THE
NATIONAL HEALTH
SERVICE
A
GUIDE TO
VALUE ADDED TAX
1
CONTENTS
SECTION 1 - BASIC VAT RULES
1.1
VAT law
1.2
Nature of the tax
1.3
What VAT is collected on
1.4
Liability to tax
1.5
How VAT works
SECTION 2 - OUTPUTS (SUPPLIES)
2.1
Supply of goods
2.2
Supply of services
2.3
Place of supply
2.4
Time of supply (tax point)
2.5
Output tax
2.6
VAT invoices
SECTION 3 - INPUTS (PURCHASES)
3.1
Purchases
3.2
Input tax
JK\KEEP\106760013
1
VAT GUIDE NHS: CONTENTS.
SECTION 4 - TRADE OUTSIDE THE UNITED KINGDOM
4.1
The United Kingdom, Isle of Man and the Channel Islands
4.2
The Single Market
4.3
Intrastat
4.4
Exports of goods to places outside the EC
4.5
Imports of goods from places outside the EC
4.6
Supplies of services outside the United Kingdom
4.7
Reverse charge services and procedure
SECTION 5 - BUSINESS AND NON-BUSINESS ACTIVITIES WITHIN THE NHS
5.1
Business and non-business in relation to VAT
5.2
Business activities within the NHS
Notes to business activities:
1.
Supplies made outside the EC
2.
Definition of a car for VAT purposes
3.
Provision of ambulance services at race meetings and similar events
4.
Direct supervision
5.
Provision of welfare services
6.
Single supply of a mixture of goods and services
JK\KEEP\106760013
2
VAT GUIDE NHS: CONTENTS.
5.3
7.
Advertising supplied to charities
8.
Medico-legal services
9.
Clinical trials
Non-business activities of the NHS
SECTION 6 - CONTRACTED-OUT SERVICES
6.1
6.2
Contracted-out services
-
Background
-
Eligible services
-
Current legislation
-
Conditions for claiming VAT on contracted-out services
-
Retention of records
Guidance on individual categories contained in the list of eligible services
-
Repairs and maintenance
-
Other eligible services
-
MRI Scanners
-
Boilerhouse Schemes
JK\KEEP\106760013
3
VAT GUIDE NHS: CONTENTS.
SECTION 7 - POSSIBLE AREAS OF RELEVANCE TO THE NHS
7.1
Partial exemption
7.2
Capital goods scheme
7.3
Fuel and power and building work - meaning of "residential"
7.4
Election to waive exemption (option to tax)
7.5
Catering
7.6
Agents and principals
7.7
Incontinence products
7.8
Private finance initiative
SECTION 8 - OTHER INFORMATION
8.1
Inter and intra-authority sales and the NHS divisional registration
8.2
Transfer of a business as a going concern
8.3
Sales of NHS non-business assets
8.4
Charitable funds
8.5
Clients monies
SECTION 9 - COMPLETION OF VAT DOCUMENTS
JK\KEEP\106760013
4
VAT GUIDE NHS: CONTENTS.
9.1
VAT refunds
9.2
VAT Returns
9.3
Errors on VAT Returns
9.4
Time limits for repayment claims
9.5
Retention of records
JK\KEEP\106760013
5
VAT GUIDE NHS: CONTENTS.
APPENDICES
A.
Section 41 of the VAT Act 1994
B.
Apportionment of tax between business and non-business activities
C.
Attribution of VAT incurred (flowchart)
D.
Business activities of the NHS as laid down in the current Treasury Direction
E.
Current Treasury Direction
F.
Eligible services (Contracted-Out provisions)
G.
Examples of eligible and ineligible work under the heading "repairs and maintenance"
JK\KEEP\106760013
1
VAT GUIDE NHS: CONTENTS.
INTRODUCTION
The purpose of this Notice is to provide National Health Service bodies with a basic understanding of
Value Added Tax, how it works and its application to the NHS. It is not intended to be a
comprehensive guide detailing all the rules and regulations appertaining to VAT. However, it should
give some indication of how the NHS is involved with VAT, together with details of where further
information can be found.
If you are unable to find the answer to a query regarding VAT in this or any other VAT publication,
you should write to the NHS Admin Team, 4th floor, Dorset House, Stamford Street, London SE1
9PY for further guidance. Alternatively you can telephone them on 020 8929 2695.
JK\KEEP\106760013
VAT GUIDE NHS: INTRODUCTION.
SECTION 1 - BASIC VAT RULES
This Section deals with the basic VAT rules as they apply to all VAT registered traders
involved in business activities.
1.1
VAT LAW
VAT law in the European Community is governed by various Directives, notably the Sixth
Directive (1977). The Directives are given effect in the United Kingdom mainly by the Value
Added Tax Act 1994 as amended by subsequent Finance Acts. But there are many detailed
rules in Statutory Instruments. These are either orders made by the Treasury or regulations
made by Customs and Excise. Copies of the Act and of Statutory Instruments are available
from Her Majesty's Stationery Office (HMSO) bookshops.
Many Sections of the Value Added Tax Act 1994 have a relevance to the NHS, but it is
Section 41 that contains the "Contracted-Out" regulations. These regulations empower
Customs and Excise to refund VAT, to the NHS, on certain bought-in services, as directed by
the Treasury, provided they are acquired for non-business purposes and subject to certain laid
down conditions.
Section 41 of the Value Added Tax Act 1994 is reproduced at Appendix A.
1.2
NATURE OF THE TAX
VAT is charged on a wide range of goods and services supplied in the course of business
activities in the United Kingdom (UK). It is also charged on importations from non-EC
countries and must be accounted for on acquisitions from other EC Member States. It is a
principle of the tax that, so far as possible, it should apply in the same way to the public
sector as it does to ordinary traders.
The NHS is involved with VAT in two basic ways:
(a)
as purchasers of taxable goods and services, thereby incurring VAT on their
expenditure;
and
(b)
1.3
as suppliers of taxable goods and services in the course of their business activities.
WHAT VAT IS COLLECTED ON
VAT is a tax on consumer expenditure. It is collected on business transactions and imports
made by VAT registered traders.
Most business transactions involve supplies of goods or services. VAT is payable if they are:
(a)
supplies made in the UK or the Isle of Man;
1
JK\KEEP\106760013
SECTION 1: BASIC VAT RULES
(b)
made by a taxable person;
(c)
made in the course or furtherance of business;
and
(d)
are not specifically exempted or zero-rated.
Supplies which are made in the UK or the Isle of Man and which are not exempt are called
"taxable supplies".
A “taxable person" is an individual, firm, company etc. which is, or required to be registered
for VAT.
Ordinary traders making taxable supplies above certain value limits are required to register
for VAT with Customs and Excise. These value limits are known as the registration
threshold and are generally based on the annual value of taxable supplies.
However, normal registration requirements and the registration threshold do not apply to the
NHS and other Government departments and they are required to charge and account for
VAT regardless of the annual value of their taxable supplies
Supplies are outside the scope of the tax if they are:
(a)
made by someone who is not a taxable person;
(b)
made outside the UK and the Isle of Man (although there are a few exceptions to this,
details of which can be found in Notice 700 - The VAT Guide and Notice 741 Place of supply of services);
or
(c)
1.4
not made in the course or furtherance of business (see Section 5).
LIABILITY TO TAX
There are three rates of VAT - a standard rate, currently 17.5%, a reduced rate of 5% on
domestic fuel and power and a zero rate. No tax is payable on zero-rated supplies, and an
invoice for a zero-rated supply will not constitute a VAT invoice. But they are treated as
taxable supplies in all other respects, including the right of the person making the supply to
recover the VAT on their own business expenditure (subject to certain restrictions).
Some supplies are exempt from VAT. This is because the law says that VAT is not to be
charged on them. Equally, however, the person making the exempt supply cannot normally
recover any of the VAT on their own expenses in relation to the exempt supply.
Details of supplies that are zero-rated or exempt are listed in Schedules 8 and 9 respectively
of the VAT Act 1994. These are reproduced in Notice 701/39 - VAT liability law.
2
JK\KEEP\106760013
SECTION 1: BASIC VAT RULES
1.5
HOW VAT WORKS
If you make standard-rated supplies, you have to account to Customs and Excise for the tax
due. This is your "output tax". Normally, you charge the tax to your customers. If your
customers are registered for VAT and the supplies are for use in their business, the tax is their
"input tax". In the same way tax charged to you on your business purchases is your input
tax.
As a registered person, you can reclaim from Customs and Excise as much of the VAT on
your purchases, and imports, as relates to the taxable supplies you make by way of business.
At predetermined intervals you pay to Customs and Excise the excess of your output tax over
the VAT you can reclaim as input tax. If the input tax you can reclaim is more than your
output tax, you can reclaim the difference from Customs and Excise.
If you make taxable supplies of goods or services to a customer for which you are not paid,
you may be able to reclaim relief from VAT on the bad debts. You can find out more about
this in VAT Leaflet 700/18 - Relief from VAT on bad debts.
3
JK\KEEP\106760013
SECTION 1: BASIC VAT RULES
SECTION 2 - OUTPUTS (SUPPLIES)
This Section deals with the application of VAT in respect of supplies (ie sales) made by you in
the course of your business activities, including invoicing requirements and calculation of any
VAT due.
2.1
SUPPLY OF GOODS
You supply goods if you pass the exclusive ownership of goods to another person.
You also supply goods if you:
(a)
transfer them under an agreement such as a hire purchase agreement - but not if you
transfer such an agreement (see VAT Leaflet 700/5 - Hire-purchase and conditional
sale: repossessions and transfers of agreements);
(b)
provide water or any form of power, heat, refrigeration or ventilation; but not if you
hire out equipment which does this - that is a supply of services (see Notice 701/19 Fuel and power and VAT Leaflet 701/16 - Sewerage services and water);
(c)
supply a major interest in land; broadly speaking, the freehold or a lease exceeding 21
years (see Notice 742 - Land and property and Notice 708 - Buildings and
construction);
(d)
transfer goods permanently out of the business for your private use.
You do not make a supply of goods if you provide goods (such as overalls or tools) to
employees solely for the purpose of their employment and make no charge.
2.2
SUPPLY OF SERVICES
You supply services if you do something, other than supplying goods, for a consideration. A
"consideration" is any form of payment in money or in kind (including anything which is
itself a supply).
You also supply services if you:
(a)
lend goods to someone for use outside your business;
(b)
hire goods to someone;
(c)
produce goods from someone else's materials;
(d)
use goods owned by the business outside the business;
(e)
agree, for a consideration, to refrain from doing something;
1
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
(f)
agree to grant, assign or surrender a right for a consideration.
Further information on the supply of services is contained in Notice 741 - Place of supply of
services.
