TW
Phone 0845 600 5310
www.hmrc.gov.uk
Date
Our ref
27 February 2013
Dear Sir/Madam,
Revised Note on Contracted-Out Services Heading 37
HMRC has revised the Contracted-Out Services Heading 37 (‘COS 37’) Guidance following
the recent Goals Soccer Centre VAT Tribunal case (TC02253). With immediate effect the
revision overrides guidance previously issued by HMRC.
COS VAT can be recovered under COS 37 provided that the repair and maintenance work is
supplied under a separate contract from that of the lease of the equipment, plant, vehicles
or vessels. VAT incurred on the leasing or hire of equipment is not recoverable. Please refer
to the Appendix A overleaf for details of the revised Guidance.
NHS Bodies may now recover under-claimed COS VAT for the 2012/13 financial year on
VAT returns due for submission up to and including the May 2013 return. The May 2013
VAT return must be received electronically by HMRC not later than 7th July 2013.
Alternatively, NHS Bodies may use the error correction procedure which will require the
appropriate error correction documents to be received by HMRC not later than 30th June
2013.
If you have any questions please contact Public Bodies Group Customer Coordinator Team
on 0845 600 5310.
Yours faithfully
John Welsh
Business Unit Head
HMRC
42
Appendix A
Guidance Notes for Government Departments
Part 3B The Treasury (Contracting Out) Direction
37. Maintenance, repair and cleaning of equipment, plant, vehicles and vessels
This heading allows departments to recover VAT on repair and maintenance costs as
follows:
Includes:
 equipment, plant, vehicles and vessels owned by a department
 equipment, plant, vehicles and vessels which are leased. This is provided that the
repair and maintenance work is supplied under a separate contract or agreement from
the lease of the equipment, plant, vehicles or vessels. It does not have to be made by a
different supplier
 spare parts which are provided as part of the eligible repair and maintenance services
 Repairs to existing lifts
Excludes:
 the lease arrangement itself
 Installation of new lifts
 Complete replacement of central heating and air conditioning systems
VAT incurred on the leasing or hire of equipment, plant, vehicles and vessels is NOT
recoverable. The only exceptions to this are headings 25 ‘Hire of reprographic equipment
including repair and maintenance’ and 26 ‘Hire of vehicles, including repair and
maintenance’. In both these cases the VAT is only recoverable on contracts for the supply of
the equipment / vehicles together with full repair and maintenance services.
43
ENCLOSURE G – Heading 69 letter dated 5 February 2014
Local Compliance
Individuals & Public Bodies
NHS and Charities Unit
Customer Coordinator Team
Custom House, The Dockyard
Pembroke Dock
SA72 6TW
Phone 0300 123 1081
8.30am to 5.00pm Monday to Friday
Web
Date
Our ref
Your ref
NI number
hmrc.gov.uk
5 February 2014
<<VRN>>
Dear Sir or Madam
Contracting out services (COS) VAT Heading 69 Section 41, VATA 1994
We have found that there is a misunderstanding within some NHS Bodies regarding their
entitlement to make claims under COS VAT Heading 69. We are aware that as a result of
the term ‘agency staff’ being included within the heading many NHS bodies have recovered
VAT incorrectly on supplies of agency staff rather than under a contract for the provision of
services.
NHS bodies cannot normally recover VAT incurred on expenditure relating to their
non-business activities. However, section 41(3) of the VAT Act 1994 allows the Treasury to
publish a direction under which government bodies and the NHS are allowed to claim VAT
they incur on certain services which they contract out to third parties.
The direction is published in the Government Gazettes and includes over 70 headings,
although only some of these apply to the NHS.
Heading 69 Recovery criteria
Heading 69 of the Treasury ‘Contracting-out Direction’ relates to “Typing, secretarial,
telephonist and clerical services including agency staff”. This heading allows for VAT to be
refunded when NHS bodies contract for the provision of a typing, telephonist or clerical
service where the supplier/agency fulfils the contract by using their own staff (or other
agency staff) either at their own site or at the NHS premises and the staff are under the
direction of the supplier/agency.
Where agency staff have been utilised because of difficulties in recruiting staff to fill
permanent posts or are brought in to supplement existing staff levels during busy periods,
then the criterion of being a contracted out service would not be satisfied and consequently
44
any VAT incurred would not be recoverable. Hiring staff to continue an in-house activity is
the opposite of contracting out that activity.
I attach in Appendix A the NHS Guidance note and the latest version of the Government
Department note to this Heading.