2.3
PLACE OF SUPPLY
To be within the UK VAT system a supply must be made in the UK. Supplies made outside
the UK are outside the scope of UK VAT. Separate rules apply for working out the place of
supply for goods and services. These are set out below.
(a)
GOODS
The place of supply is the location of the goods when you allocate them to a
customer's order. If the goods are in the UK when you allocate them the supply is in
the UK. This applies to goods supplied for export as well as to goods supplied to UK
customers. If they are not in the UK when you allocate them the supply is normally
outside the UK and outside the scope of UK VAT. If you supply goods that are
assembled or built for the first time on site, then the place of supply is the place where
the assembly or building takes place.
(b)
SERVICES
You supply services in the place where you belong (this is known as the basic rule)
unless they are of a type for which there are special place of supply rules. You belong
where you have a business or some other fixed establishment, including a branch or
agency. If you have establishments in more than one country, the supply takes place
at the location of the establishment most directly concerned with the supply.
There are special place of supply rules for:
i.
services relating to land and property
ii.
services involving physical performance
iii.
passenger transport
iv
intra-EC transport and related ancillary services and the services of
intermediaries arranging those supplies
v.
the hiring of means of transport
vi.
certain intermediary services
vii.
services supplied where received - mainly "intellectual" in character, for
example, the services of consultants, including testing and analysis of drugs,
chemicals, or other materials and the writing of scientific reports - (a full list
of these services is contained in paragraphs 1 to 8 of Schedule 5 of the VAT
Act 1994).
2
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
More detailed guidance is contained in Notice 741 - Place of supply of services.
2.4
TIME OF SUPPLY (TAX POINT)
The "tax point" is the time when a supply of goods or services is treated as taking place. You must
account for VAT in the tax period in which the tax point occurs at the rate in force at that time.
2.4.1 GENERAL RULES
(a)
Basic tax points
If you supply goods, the basic tax point is usually:
the date when you send them to your customer or the customer takes them away. This
includes supplies under hire-purchase, credit sale or conditional sale agreements.
But if the goods are not to be sent or taken away, for example because you build them
on site, the basic tax point is:
*
the date you make them available for your customer to use.
If you supply services, the basic tax point is the date when the service is performed. It
is normally taken as the date when all the work except invoicing is completed.
But whether you supply goods or services, the basic tax point is overridden if an
actual tax point is created.
(b)
Actual tax points
If you:
(i)
issue a VAT invoice or receive a payment before the basic tax point, the tax
point for the amount you invoice or receive is the date you issue the invoice or
receive the payment, whichever happens first.
(ii)
issue a VAT invoice up to 14 days after the basic tax point, the date when you
issue the invoice becomes the tax point. However, if you issue an invoice
more than 14 days after the basic tax point, tax will be due at the basic tax
point.
To issue VAT invoices you must send or give them to your customers for them to
keep. A tax point cannot be created simply by preparing an invoice.
Remember, when a tax point is created by the issue of a VAT invoice you must
account for VAT on your VAT Return for the period covering that tax point. You
cannot delay accounting for VAT until you have received payment.
3
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
2.4.2 OTHER SITUATIONS
There are various situations where the tax point rules may not be immediately obvious.
Below are a few examples which may be of relevance to the NHS. Further examples and
more detailed guidance can be found in Notice 700 - The VAT Guide.
(a)
Deposits
Most deposits serve primarily as advance payments and will create a tax point under
(b)(i) above when you receive them. But some types of deposit are not consideration
for a supply and their receipt does not create a tax point. For example, if you take a
deposit as security to ensure the safe return of goods you have hired out and the
deposit is either refunded when the goods are returned safely or forfeited to
compensate you for loss or damage, no tax point is created.
(b)
Continuous supplies of goods and services
If you supply services on a continuous basis and receive payments regularly or from
time to time, there is a tax point every time you issue a VAT invoice or receive a
payment, whichever happens first.
(c)
Goods taken for personal or other non-business use
If goods used for your business activities are taken permanently to be used for your
non-business activities, the tax point is the time when the goods are taken or set aside
for this purpose.
(d)
Supplies made through coin operated machines
The tax point for supplies made through coin operated machines such as vending,
amusement and gaming machines, is normally the date the machine is used.
Nevertheless, as an accounting convenience Customs and Excise permit operators to
delay accounting for VAT until the takings are removed from the machine. However,
for all other purposes the normal tax point rules apply. This means, for example, that
if takings are stolen from a machine VAT must still be accounted for in full on the
supplies made from the machine.
(e)
Property
(i)
LEASEHOLD.
If you receive periodic payments of rent or ground rent, the time of supply is
the date you receive a payment or, if the supply is standard-rated, the date of
issue of a VAT invoice - whichever happens first. This also applies to any
premiums you may receive.
(ii)
FREEHOLD.
4
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
The basic time of supply for a freehold sale is the date of completion of the
conveyance. An earlier time of supply is created by the issue of a VAT
invoice (where the supply is standard-rated) or receipt of all or part of the
purchase price before the date of legal completion.
2.4.3 CHANGE OF TAX RATE
If there is a change in tax rate or tax liability, the tax point rules are particularly important in
working out what rate of VAT to charge. Guidance on the special procedures to follow is
given in Notice 700 - The VAT Guide.
2.5
OUTPUT TAX
2.5.1 INTRODUCTION
Output tax is the VAT which is due on your taxable supplies. This Section explains the
general rules about output tax but does not include details on the VAT liability of your
supplies. This is dealt with in Section 5.
2.5.2 TAX VALUE
The "tax value" of a supply is the value on which VAT is due. The amount of tax is the tax
value multiplied by the tax rate.
Usually the tax value of a supply depends on what you are given in exchange for the supply.
This is called the "consideration". The consideration is any form of payment in money or in
kind, including anything which is itself a supply. The consideration for a supply includes any
payment which you are given to cover your costs in making the supply (unless you incur the
costs as an agent).
If the consideration for a supply is wholly an amount of money, the tax value is based on that
amount. The amount paid includes tax. The tax is the VAT fraction (see paragraph 11.7) of
the amount and the rest of the amount is the tax value.
If the consideration for a supply is not in money (as in a barter transaction), or the
consideration is partly in money and partly something else (as in part-exchange), the tax value
of the supply is the monetary equivalent of the consideration. You should normally calculate
this by reference to the price, excluding VAT, which a customer would have to pay for the
supply if money was the only consideration.
2.5.3 DISCOUNTS
If you offer a customer an unconditional discount, and the customer pays the discounted
amount, the tax value is based on the discounted amount.
5
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
If you offer a discount on condition that the customer pays within a specified time, the tax
value is based on the discounted amount even if the customer does not take up your offer.
But if your terms allow the customer to pay by instalments, the tax value is based on the
amount the customer actually pays.
If you offer a discount on condition that something happens later (for example, on condition
that the customer buys more from you) the tax value is based on the full amount paid. If the
customer later earns the discount, the tax value is then reduced and you can adjust the amount
of tax by issuing a credit note.
2.5.4 MIXED SUPPLIES
You make mixed supplies where you charge a single inclusive price for a number of separate
supplies of goods or services. This is different from a single supply of a mixture of goods or
services, to which a single rate of tax applies.
If you make mixed supplies and the individual supplies are liable to VAT at the same rate,
you can calculate the tax that is due in the normal way. If the individual supplies are not
liable to VAT at the same rate, you need to work out the tax value of each supply in order to
calculate how much tax is due. If the tax value is based on the total price you charge you do
this by splitting that price between the supplies. This is called apportionment. There is no
special method of apportionment, but your calculations must be fair and you must be able to
justify them.
Apportionment is only necessary if the price you charge is the only consideration for the
supplies. If the consideration for the supplies is not wholly in money you must account for
VAT as explained above.
Apportionment must not be used if the goods and services supplied together make up a single,
indivisible supply.
More detailed guidance on output tax is contained Notice 700 - The VAT Guide.
2.5.5 PART-EXCHANGE
If you supply services, or new or second-hand goods, and receive other goods or services in
full or part-payment, two separate supplies take place. There is a supply of goods or services
from you to your customer and a supply of goods or services by the customer to you. Tax
must be accounted for by you and by your customer (if the customer is a taxable person).
2.5.6 RETAIL SCHEMES
Where you sell goods or provide services directly to the public (for example, supplies made
through a canteen or shop), you may find it difficult or impossible to issue sales invoices for
each supply made. For this reason there are a number of retail schemes which will help you
to work out how much VAT you have to pay to Customs and Excise as output tax.
6
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
Remember, retail schemes can only be used to account for output tax on retail supplies. All
other supplies must be accounted for separately using the normal method of VAT accounting.
The general principle of retail schemes is that the output tax due is calculated on the income
received through the retail outlet. This income is referred to as the daily gross takings.
Where the retail sales comprise of more than one rate of tax (for example, supplies made
through a cafe or restaurant may include the supply of cold take-away food which might be
zero-rated, or the supply of hot food for on-premises consumption which would be standardrated), a retail scheme will instruct you on how to apportion your sales between the two rates
of tax.
There are several schemes to choose from and you should choose one that best suits your
circumstances. Each scheme has certain conditions which must be fulfilled in order for them
to be used and may exclude some types of supply (for example, there is a special scheme for
supplies of catering, details of which are contained in VAT Leaflet 709/2 - Catering and
take-away food).
You may use different retail schemes for different parts of your business, but you must keep
separate accounts and separate stock records for each scheme. Again, there are certain
conditions attached to using a mixture of schemes.
Full detailed guidance on retail schemes is contained in Notice 727 - Retail schemes.
2.6
VAT INVOICES
2.6.1 GENERAL
Whenever you supply standard-rated goods or services to another registered person, you must
give that person a "VAT invoice".
This is a document containing certain information about what you are supplying. Your
customers need VAT invoices to reclaim as input tax the VAT you have charged them.
Similarly, you will need VAT invoices in order to reclaim VAT that has been charged to you.
You need not issue VAT invoices for supplies to customers who are not registered. But you
do not have to check that a customer is registered before issuing a VAT invoice.
If your customer pays in cash - not by cheque - you must, if asked, clearly show on the VAT
invoice that payment has been received and the date of receipt. There are a few specific
exceptions to this (for example, if your customer operates approved self-billing
arrangements), details of which can be found in Notice 700 - The VAT Guide.
Unless you have already issued a VAT invoice that creates a tax point under the 14 day rule,
you must normally issue a VAT invoice within 30 days of the tax point arising. An invoice
issued under the 30 day rule does not in itself create a tax point. You can extend the 30 day
time limit. Notice 700 - The VAT Guide explains when you can do this without the
approval of Customs and Excise.
7
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
2.6.2 INFORMATION REQUIRED ON A TAX INVOICE
(a)
VAT invoices must show:
*
an identifying number
*
your name, address and VAT registration number
*
the time of supply
*
date of issue (if different to the time of supply)
*
your customer's name (or trading name) and address
*
the type of supply (see (b) below)
*
a description which identifies the goods or services supplied;
for each description:
(b)
*
the quantity of goods or extent of the services
*
the charge made, excluding VAT
*
the rate of VAT
*
the total charge made, excluding VAT
*
the rate of any cash discount offered
*
each rate of VAT charged and the amount of VAT charged at each rate and
shown in sterling
*
the total amount of VAT charged, shown in sterling
You must identify the following types of supply separately:
*
sale
*
hire-purchase, conditional sale, credit sale or similar transactions
*
loan
*
exchange
*
hire, lease or rental
*
process (making goods from someone else's materials)
8
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
*
sale on commission (for example, by an auctioneer)
*
sale or return or similar terms.
2.6.3 INVOICING ZERO-RATED OR EXEMPT SUPPLIES
If you issue a VAT invoice which includes supplies that are zero-rated or exempt, you must
ensure that those items show clearly that there is no VAT payable and their values must be
totalled separately. You can, of course, issue separate invoices for zero-rated or exempt
supplies.
2.6.4 LESS DETAILED AND MODIFIED VAT INVOICES
If you make retail sales you should give your customer a VAT invoice if asked for one.
However, you may be able to use one of the options described at (a) and (b) below.
If you do not issue a VAT invoice when asked to do so by a taxable person, you may be liable
to a financial penalty.
(a)
Less detailed VAT invoice
If the charge you make for the individual supply is £100 or less (including VAT), you
can issue an invoice showing:
*
your name, address and VAT registration number
*
the time of supply
*
a description which identifies the goods or services supplied
*
for each VAT rate applicable, the total amount payable including VAT and the
VAT rate charged, shown in sterling.
Exempt supplies must not be included in this type of VAT invoice.
To work out the amount of VAT in a VAT-inclusive price, you have to multiply by
the VAT fraction. This is explained below.
If the amount you charge for a supply exceeds £100 and you are asked for a VAT
invoice, you must issue either a full VAT invoice or a modified VAT invoice (see (b)
below).
(b)
Modified VAT invoice
Provided your customer agrees, you can issue an invoice showing:
*
the VAT-inclusive value of each standard-rated supply (instead of the VATexclusive values).
9
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
At the foot of the invoice, it must show separately the:
*
total VAT-inclusive value of the standard-rated supplies
*
total VAT payable on those supplies
*
total value, excluding VAT, of those supplies
*
total value of any zero-rated supplies included on the invoice
*
total value of any exempt supplies included on the invoice.
In all other respects the invoice should show the details required for a full VAT
invoice.
If you are asked for a VAT invoice, but are unable to use either of these options, you
must issue a full VAT invoice.
2.6.5 PRO FORMA INVOICES
Pro forma invoices are often used to offer goods or services to potential customers. Such an
offer may or may not be taken up and, unless payment is received, the goods or services will
not be supplied.
If you use pro forma invoices in this way, they cannot be used as evidence to reclaim input
tax, even if they show all the details required for a VAT invoice. You should ensure that they
are clearly marked "THIS IS NOT A VAT INVOICE". If, after you have issued such an
invoice, you actually supply the goods or services to your customer or receive payment, you
must then issue a proper VAT invoice.
2.6.6 CALCULATION OF VAT ON INVOICES
You may round down the total VAT payable on all goods and services shown on a VAT
invoice to a whole penny. You can ignore any fraction of a penny.
2.6.7 VAT FRACTIONS
Normally tax is calculated at the appropriate percentage of a price which has first been
decided without VAT, and the tax invoice will show these separate amounts. However,
sometimes VAT has to be calculated from a price in which it is already included (for instance
in the less detailed VAT invoices). To do this you need the VAT fraction.
This is how it is worked out:
rate of tax
100 + rate of tax
10
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
So with VAT at 17.5% the VAT fraction is:
17.5
117.5
=
7
47
The VAT fraction will vary according to the rate of tax chargeable.
If the rates are changed the revised fractions are publicised at the time of any change, but you
can work it out for yourself by using the method set out above.
For more information on the calculation of VAT, an example of a completed invoice and
other types of invoicing (for example, computer invoicing) please refer to Notice 700 - The
VAT Guide.
11
JK\KEEP\106760013
SECTION 2: OUTPUTS (SUPPLIES)
SECTION 3 - INPUTS (PURCHASES)
This Section deals with the treatment of VAT incurred on your business purchases, when it
may be treated as input tax and to what extent it may be recovered as such. It does not cover
the rules relating to VAT refunds under the Contracted-Out Services provisions, these are
dealt with in Section 6.
3.1
PURCHASES
With very few exceptions, the liability to VAT of a supply of goods or services is determined
by the nature of the supply and not by the status of the recipient. NHS bodies are required to
pay tax on many of their purchases and VAT registered traders are instructed to treat the NHS
in the same way as ordinary customers for VAT purposes.
It is the legal responsibility of VAT registered traders to decide the tax liability of the
supplies they make and you must ensure that when seeking tenders or placing orders,
suppliers are not pressured to override that obligation, or to describe their supplies in such a
way as to evade the proper tax liability.
If you wish to query the VAT liability determined by a supplier, the first step is to ask the
trader to obtain a written ruling on the liability of his supply from his local VAT office. In
most cases this will resolve the matter. However, if it still appears that a liability has not been
correctly determined, it is open to you to seek advice from the NHS Admin Team at the South
Bank VAT Office. It will usually be necessary for you to provide the NHS Admin Team with
full details of the supplies involved, as well as the name and address of the supplier, copies of
contracts and other documents, to enable the issue to be fully reviewed.
Apart from the special arrangements for certain contracted-out activities (see Section 6), you
cannot reclaim from Customs and Excise the tax that you incur on purchases made for the
purpose of undertaking non-business or exempt activities. The funding which the NHS
receives from the Treasury, via the Department of Health, is set at a level which takes account
of VAT which is not recoverable.
NHS bodies may import goods. Normal Customs procedures for imports from non ECmember states apply in virtually all cases and standard import declarations and import entries
must be submitted. You will be charged Customs Duty and VAT at importation in the same
way as ordinary private sector traders.
Imports from other EC member states are now termed "Acquisitions". You are liable to pay
VAT on your acquisitions from other member states at the rate applicable in the UK, although
the mechanism for paying this VAT to Customs is not the same as that which is in force for
imports from non-EC member states.
Further information on trade outside the UK, including the procedures applicable if you
import services from abroad, can be found in Section 4.
1
JK\KEEP\106760013
SECTION 3 INPUTS (PURCHASES)
3.2
INPUT TAX
3.2.1 INTRODUCTION
This section explains the basic rules about input tax, as they apply to all VAT registered
traders, including the NHS. It includes details on when you can treat VAT as input tax and
when you can and cannot reclaim it.
It does not include information on the rules and regulations applicable to refunds of VAT in
respect of Contracted-Out Services under Section 41(3) of the VAT Act 1994. These are
dealt with separately in Section 6.
"Input tax" is the VAT you are charged on your business purchases and expenses, including:
-
goods and services supplied to you in the UK
-
goods you import from outside the EC
-
goods you acquire from a taxable person in another EC member state
-
services which you receive from abroad (see "reverse charges" in Section 4).
3.2.2 GENERAL RULES
You can normally reclaim input tax that relates to:
(a)
supplies you make which are standard or zero-rated, or at the reduced rate (for certain
supplies of fuel and power);
(b)
supplies you make which are outside the scope of UK VAT, but which would be
taxable if they were made in the UK;
(c)
supplies of services you make to a person who belongs outside the EC or supplies of
services you make which are directly linked to the export of goods to a place outside
the EC, and the making of arrangements for such supplies, provided the supply would
have been exempt by virtue of any item of Group 2, or any items of 1 to 8 of Group 5,
of Schedule 9 to the VAT Act 1994.
You reclaim your input tax by deducting it from your output tax when you fill in your VAT
Return. If your input tax is greater than your output tax you reclaim the difference from
Customs and Excise.
You cannot, however, usually reclaim VAT you have been charged:
-
on a car, including fitted accessories and delivery charges (see Notice 700/64 Motoring expenses).
-
on business entertainment expenses (see Notice 700/65 - Business entertainment)
2
JK\KEEP\106760013
SECTION 3 INPUTS (PURCHASES)
-
on goods sold to you under one of the VAT second-hand schemes (see Notice 700 The VAT Guide)
-
on assets of a business transferred to you as a going concern (see Notice 700 - The
VAT Guide).
If you incur input tax which relates to exempt supplies you may not be able to reclaim all your
input tax.
VAT on your business overheads, including research and development costs, can be
reclaimed subject to the rules set out in this Section. But if the costs are partly attributable to
exempt supplies only part of the VAT can be reclaimed.
You should normally claim input tax on the VAT Return for the period during which the
supplier's tax point occurred or, for imported goods, the date of the importation. The tax
point (time of supply) will be shown on your supplier's invoice.
If you are unable to claim input tax in the proper period because you have not yet received the
necessary evidence, you can claim it on a Return for a later period.
3.2.3 EVIDENCE FOR CLAIMING INPUT TAX
To reclaim VAT you have been charged as input tax you must hold valid evidence that you
have received a taxable supply. Valid evidence in most cases will be the original tax invoice.
Photocopies, fax copies and other facsimiles are not normally accepted as satisfactory
evidence. Invoices marked "PRO-FORMA" or "THIS IS NOT A TAX INVOICE" by the
supplier are not tax invoices and cannot be used as evidence for input tax deduction.
Only a registered person can issue a VAT invoice. There are financial penalties for the
unauthorised issue of VAT invoices. If you receive an invoice from an unregistered person
and knowingly use it to reclaim VAT, you are committing an offence.
In your own interest you should obtain and retain VAT invoices. Without them you may not
be able to reclaim the VAT you have been charged.
You must keep all invoices for the taxable supplies that you receive for your business use.
They must be kept in such a way that, given the invoice date and the supplier's name, they can
be easily produced to Customs and Excise.
If you import goods or remove goods from a warehouse, you or your agent should make sure
that official evidence is obtained, where required, of VAT chargeable on those goods. Details
of this evidence is given in VAT Leaflet 702/6 - Import VAT certificates. This evidence
serves the same purpose as a VAT invoice from a registered UK supplier. Without it you
may not be able to reclaim tax you have been charged. The evidence should be annexed or
cross-referenced to the relevant invoice from your supplier and both should be retained. For
goods acquired from a VAT registered person in another EC member state you should hold
the relevant invoice from the person supplying the goods.