We want to ensure this misinterpretation is corrected as soon as possible. We are still
reviewing the current and previous year’s impact of this clarification. I recognise that for
some trusts, a change to what has been the existing practice may have an impact on your
2014-2015 budgeting and did not want to delay you receiving a clear restatement of our
guidance.
VAT recovered from 1st April 2014
You must ensure that from 1st April 2014 VAT recovered on supplies is restricted to the
heading 69 recovery criteria detailed above for contracted out services providing clerical,
secretarial, telephonist and typing services where the supplier/agency fulfils the contract by
using their own staff either at their own site or at the trust premises and the staff are under
the direction of the agency.
VAT Public Notices 700/34 gives guidance on the treatment of supplies of staff and is
available on the website at hmrc.gov.uk.
If there are any issues you want to raise regarding this issue contact our Customer
Coordinator team on 0300 1231081.
John Welsh
Business Unit Head
To learn more about your rights and obligations go to www.hmrc.gov.uk/charter
45
Appendix A
NHS H69 Guidance Note 2005
69. Typing, secretarial, telephones and clerical services including Agency staff.
Under this heading VAT would be eligible for a refund on fees incurred where work is
contracted out to agencies providing typing, secretarial, telephonist and clerical services. As
is the provision of typing services by a word processing bureau.
VAT is not recoverable on the supply agency staff if they are being used because of
recruitment difficulties in filling permanent posts.
This heading does not include:
• hire of telephones, telephone lines, switchboard equipment etc.
• secondees
• employee expenses
Guidance notes for Government Departments
Part 3B The Treasury (Contracting Out) Direction
69. Typing secretarial, telephonist and clerical services including agency staff
Includes:
• VAT incurred on supplies by agencies providing typing, secretarial, telephonist and
clerical services using their own staff
• Provision of typing services by a word processing bureau
Excludes:
• Secondees
• Employee expenses
If agency staff are utilised because of difficulties in recruiting staff to fill permanent posts or
are brought in to supplement existing staff levels during busy periods then these would not
satisfy the criterion of being a contracted out service for these purposes and consequently
any VAT incurred would not be recoverable.
46
ENCLOSURE H – Guidance letter 24 April 2014 – Transition arrangements
Local Compliance
Individuals & Public Bodies
NHS and Charities Unit
Public Bodies Enquiries S0927
PO Box 3900
Glasgow
G70 6AA
For the attention of the Finance Director
<<Address>>
Phone 0300 123 1081
8.30am to 5.00pm Monday to Friday
www.hmrc.gov.uk
Date
Our ref
24 April 2014
<<VRN>>
Dear Sir or Madam
H M Treasury Contracting Out Direction
From the responses we have received to my letter 28 February 2014 which related to
claiming VAT refund on Contracted Out Services, we now appreciate that there are some
areas where the guidance notes written for government departments are either not relevant
to the NHS or can cause confusion for NHS bodies. We are sorry about this our intention
has always been for consistency and certainty.
We will develop a single comprehensive book of guidance that meets the needs of both NHS
bodies and government departments. The reason we wish to do this is that the Treasury’s
direction is a single direction covering both groups of bodies. It follows that although there
may be some areas where practical examples of the application of a heading may differ
across departments and the NHS, the scope for VAT recovery must be consistent.
Writing this guidance in conjunction with bodies such as the HFMA is a piece of work that
will need to be undertaken over the next few months and the review will incorporate all your
recent feedback. Consequently, until this work has been concluded, we are content for you
to continue to use the guidance written specifically for the NHS from 2005 onwards. For
ease of reference we have collated all this into a single bundle slightly updated to take
account of repealed legislation, any subsequent advice and new points of contact.
What you need to do now
So that we can send you a copy of the guidance, please let us know whether you want us to
provide this by email or post. We will be sending an electronic version to those who have
recently provided contact details and if you would like the same let us know the name and
47
email address of the person in your organisation who you would like us to send it to. You can
email the details to: customercoordinator.pbg@hmrc.gsi.gov.uk
If you would like us to send a paper copy, please phone our Customer Coordinator Team on
0300 123 1081 and ask them to send you one. If we do not hear from you we may contact
you by telephone to ensure you receive the guidance either by email or by normal post.
If you have any queries or comments about the content of this letter, please get in contact
with me.
John Welsh
Business Unit Head
To learn more about your rights and obligations go to www.hmrc.gov.uk/charter
48