3
JK\KEEP\106760013
SECTION 3 INPUTS (PURCHASES)
If you receive from abroad a supply of services which fall under the "reverse charge"
procedure, you should hold the relevant invoice from the person supplying the services.
If you are treating as input tax the VAT on goods or services supplied to you:
(i)
the invoice can be made out to an employee for subsistence expenses and for petrol;
(ii)
you do not need a VAT invoice for some types of supply if your total expenditure for
each taxable supply was £25 or less (including VAT). You must be sure that the
supplier was registered for VAT. This applies to:
-
telephone calls from public or private telephones
-
purchases through coin operated machines
-
car-parking charges (on-street parking meters are not subject to VAT).
3.2.4 AMOUNT OF INPUT TAX
If you can reclaim input tax in full, the amount to reclaim will be the amount of VAT shown
on the VAT invoice from your supplier. If the invoice is a less detailed tax invoice, which
does not show the VAT charged separately, your input tax will be the VAT fraction (see
Section 2) of the total amount charged for any standard-rated supply. This must be the VAT
fraction for the rate of tax in force at the time of supply.
3.2.5 EXEMPT SUPPLIES AND PARTIAL EXEMPTION
If you incur input tax which is related to exempt supplies you are partly exempt and you will
probably not be able to claim all your input tax. You must be able to relate your purchases
and other expenses to the supplies that you make. Although it is relatively straightforward to
work out whether goods or services have been used wholly to make either taxable or exempt
supplies, you will probably have also incurred input tax on overheads that you cannot directly
attribute in this way. You will have to adopt a partial exemption method to apportion your
input tax.
If you incur VAT that is not input tax (see paragraph 13.7 below) and you have to apportion
that VAT to determine your input tax, you must work this out before performing any
calculation for partial exemption purposes. Partial exemption methods only concern the use
of input tax.
For further information on partial exemption you should refer to Section 7.
3.2.6 CAPITAL GOODS SCHEME
If you acquire certain capital goods for use in relation to your business activities you must
review their use year by year over a given period of time. If, during this time, there is any
change in the extent to which you use them in making taxable supplies, you will have to make
an adjustment to your input tax.
4
JK\KEEP\106760013
SECTION 3 INPUTS (PURCHASES)
Further information on the capital goods scheme is given in Section 7.
3.2.7 VAT ON GOODS AND SERVICES NOT USED FOR YOUR BUSINESS
As previously stated, the rules explained here are the basic VAT rules with regards what VAT
may be treated as input tax. The rules governing VAT refunds in respect of Contracted-Out
Services are a separate issue and must be dealt with independent of the guidance given in this
section. VAT refundable under Section 41(3) of the VAT Act 1994 is not input tax and
claims made under these provisions are to be recorded separately.
In general, the non-business activities of the NHS are those which are carried out on a
statutory basis and, or, for no consideration (see Section 5 for full details on business and
non-business activities).
VAT charged on goods and services which you do not use for your business activities is not
input tax and you cannot reclaim it as such. This includes goods or services:
-
for your private use
-
supplied to you for another person's business
-
supplied to someone else, even if you pay for them
-
supplied to you in connection with a non-business activity.
Some goods and services may be used for only partly business purposes. Common examples
are:
-
telephone services
-
heating and lighting
-
repairs, maintenance, furnishing etc.
If this happens, you cannot reclaim as input tax all the VAT you have been charged and you
will have to apportion it accordingly.
To work out how to apportion VAT between business and non-business activities in order to
work how much can be treated as input tax, please refer to Section 5 and Appendix B.
More detailed guidance concerning input tax is contained in Notice 700 - The VAT Guide.
5
JK\KEEP\106760013
SECTION 3 INPUTS (PURCHASES)
SECTION 4 - TRADE OUTSIDE THE UNITED KINGDOM
This Section deals with the general VAT implications when trading outside the UK (both as a
purchaser or a seller of goods or services). It includes guidance on the forms required and the
general procedures to be followed.
4.1
THE UNITED KINGDOM, ISLE OF MAN AND THE CHANNEL ISLANDS
The United Kingdom consists of Great Britain, Northern Ireland and the waters within twelve
nautical miles of their coastlines. It does not include the Channel Islands or the Isle of Man.
But for VAT purposes the Isle of Man is treated as part of the UK. If you have customers or
suppliers in the Isle of Man, the VAT rules are the same as if they were in the UK. Goods
sent from the UK to the Isle of Man or vice versa are not regarded as imports or exports for
VAT purposes.
VAT is chargeable in the Isle of Man under Manx law which generally parallels UK
legislation.
There is no VAT in the Channel Islands. Goods passing between the Channel Islands and the
UK or the Isle of Man are imported or exported for VAT purposes.
4.2
THE SINGLE MARKET
4.2.1 INTRODUCTION
From 1 January 1993, following the completion of the Single Market, there are important
changes in the way that VAT is charged and accounted for on goods moving between member
states of the European Community (EC).
For VAT purposes, "imports" and "exports" for intra-EC movements of goods have
disappeared. They have been replaced by new arrangements for zero-rating intra-EC supplies
of goods and by "acquisitions".
VAT on goods traded between EC member states is no longer collected at the frontier on
importation. Instead, goods supplied between VAT registered traders continue to be zerorated on despatch, and any VAT due is payable on acquisition of the goods by the customer.
The customer accounts for any VAT due on their normal VAT Return at the rate in force in
the destination of the goods. When VAT registered traders despatch goods to unregistered
traders or private individuals in another EC country, the supplier, for most goods, charges
VAT at the rate in force in the country of despatch.
4.2.2 SUPPLIES OF GOODS TO VAT REGISTERED CUSTOMERS IN ANOTHER
EC MEMBER STATE
1
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
If you supply goods to a customer who is registered for VAT in another EC member state,
you may zero-rate your supply in the UK provided:
(a)
you obtain and show on your VAT sales invoice your customer's VAT registration
number (with a two-digit country code prefix);
(b)
the goods are sent or transported out of the UK to a destination in another member
state;
AND
(c)
you hold commercial documentary evidence that the goods have been removed from
the United Kingdom (guidance on proof of removal of goods is given in Notice 703 VAT: Exports and removals of goods from the United Kingdom).
You must meet all these conditions in order to zero-rate your supply. Otherwise you must
charge and account for tax on the goods in the UK (unless the supply of the goods is normally
zero-rated in the UK).
In order to zero-rate your supply of goods to an EC customer you must obtain within three
months of the supply, and keep, valid commercial evidence which proves that the goods have
been removed from the UK.
If your EC customer collects the goods, or arranges for the collection of the goods and their
removal from the UK, you should confirm how the goods are to be removed from the UK and
what proof of removal will be sent to you.
If you have any doubts whether an EC customer has given you a valid VAT registration
number, you can ask the NHS Admin Team at the South Bank VAT Office to check the
validity of the number. If you have quoted an invalid VAT registration number on a sales
invoice, Customs and Excise will not generally refuse zero-rating, provided you can satisfy
them that you have all taken reasonable steps to confirm the validity of the number.
4.2.3 SUPPLIES OF GOODS TO CUSTOMERS NOT REGISTERED FOR VAT IN
OTHER EC MEMBER STATES
If you supply goods to customers in other EC member states who are not registered for VAT,
you should charge and account for VAT on the goods as a taxable supply in the UK.
There are exceptions to this general rule in respect of:
(a)
goods to be installed or assembled at a customer's premises and distant sales above a
certain level where tax should be charged and accounted for by you in the member
state to which the goods are delivered (see Notice 725 - VAT: The Single Market);
(b)
supplies of new means of transport and goods subject to excise duty purchased for
business purposes where VAT must normally be paid by the customer in the member
state of destination (again see Notice 725 - VAT: The Single Market);
and
2
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
(c)
supplies to diplomats, international organisations, NATO forces and other entitled
persons and bodies in other member states which may in certain circumstances be
relieved from VAT (see Notice 703 - VAT: Exports and removals of goods from
the United Kingdom).
The value of your EC supplies of goods must be shown on Boxes 6 and 8 of the VAT Return.
If the customer is not registered for VAT, you must charge UK VAT and as the supply will
be then treated as a domestic sale, you do not have to record it in Box 8.
You must keep a record of those supplies of goods - where you are responsible for delivery made to non-registered customers in other EC member states and which are taxed in the UK,
as you may become liable to the distance selling arrangements. Briefly, if the value of these
sales rises above that state's threshold for distance selling the place of supply becomes that of
the other member state and you will become liable to register there. You will have to contact
the appropriate tax authority if it becomes apparent that registration is necessary.
4.2.4 ACQUISITION IN THE UK OF GOODS FROM OTHER MEMBER STATES
If you receive goods for use in connection with your business activities from another EC
member state, supplied by a business registered for VAT in that country, you must account
for VAT in the UK on acquisition of the goods. You should give your VAT registration
number to the supplier to receive the supply of goods VAT free. The rate of tax due is the
one applicable to the supply of the same goods in the UK. No tax will therefore be due on the
acquisition of goods which are currently zero-rated in the UK.
Acquisition is treated as taking place at the same time as the corresponding supply of the
goods in the member state of despatch.
The tax point for acquisition is therefore either:
(a)
the fifteenth day of the month following the one in which the goods were despatched
to you;
OR
(b)
the date your supplier issued an invoice to you (including an invoice issued before the
goods are sent to you),
whichever is the earlier.
Unlike the rules for supplies of goods in the UK, part or full payment for the goods does not
create a tax point for acquisitions.
You must account for any VAT due on your VAT Return for the period in which the tax point
occurs and, subject to the normal rules, you may treat this as input tax on the same VAT
Return. In other words, if the goods you acquire relate to taxable business activities, you may
reclaim the VAT as input tax. However, VAT on goods acquired for non-business activities
is not reclaimable.
3
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
In order to account for the tax you must:
(a)
keep records of the goods acquired from other member states;
(b)
hold commercial documentation, such as your supplier's invoice;
(c)
calculate the VAT due on the acquisitions of these goods and enter it on the "tax due"
side of your VAT account;
and
(d)
include the VAT due in Box 2 (which is added to Box 1 to make Box 3 "Total VAT
due") on your VAT Return for the tax period in which the tax point of the acquisition
occurs.
The value of your EC acquisitions of goods must be shown in Boxes 7 and 9 of the VAT
Return.
4.2.5 EC SALES LISTS
Since 1 January 1993 UK traders registered for VAT who make supplies of goods to traders
registered for VAT in other EC member states have been required to send in lists of their EC
supplies. The EC sales lists are used to control the taxation on movements of goods within the
EC.
New forms were introduced in order to make the declarations. These are:
*
the Form VAT 101 - the EC sales list;
*
the Form VAT 101A - the continuation sheet;
*
the Form VAT 101B - the correction sheet.
You have to complete the EC sales list if:
*
you make supplies of goods to a person registered for VAT in another EC member
state, including transfers of your own goods; or
*
you send goods to a person registered for VAT in another member state for process;
or
*
you return goods to a person registered for VAT in another member state after
processing them in the UK; or
*
You are the intermediary in triangular transactions between VAT registered persons in
other member states.
When you complete an EC sales list, in addition to showing:
4
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
*
your own VAT registration number, your name and address, the date you send in the
EC sales list and the period it covers;
you must provide:
*
the VAT registration number of the person in the other EC member state to whom you
have made supplies and, in a separate column on the EC sales list, the two letter prefix
which identifies the country;
*
the total value for the calendar quarter of the goods and associated services which you
have supplied to each customer;
*
an indication, where appropriate, that you have sent goods to another member state for
process, or that you have returned the goods to another member state after processing
them, together with the value of the process; and
*
an indication, where appropriate, that you are the intermediary in a triangular
transaction.
In general, you must include on the EC sales list all supplies of goods to persons registered
for VAT in other member states.
You will have to send in an EC sales list for each calendar quarter, ie to 31 March, 30 June,
30 September and 31 December.
More information on EC sales lists is contained in Notice 725 - VAT: The Single Market
and VAT Information Sheet 2/93 "Filling in your EC sales list".
4.3
INTRASTAT
Intrastat is the new system for collecting statistics on the trade in goods between EC member
states. It has operated since 1 January 1993, replacing customs declarations as a source of
trade statistics within the EC. Intrastat exists throughout the EC, and so requirements are
similar in all member states.
The supply of services is excluded from Intrastat: the system covers only those movements
which represent trade in goods. In general these movements are equivalent to supplies made
(and the corresponding acquisitions) under the arrangements for VAT on EC trade between
member states, and they are recorded using the same rules.
All businesses registered for VAT must complete two boxes on their VAT Returns showing
the total value of goods supplied to other EC member states and the total value of goods
acquired from other member states.
The Intrastat trade statistics are compiled from the totals of EC trade declared on VAT
Returns by businesses below a legally set threshold and from the detailed information given
by larger businesses on Supplementary Declarations.
5
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
Larger VAT registered businesses must provide each month further information about their
trade in goods with other EC member states. To do this they have to complete returns known
as Supplementary Declarations. "Larger VAT registered business" are those with a value of
trade in goods above a certain threshold. Changes to the threshold will occur only at year
ends. The current threshold is £195,000 per annum for arrivals of goods from and dispatches
of goods to other EC countries.
For Intrastat purposes goods received into the UK from another EC member state are called
"arrivals" and goods consigned to another member state from the UK are called
"dispatches".
Details of Intrastat requirements are set out in Notice 60 - Intrastat general guide.
4.4
EXPORTS OF GOODS TO PLACES OUTSIDE THE EC
The supply of goods for export from the EC may be zero-rated provided that:
i.
the goods are exported from the EC; and
ii.
any conditions set by Customs and Excise are met. These conditions include the type
of export or removal evidence required and time limits for exports and receipt of
evidence. The conditions may vary for different types of export or removal. Unless
all the conditions are met in each case, a supply must not be zero-rated as an export or
removal.
To qualify for export zero-rating the goods supplied must not be:
i.
supplied to a UK VAT registered trader other than an export house; or
ii.
delivered to a UK person or UK customer at a UK address; or
iii.
collected by or on behalf of a UK person or UK customer; or
iv.
used in the UK in the period between supply and export, except where specifically
authorised.
In order to zero-rate supplies for export, you must obtain valid commercial or customs
certified (official) evidence of exportation for all goods exported within the time limits laid
down.
The majority of exports are shipped as manifested freight by road, rail, sea or air, and the
supply for export is zero-rated on the basis of commercial evidence of exportation provided
by the carriers.
Full details of conditions which have to be met in order to obtain zero-rating are contained in
Notice 703 - VAT: Exports and removals of goods from the United Kingdom.
6
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
4.5
IMPORTS OF GOODS FROM PLACES OUTSIDE THE EC
With effect from 1 January 1993, only the entry of goods into the UK from outside EC
territory is treated for VAT purposes as the importation of goods.
For VAT purposes, your goods are treated as imported when:
*
they arrive in the UK directly from outside the EC and you enter them for home use in
the UK or customs duty otherwise becomes chargeable on them; or
*
they have been placed, in another EC country, or in the UK, under one of the customs
suspension arrangements and you enter them for removal to home use in the UK or
customs duty otherwise becomes chargeable on them.
In short, the moment when customs duty is due on the goods is the time of importation for
VAT purposes.
VAT is charged on the importation of goods at the same rate as if the goods had been
supplied in the UK.
VAT is chargeable in addition to any customs duty or other charges due. It is calculated on a
value which includes such charges.
You declare the goods to Customs using Form C.88 (SAD) or, if the goods are being removed
from a warehouse, the appropriate warehouse removal document. Import VAT is dealt with
in the same way as a customs duty. You can pay import VAT either outright at importation or
under duty deferment arrangements, which are explained fully in Notice 101 - Deferring
duty, VAT and other charges.
You can claim as input tax, subject to the normal rules, any import VAT you pay on goods
provided those goods are used for the purpose of your business activities. Your claim must
normally be made on the VAT Return for the accounting period during which the importation
took place.
The normal evidence of the payment of import VAT is the Import VAT Certificate (Form
C79), which is issued monthly. In VAT Leaflet 702/6 - Import VAT certificates, you will
find more information about the C79 as well as the acceptable evidence for those types of
importations which at present do not appear on a C79. It also explains what to do if you lose
a certificate or have any queries about items missing from certificates.
If you import goods from outside the EC you will need to have a Trader's Unique Reference
Number (TURN). Without this number you may not be able to get the evidence you need to
reclaim the VAT you pay on your imports.
Details on how to obtain a TURN number and further information on imports and import
procedures are contained in Notice 702 - VAT: Imports and warehoused goods.
7
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
4.6
SUPPLIES OF SERVICES OUTSIDE THE UNITED KINGDOM
4.6.1 GENERAL
Supplies of services are far more complicated. To coincide with the introduction of the
Single Market on 1 January 1993, the UK directly implemented EC place of supply rules for
services. To date Customs and Excise do not require traders to reproduce statistical
information on the value of their supplies/acquisitions of services.
For VAT purposes, the place where a supply is deemed to be made is called the "place of
supply" and is the place where it is liable to VAT, if any.
There are a number of place of supply rules for determining where services of different kinds
are deemed to be supplied. These rules are necessary to ensure that VAT is paid only in the
appropriate place and that the possibility of supplies being taxed more than once or not at all
is avoided.
Where the place of supply of a service is in a member state of the EC, that supply is liable to
VAT (if any) in that member state and in no other country. If the place of supply of a service
is outside the EC, that supply is outside the scope of VAT altogether and is therefore not
liable to tax in any member state.
If you supply services, the place of supply of which is the UK, you must charge any UK VAT
due and account for it to Customs and Excise regardless of where your customer belongs.
If you supply services, the place of supply of which is in another EC member state, you or
your customer will be liable to account for any VAT due to the tax authorities of that country.
4.6.2 BASIC PLACE OF SUPPLY RULE
The basic rule is: "The place of supply of a service is the country where the supplier
belongs". This rule applies only to services which do not fall within any of the exceptions
listed below.
4.6.3 EXCEPTIONS TO THE BASIC RULE
(a)
Services relating to land.
If you supply certain services relating to land, the place of supply of those services is
where the land itself is located, irrespective of where you or your customer belongs.
This rule applies only to services which relate directly to a specific site(s) of land. It
does not apply if there is only an indirect connection with land, or if the land-related
service is only an incidental component of a more comprehensive service.
8
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
(b)
Services supplied where performed.
Examples of this type of service include the supply of cultural, artistic, sporting,
scientific, educational or entertainment services.
The place of supply of any of these types of services is in the country in which the
services are physically performed, irrespective of where the customer belongs.
(c)
Passenger transport.
The place of supply of the transport of passengers is the country in which the
transportation takes place, to the extent that it takes place in that country.
(d)
Freight transport and related services.
In general, the place of supply of the transport of goods is the country in which the
transportation takes place.
(e)
Hire of means of transport.
In general, the place of supply of the hire of any means of transport is where the
supplier belongs.
(f)
Intermediaries.
The place of supply of the making of arrangements for a supply by or to another
person, or of any other activity intended to facilitate the making of such a supply, is
the place where the supply which is being arranged is deemed to be made.
(g)
Services supplied where the receiver belongs.
The place of supply of certain specialist services such as those of lawyers, accountants
and consultants and the provision of information - whose place of performance is
variable or indeterminate and thus, difficult to categorise by reference to other place of
supply rules - is determined in a different way. These services are listed in paragraphs
1 to 8 of Schedule 5 to the VAT Act 1994.
Where you supply these services to customers belonging outside the EC, and to
customers belonging elsewhere in the EC who receive the supplies for the purpose of
their business and are capable of accounting for VAT locally, the supply is treated as
being made where it is received and is outside the scope of UK VAT.
However, if the customer belongs elsewhere in the EC but does not receive the
supplies for business purposes, or the customer belongs in the UK, the place of supply
reverts to the place where the supplier belongs and is taxed at the standard rate.
For supplies made to customers belonging elsewhere in the EC, VAT registration
numbers are the best evidence of their business status in another member state. In the
majority of cases they will be available and should always be requested. If, for some
reason, your customer is unable to supply a VAT number, alternative evidence of
9
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
business status is acceptable, such as certificates from relevant fiscal authorities,
business letterheads or other commercial documents indicating the nature of the
customer's business activities. Where VAT numbers are available, they should be
recorded on the invoice relating to the supply.
Further guidance on the place of supply of services is contained in Notice 741 - Place of
supply of services.
4.7
REVERSE CHARGE SERVICES AND PROCEDURE
Normally, the supplier of a service is the person who must account, to the tax authorities, for
any VAT due on the supply. However, for certain services, where the recipient belongs in an
EC member state and the supplier belongs in another country, the position is reversed and it is
the customer who must account for any VAT due. This procedure is referred to as "reverse
charge".
Prior to 1 January 1993, the reverse charge procedure only applied to the receipt, in the UK,
by a business, of services listed in paragraphs 1 to 7 of Schedule 3 to the VAT Act 1983 (now
paragraphs 1 to 8 of Schedule 5 to the VAT Act 1994).
From 1 January 1993, the reverse charge procedure applied additionally to intra-EC freight
transport and associated services and the services of certain intermediaries, when received by
UK VAT registered persons.
From 1 November 1993, the reverse charge principle of accounting for UK VAT was
extended to all types of services, received by UK VAT registered persons, which, although
provided by suppliers who belong overseas, are UK supplies.
If you receive from outside the UK, any supplies of services listed in paragraphs 1 to 8 of
Schedule 5 to the VAT Act 1994, you must account for tax on them as if you had supplied
them in the UK if:
(a)
you receive the services for the purpose of any business carried on by you in the UK;
and
(b)
(c)
the services would be standard-rated if supplied in the UK to a UK customer.
If the service is used other than wholly for non-business health purposes in any accounting
period, under Section 8 (1) VATA 1994, the reverse charge principle of accounting for UK
VAT must be applied to the whole value of the imported service. You may not account for
VAT only upon that proportion of business use.
If the same services supplied in the UK to a UK customer would be exempt or zero-rated
those supplies are ignored for the purposes of the reverse charge procedure.
If you receive services within paragraphs 1 to 8 of Schedule 5 otherwise than in the course of
your business activities (ie for non-business purposes), you can expect to be charged tax by
the supplier, at the rate appropriate in the country of the supplier.
10
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
Reverse charge is not a complicated accounting procedure. Where it applies to services
which you receive, you, the customer, must first act as if you were the supplier of the
services. You will simply need to credit your VAT account with an amount of output tax,
calculated on the full value of the supply you have received and at the same time, debit your
account with the input tax to which you are entitled, in accordance with the normal rules.
The UK reverse charge procedure does not apply to supplies made by persons belonging in
the UK. It only applies when the services in question are supplied in the UK by suppliers
belonging overseas.
Services which, under the place of supply rules, are supplied in another country are, by
definition, outside the scope of UK VAT. Such services are subject to tax, if any, only in that
country.
When you incur another EC member state's VAT in connection with your business activities,
there are procedures under the 8th Directive by which refunds of such tax may be claimed.
Claims for refunds should be made to the appropriate authority in the member state where the
tax was incurred and not to Customs and Excise. (Further details are contained in Notice 723
- Refunds of VAT in the Community and other European countries).
11
JK\KEEP\106760013
SECTION 4 TRADE OUTSIDE THE UK
SECTION 5 - BUSINESS AND NON-BUSINESS ACTIVITIES WITHIN THE NHS
This Section deals with the business and non-business activities of the NHS, guidance on how
to determine whether an activity is considered to be “business” for VAT purposes and the VAT
implications to the NHS.
5.1
BUSINESS AND NON-BUSINESS IN RELATION TO VAT
5.1.1 INTRODUCTION
It is important that you understand the difference between business and non-business
activities and income. This is because the Contracted-Out Regulations only apply to the nonbusiness activities of the NHS. Furthermore, VAT incurred on goods and services can only
be treated as input tax if it relates to a business activity.
Remember, VAT incurred in respect of non-business activities is not input tax. The
term "input tax" refers to VAT incurred in pursuance of a business activity.
5.1.2 NON-BUSINESS
Non-business activities
In simple terms, the non-business activities of the NHS are activities which are carried out on
a statutory basis and/or for no consideration. They are outside the scope of VAT. This
includes the statutory provision of Healthcare and the recovery of money under the Road
Traffic Act.
The NHS carries out its statutory duties under various NHS Acts, and the vast majority of its
activities are deemed to be of a non-business nature.
As a result, under the normal VAT rules, the NHS cannot reclaim VAT incurred on purchases
made for its statutory health care purposes. However, as a concession, VAT may be eligible
for a refund on certain contracted-out services under the Contracted-Out Regulations.
The Contracted-Out Services Regulations are an entirely separate issue from the
normal VAT rules applicable to business activities, and should be treated as such.
In addition to the above, supplies within and between NHS bodies within the Divisional VAT
Registration are also considered to be non-business activities (see Section 8 for further
details). Even when a fee is charged by one NHS body to another, VAT must not be added by
the NHS supplier and consequently, VAT cannot be reclaimed in respect of the purchase by
the NHS customer. This is a basic rule applicable to Divisional VAT Registrations in general.
Supplies made for which there is no consideration (ie supplies made free of charge) would
also be deemed to be non-business activities. If there is no consideration, there is no
supply for VAT purposes.
1
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
A list of NHS non-business activities is contained later in this Section.
Non-business income
The NHS does not have to account for VAT on its statutory health care income, such as Block
Contracts, Cost and Volume Contracts, GP Fundholders and Extra-Contractual Referrals. It
is also worth noting that the Department of Health funding for the NHS reflects the general
restriction on eligibility to reclaim VAT.
The NHS may also receive other non-business income, such as donations, gifts, legacies,
grants, sponsorship etc. This is income which is freely given to the NHS, for which the
contributor receives nothing in return. If the contributor does receive something in return (for
example, where a sponsor receives "free" advertising in an NHS publication in return for the
sponsorship), then it is likely that a supply will be deemed to have been made, for a
consideration, and the supply will be considered to be a business activity and subject to VAT
at the appropriate rate.
Summary of VAT implications
1.
VAT does not have to be accounted for on non-business income.
2.
VAT incurred in respect of non-business activities cannot be treated as input tax.
3.
VAT incurred on contracted-out services may be eligible for a refund under the
Contracted-Out Regulations, only to the extent that it relates to the non-business
activities of the NHS.
Basically, the only eligibility for reclaims of VAT in relation to the non-business activities of
the NHS, is in respect of VAT incurred on services which fall within the Contracted-Out
provisions. There are no output tax (VAT on sales) implications, nor is there any provision
for reclaiming VAT on the purchase of goods in connection with non-business activities.
5.1.3 BUSINESS
General
The business activities of the NHS are laid down in the Treasury Directions made under
section 41(2) and (5) of the Value Added Tax Act 1994.
In general terms, and in specific relation to the NHS, section 41(2) is basically referring to
supplies of goods or services made by an NHS body for a consideration (that is, where a
charge is made to the customer).
Even if those supplies do not amount to the carrying on of a business, if the Treasury
considers that similar goods or services are or might be supplied by taxable persons in the
course or furtherance of any business (that is, that they are activities which could be or are
carried out in the private sector), then those supplies would be deemed to be business
activities of the NHS and VAT would be applicable to the charge made to the customer in the
same way as it would in the private sector.
2
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
Section 41(5) extends this to the same supplies made by the NHS to another Government
Department (but not supplies made within the NHS Divisional VAT Registration).
The current list of business activities as laid down by the Treasury, as applicable to the NHS,
is reproduced at Appendix D.
Although this list states that these activities are deemed to be business activities, you must
also consider the following points:
1.
Is there a consideration for the supply?
If there is no consideration, there is no supply for VAT purposes. Supplies made free
of charge are deemed to be non-business activities. If a fee is charged to the customer,
even if there is no element of profit, or indeed, the supply is made below cost, the
supply would still be considered to be a business activity.
2.
Are supplies made to non-NHS customers?
Supplies made within an NHS Trust and between NHS bodies within the same
Divisional VAT Registration are considered to be non-business activities. Even if a
charge is made for the supply, there are no VAT implications, VAT must not be
charged by the NHS supplier and, consequently, VAT cannot be reclaimed by the
NHS customer. Divisional Registrations are explained nor fully by para 34.1.
In order for an activity to be considered business, supplies must be made to non-NHS
customers. Where supplies are made to both NHS and non-NHS customers, the
activity would be considered to be part non-business and part business.
If the answer to both of the above questions is 'yes', and the activity is listed in the current
Treasury Direction, then the activity will be a business activity.
If the answer to both of the above questions is 'yes', but the activity is not listed in the current
Treasury Direction, you should contact the NHS Admin Team at the South Bank VAT Office
for further advice.
If the answer to one or both of the above questions is 'no', then the activity is unlikely to be a
business activity for VAT purposes. Again, if you are in any doubt you should contact the
NHS Admin Team.
Treatment of VAT
Having established that a supply is a business activity, you will then need to determine the
VAT liability of the supply (guidance on the various VAT liabilities of the activities listed in
the current Treasury Direction is contained further in this Section).
The supply may be exempt from VAT or it may be taxable at either the standard (17.5%), the
reduced (5%) or the zero rates. For supplies which are taxable, VAT must be added to the
charge made at the appropriate rate for that particular supply, and this VAT must be
accounted for to Customs and Excise as output tax on the relevant VAT Return form.
3
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
All VAT incurred in respect of business activities is input tax. However, it may only be
reclaimed to the extent that it relates to taxable business activities. Input tax incurred in
relation to VAT exempt business activities cannot be reclaimed. This is an important point,
particularly in respect of the provision of private health care or the supply of domestic
accommodation, as these are both considered to be business activities and are both exempt
from VAT. Therefore, any VAT incurred in respect of these, or any other exempt activity,
would be non-deductible input tax.
It should be emphasised here that the Contracted-Out Regulations do NOT apply to
business activities. If an activity is deemed to be business, the normal VAT rules will
apply. The Contracted-Out provisions only apply to non-business activities.
Summary of VAT implications
1.
VAT must be charged and accounted for on taxable business activities, at the
VAT rate in force at the time.
2.
VAT incurred on purchases made in connection with a business activity is input
tax.
3.
Input tax incurred in respect of a taxable business activity may be reclaimed in
full.
4.
Input tax incurred in respect of a VAT exempt business activity cannot be
reclaimed.
5.
Where input tax is incurred in respect of both taxable and exempt business
activities, it must be apportioned so that only that element that relates to the
taxable activity may be reclaimed.
6.
VAT is not eligible for a refund under the Contracted-Out provisions when
incurred in respect of a business activity.
5.1.4 APPORTIONMENT OF VAT ON PURCHASES
When you are calculating what VAT you may reclaim (whether under the Contracting-Out
provisions or as input tax), there are several stages you will need to work through:
STAGE 1 -
Was the VAT incurred in respect of a non-business activity?
Yes - go to Stage 2
No - go to Stage 3
Partly - the VAT must be apportioned to fairly reflect the business and nonbusiness use. The portion of VAT attributable to the non-business use should
be carried forward to Stage 2 and the portion of VAT attributable to business
use should be carried forward to Stage 3.
4
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
STAGE 2 -
Was the VAT incurred in respect of a service listed as eligible for a refund
under the Contracted-Out provisions?
Yes - the VAT may be refunded under the Contracted-Out Regulations.
No - the VAT cannot be refunded.
STAGE 3 -
Was the VAT incurred (input tax) in respect of a VAT exempt business
activity?
Yes - input tax cannot be reclaimed.
No - input tax may be reclaimed.
Partly - input tax must be apportioned to fairly reflect exempt and taxable use.
There is a chart in Appendix C, to help you decide how to treat VAT incurred on your
purchases.
It will not be possible with some purchases to directly attribute the VAT to business/nonbusiness use and you may have to devise a method of calculation to apportion this fairly.
There is no standard method of apportionment. The method outlined in Appendix B is only a
suggested method and must not be used if it does not produce a fair and equitable result.
Similarly, apportionment of input tax between exempt and taxable supplies will be likely to
require a method of calculation. There is a standard method for this calculation (details of
which can be found in Section 7 and Notice 706 - Partial exemption), but again, if this does
not produce a fair and equitable result, approval for a special method should be sought from
the NHS Admin Team at South Bank VAT Office.
You cannot combine both calculations into one single calculation. Each stage must be dealt
with separately.
5.2
BUSINESS ACTIVITIES WITHIN THE NHS
There are currently 32 activities listed in the Treasury Directions as business activities of the
NHS. These are reproduced in Appendix D.
The activities are covered in more detail below, together with examples of the type of supply
which would fall within each category and the VAT liability of that supply. If not indicated
in the text, the relevant reference to the Value Added Tax Act 1994 in respect of zero-rated
and exempt supplies is shown in square brackets.
This list is not exhaustive. If you are making a supply which is not mentioned below, and you
are unsure as to whether it would be considered a business activity, you should contact the
NHS Admin Team at the South Bank VAT Office for further guidance. You should not just
assume that because it is not listed below it is not a business activity.
5
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
The following list of activities, when made for a consideration to customers outside the NHS
Divisional VAT Registration, are deemed to be business, as laid down in the current Treasury
Direction:
1.
CATERING; FOOD OR DRINK; TOBACCO PRODUCTS;
ALCOHOLIC DRINKS
A.
Standard-rated supplies
i.
The supply of food and drink to be consumed on the premises where it
is sold, for example, from a restaurant, cafe, canteen, kiosk, snack bar
or similar establishment. "Premises" includes the building in which the
catering outlet is situated. For example, if a canteen is situated in a
hospital, "premises" would include the whole building.
The supply of food and drink to be consumed on the premises applies
to all sales regardless of whether the customers are staff, visitors,
patients, Trustees etc. However, supplies of catering to patients, for
which no charge is made, and is supplied in connection with the
provision of health care is a non-business activity and VAT is not
applicable.
B.
ii.
Supplies of tobacco products and alcoholic drinks.
iii.
The supply of a microwave oven for the use of customers.
iv.
Trolley sales.
v.
The supply of lunches to parents of crèche children, where the charge
is separate from the crèche fees and only made when the parents order
lunches. If the charge for the lunches was included in the crèche fee,
irrespective of whether the children had the lunch, it would be
considered to be part of the main supply of crèche facilities and would
be exempt from VAT.
Zero-rated supplies
i.
The supply of certain cold food and drinks to be consumed off the
premises where it is sold. However, some food and drink is always
standard-rated, even where it is sold as a "take-away" item. For
example, ice cream, confectionery, crisps, most soft drinks.
[Schedule 8, Group 1, Item 1].
For further information on catering you should see Section 7 and VAT Leaflet 709/2 Catering and take-away food.
6
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
2.
LAUNDRY SERVICES
A.
3.
Standard-rated supplies
i.
Laundry services supplied to resident staff.
ii.
Laundry services supplied to persons or bodies outside the NHS
Divisional VAT Registration.
SUPPLIES OF GOODS MADE BY VENDING MACHINES OR OF ANY
GOODS SUPPLIED IN CLINICS, CANTEENS OR IN ANY OTHER WAY
A.
B.
Standard-rated supplies
i.
Supplies through vending machines of hot food and drink, soft drinks,
confectionery, crisps etc and food and drink to be eaten on the premises
where the machine is placed.
ii.
Casual sales in clinics.
Exempt supplies
i.
4.
Supplies made in conjunction with a medical service given by a person
on a statutory medical register. [Schedule 9, Group 7].
PROFESSIONAL SERVICES INCLUDING THOSE OF ANY MANAGER,
ADVISOR, EXPERT, SPECIALIST OR CONSULTANT
A.
Standard-rated supplies
i.
Legal services.
ii.
Computer services.
iii.
Accountancy services.
iv.
Consultancy services, but not where supplied by a person on a statutory
medical register as listed in Schedule 9, Group 7, Items 1 to 3 of the
VAT Act 1994.
v.
Testing and analysis of chemicals, drugs and other goods or materials
and the writing of scientific reports where the supply is made by a
person not on a statutory medical register as listed in Schedule 9,
Group 7, Items 1 to 3 of the VAT Act 1994.
vi.
Professional services (excluding those by a person on a statutory
medical register as listed in Schedule 9, Group 7, Items 1 to 3 of the
VAT Act 1994), where those services are supplied to either a UK
7
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
customer or to a customer who belongs outside the UK but within the
EC, where that customer is not registered for VAT in that member state
(for example, a private individual).
vii.
B.
Zero-rated supplies
i.
C.
Professional services (excluding those by a person on a statutory
medical register as listed in Schedule 9, Group 7, Items 1 to 3 of the
VAT Act 1994), where those services are supplied to a customer
outside the UK but within the EC, where the customer is registered for
VAT in that member state and the supply is for the purpose of their
business. In order to qualify for zero-rating, your customer must
provide you with their VAT registration number and this should be
shown on your sales invoice (see Section 4). [Sections 7, 8 and 9 of
the VAT Act 1994 and VAT (Place of Supply of Services) Order
1992].
Supplies outside the scope of UK VAT
i.
D.
Medico-legal services supplied to third parties. This includes
arbitration, mediation and conciliation services; considering medical
reports and other evidence in order to resolve disputes; work for
lawyers and insurers in preparing reports for the resolution of disputes
following personal injury. However, services provided by a doctor
which arise out of the normal doctor/patient relationship will be
exempt from VAT (see Note 8 at the end of this Section for further
guidance on medico - legal services).
Professional services (excluding those by a person on a statutory
medical register as listed in Schedule 9, Group 7, Items 1 to 3 of the
VAT Act 1994), where those services are supplied to a customer
outside the EC. See also Note 1 at the end of this Section. [Sections 7,
8 and 9 of the VAT Act 1994 and VAT (Place of Supply of Services)
Order 1992].
Exempt supplies
i.
Services supplied by a person on a statutory medical register as listed
in Schedule 9, Group 7, Items 1 to 3 of the VAT Act 1994. (See 6B in
this section for more detailed guidance on these supplies).
NB: A full definition of Schedule 9, Group 7 to the VAT Act 1994 is
contained in Notice 701/39 - VAT Liability Law.
5.
ATTENDANCE OF OFFICERS AT COURT OR AT ANY SIMILAR FORUM
A.
Standard-rated supplies
i.
Attendance at court by a person not on a statutory medical register as
listed in Schedule 9, Group 7, Items 1 to 3 of the VAT Act 1994, in
8
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
their capacity as expert witnesses for which a charge akin to a
professional fee is made.
ii.
B.
Exempt supplies
i.
6.
Medico-legal services supplied to third parties where this does not arise
out of the normal doctor/patient relationship (see also 4A vii and Note
8 at the end of this section for further guidance).
Attendance at court by a person on statutory medical registers listed in
Schedule 9, Group 7, Items 1, 2 and 3 to the VAT Act 1994 (as defined
in Notice 701/31 - Health). But see also Aii above.
EQUIPMENT, VEHICLES, HOSPITAL FACILITIES OR SERVICES; ANY
RELATED GOODS
A.
Standard-rated supplies
i.
Supplies to consultants. The supply to consultants is standard-rated
unless the particular supply is specifically zero-rated or exempted
under Schedules 8 and 9 respectively of the VAT Act 1994.
ii.
Charge for the private use of a Crown car.
iii.
The sale or disposal of any capitalised asset , including commercial
vehicles, medical equipment and motor cars; Regardless of whether
input VAT was recovered upon the original purchase.
iv.
Charges to staff or other customers for the hire of leased or NHS
owned cars or commercial vehicles (including minibuses, but
excluding ambulances - see B(i) below), where the letting is at an arms
length transaction value. That is, the value must be equivalent to what
would apply if the lessee was to lease the vehicle on the open market.
v.
Charges to employees for their private use of a leased "qualifying car",
whether payment is made in cash or by deduction from salary or wages.
Leasing companies have been required since 1 January 1996, by
regulation, to issue a statement on their invoices as to whether or not
each car they let is a qualifying car. In practice, leased cars with an
"N" registration prefix or later will normally be qualifying and leased
cars with a "M" registration prefix or earlier will normally be nonqualifying. Output tax does not have to be accounted for on employee
contributions for the use of leased non-qualifying cars.
See Note 2 at the end of this Section for the definition of a car for VAT
purposes. Further guidance is contained in Notice 700/64 - Motoring
expenses.
vi.
Charge for the use of Public Health Laboratory Service facilities.
9
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
vii.
Sales to GP practices of equipment, where the GP's are buying them
from their practice funds.
viii.
Sale or hire of equipment to the private sector, or other bodies outside
the NHS Divisional VAT Registration.
ix.
Charges made for the hire of marquees.
x.
Needle room charges for private work.
xi.
The supply of goods relating to dental hygiene, such as toothbrushes
and cleaning preparations for dentures (see also C(viii) below).
xii.
Charges for the provision of ambulance services at race meetings and
similar events, where the package comprises of crewed ambulances
and supporting medical staff (see also Note 3 at the end of this
Section).
xiii.
Charges for the provision of transport in vehicles which are not
“specifically designed” to transport “sick or injured persons”. For
example, the transporting of invalids to hospital out-patient
departments etc, in conventional, un-adapted cars or mini-buses. To
quality as “specifically designed”, a vehicle must have a facility to
secure a recumbent person on a stretcher or be fitted with a ramp or a
lift, and clamps sufficient to enable a person in a wheelchair to be
safely wheeled on, transported in, and wheeled off the vehicle.
xiv.
Charges made for the provision of Ambulances for television
shows/companies.
xv.
Charges made for the provision of analytical testing services, such as in
the conducting of clinical trials, except where this includes care for the
patient (see also Note 9 at the end of this section).
Exempt supplies
i.
The provision of an ambulance service for which a charge is made. It
covers transport services for sick or injured people in vehicles specially
designed (see A xiii above) for that purpose, including airborne and
waterborne ambulances. See Note 3 at the end of this Section for
guidance on when the provision of ambulance services at race meetings
or similar events. [Schedule 9, Group 7, Item 11].
ii.
Charges made for the provision of care or medical or surgical
treatment, and the supply of any goods in connection with these
services, to private patients, infants or residents in hospitals or other
eligible institutions (see Notice 701/31 - Health for examples of
eligible institutions). In practice this covers accommodation, catering,
medical and nursing services, etc. “Any goods” includes appliances as
well as drugs, medicines and chemical reagents, and they must either
form an integral part of the supply of care, or be in connection with it
10
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
(that is, the goods must be indissociable from the supply of services).
An example would be drugs and appliances administered by a doctor
during the course of treatment. [Schedule 9, Group 7, Item 4].
iii.
Charges made for the supply to the parent of a child private patient in
the course of care. [Schedule 9, Group 7, Items 4 and 9].
iv.
Charges made for screening or inoculation carried out by the
Occupational Health Department for private firms. [Schedule 9, Group
7, Item 4].
v.
Charges made for the provision of crèche facilities and playschemes,
where the facility or playscheme is registered with a Local Authority
under the Children Act 1989. [Schedule 9, Group 7].
vi.
Charges made to a private patient, for the supply of the professional
services of registered doctors, opticians, chiropodists, dieticians,
laboratory technicians, occupational therapists, orthoptists,
physiotherapists, radiographers, remedial gymnasts, qualified nurses,
midwives or health visitors, dentists (including auxiliaries and
technicians) and registered dispensers of hearing aids. [Schedule 9,
Group 7, Item 1].
vii.
Charges made to a private patient, for the supply of the professional
services of a pharmaceutical chemist. This includes analytical medical
services (eg pregnancy testing).[Schedule 9, Group 7, Item 3].
viii.
Charges made to a private patient, by a dentist, dental auxiliary or a
dental technician, for the supply of dental prostheses (eg false teeth,
bridges and crowns). [Schedule 9, Group 7, Item 2].
NB: Under (vi) to (viii) above, exemption will only extend to the services
provided by a registered professional using the knowledge, skills, judgement
and experience acquired in the course of his/her professional training. The
services do not have to be solely medical in nature nor do they have to be
provided solely to the patient. However, the exemption does not cover
services supplied by registered professionals for which they have not been
trained.
ix.
Charges made to a private patient, for the supply of professional
medical services supplied by someone working under the direct
supervision of a person registered or enrolled in a statutory medical
register as specified in Schedule 9, Group 7, Items 1, 2 and 3 of the
VAT Act 1994. See Note 4 at the end of this Section for further
guidance on direct supervision.
x.
The provision of a 'bathability' service where this is carried out as a
social service as opposed to being part of NHS treatment. See Note 5
at the end of this Section for further guidance on when this service
qualifies for exemption. [Schedule 9, Group 7, Item 9].
11
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
xi.
Charges made for conducting clinical trials, but only where this
includes direct patient care (see Note 9 at the end of this section).
NB: Under this category, you may make a supply of hiring out equipment
together with the services of a person registered or enrolled in a statutory
medical register. It is important to determine whether the supply is of
equipment or the services of a person registered on a statutory medical
register, as the VAT liabilities will differ. Note 6 at the end of this Section
gives guidance on how to decide which is the predominant supply.
7.
RADIO ISOTOPES; RECOVERED SILVER, STERILE WATER, WATER
PRODUCTS OR ANY GOODS OF A MEDICAL OR SURGICAL INTEREST
A.
Standard-rated supplies
i.
The supply of radio isotopes, recovered silver, water products or any
goods of a medical or surgical interest. This includes the supply of
microbial products, pathological stains and silver flake.
NB: The above supply is standard-rated unless the particular supply is zerorated under zero-rate Group 12 - Drugs, medicines, aids for the handicapped,
etc or exempt under exempt Group 7 - Health and welfare.
B.
8.
Zero-rated supplies
i.
The supply of sterile water which is both sterile and distilled or deionised, except where additives alter the nature of the product. This
applies regardless of the status of the customer. [Schedule 8, Group 2,
Item 2].
ii.
The supply of water and ice, except when made to an industrial
customer, in which case the supply is liable to VAT at the standardrate. [Schedule 8, Group 2, Item 2].
iii.
Specific charges for the supply of water for hosepipes, swimming pools
and garden ponds, sprinklers and sprinkler licence fees, except when
the supply is made to an industrial customer, in which case the supply
is liable to VAT at the standard-rate. [Schedule 8, Group 2, Items 1
and 2].
SCRAP, SWILL, OBSOLETE OR SURPLUS GOODS
A.
Standard-rated supplies
i.
The supply of scrap, swill not held out for sale for animal feeding
purposes, obsolete or surplus goods, including the sale of old X-ray
films. These supplies are standard-rated unless the particular supply is
12
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
specifically zero-rated or exempted (eg, Zero-rate Group 3 - Books etc
or Exempt Group 7 - Health and Welfare).
An exception to this would be the sale of motor cars. Although the
sale of cars is still a standard-rated supply, the treatment of the VAT
(ie, accounting for input tax) is different. In general, input tax is not
deductible on the purchase of a car. However when the car is sold,
VAT is due upon the entire value of the sale. Under current Treasury
Directions the sale of cars are seen as taxable business activity
regardless of the role it was purchased for
B.
Zero-rated supplies
i.
9.
INDUSTRIAL OR OCCUPATIONAL THERAPY PRODUCTS
A.
Standard-rated supplies
i.
10.
Swill specifically held out for sale for animal feeding purposes.
[Schedule 8, Group 1, Item 2].
The supply of any industrial or occupational products.
MORTUARY, LABORATORY OR COMPUTER SERVICES OR ANY
RELATED GOODS
A.
B.
Standard-rated supplies
i.
Mortuary services excluding post mortems.
ii.
Laboratory services (including X-ray services and analyses and the
processing of urea) supplied by unregistered technicians.
iii
Any identifiable charge for administration overheads in relation to
laboratory services.
iv.
Computer services such as computer hire and data processing and sales
of software.
Exempt supplies
i.
Post mortems. [Schedule 9, Group 7], including refrigeration of bodies
prior to the post mortem.
ii.
Laboratory services (including X-ray services and analyses and the
processing of urea) supplied by or under the supervision of a registered
medical laboratory technician or registered radiographer. [Schedule 9,
Group 7, Item 1].
13
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
11.
AGENCY SERVICES
A.
Exempt supplies
i.
Charges for the deduction from pay and transfer of insurance
premiums, mortgage repayments, and union subscriptions. VAT
Leaflet 701/29 - Finance refers. [Schedule 9, Group 5].
12.
TRAINING, TUITION OR EDUCATION; RELATED GOODS OR SERVICES
A.
Standard-rated supplies
i.
B.
Sales of educational or vocational video training packages where they are not
for the direct use of the pupil, student or trainee or necessary for delivering the
education or training to that person.
Exempt supplies
i.
All supplies of education and vocational training, including lectures,
educational seminars, conferences and symposia. Included would be, for
example, first aid courses, paramedic training, stress management courses etc.
[Schedule 9, Group 6].
ii.
Related goods and services for the direct use of the pupil, student or trainee
and necessary for delivering the education to that person. [Schedule 9, Group
6].
Further information on education and training is contained in Notice 701/30 Education.
13.
GOODS SUPPLIED TO PRIVATE PATIENTS ON PRESCRIPTION
A.
Standard-rated supplies
i.
B.
The dispensing, by a doctor, of goods to a patient on a private
prescription (eg, drugs, vitamin supplements and homeopathic
preparations dispensed privately). This applies to "take away"
pharmacy supplies only.
Zero-rated supplies
i.
The dispensing to a private patient by a registered pharmacist of drugs,
medicines or other goods that have been prescribed for the patient by a
doctor or dentist, other than as part of a care package. This applies to
both in and out-patients (see below). [Schedule 8, Group 12, Items 1
and 1A].
14
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
C.
Exempt supplies
i.
14.
The supply of goods to a private patient, administered during the
provision of care or medical or surgical treatment where the supply is
not on a prescription (see below). This includes goods that are
dispensed prior to the hospital visit.[Schedule 9, Group 7, Item 4].
PUBLICATIONS
A.
B.
Standard-rated supplies
i.
Posters in sheet form intended for public display.
ii.
Stationery items such as account and exercise books, appointment
cards, business cards, calendars, compliment slips, envelopes, forms,
invoices, letter heading, medical records, memo pads, questionnaires,
rent books etc.
iii.
Textual information not in printed form (eg, audio or video cassettes).
This includes the storage and dissemination of textual material by
electronic, electrical, magnetic, chemical, microfilm, microfiche or any
similar process.
iv.
Sale of greetings cards, diaries, stickers and wreath cards.
Zero-rated supplies
i.
Supplies of books, booklets, brochures, pamphlets, leaflets,
newspapers, journals and periodicals. This includes covers, cases and
other articles supplied with them and not separately charged for.
[Schedule 8, Group 3].
ii.
Poster magazines which have textual material on one side and related
pictures capable of being used for posters on the other and which are
folded into magazine format. [Schedule 8, Group 3].
Full guidance on this subject is contained in VAT Leaflet 701/10 - Printed
and similar matter.
15.
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 GRAZING
RIGHTS
A.
Standard-rated supplies
15
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
C.
i.
The sale of the freehold interest of a new non-domestic or other nonqualifying building (see Section 7). A building is considered "new" for
3 years from the date that the construction is completed.
ii.
Allowing the general public admission to premises or events. For
example, admission to swimming pools, gyms etc.
iii.
The letting or licensing of garages or designated parking bays or
spaces; the provision of rights to park vehicles in car parks or
commercial garages; the letting or licensing of a purpose built car park,
for example to a car park operator; the provision of bicycle storage.
Full details of the rules relating to this subject is contained in VAT
Leaflet 701/24 - Parking facilities.
iv.
The provision of the facility to run a wheel clamping operation to an
outside firm. However, where you carry out the wheel clamping
yourself and the income generated is in respect of fines, there is no
supply and, therefore, the fines are outside the scope of VAT.
v.
The granting of fishing rights.
vi.
The provision of sleeping and ancillary accommodation , held out as
suitable for use by visitors, travellers and others, for whom the
accommodation is not a permanent place of residence. VAT Leaflet
709/3 ; Hotels and Holiday Accommodation.
Zero-rated supplies
i.
The first grant of a major interest (ie, the sale of the freehold or the
granting of a lease for a term certain exceeding 21 years) in a dwelling
or other qualifying building, by the person constructing it. This
includes new and newly converted dwellings, relevant residential
buildings and relevant charitable buildings. You should note that the
“person constructing” status is lost when bodies are restructured. For
example when a Regional Health Authority passes ownership of a
building to an NHS Trust under statutory obligation. [Schedule 8,
Group 5, Items 1 and 2].
ii.
The first grant of a major interest (ie, the first sale following
reconstruction or a lease for a term certain exceeding 21 years) in a
substantially reconstructed listed building which will become or remain
a building designed as a dwelling or other qualifying building, by the
person substantially reconstructing it. [Schedule 8, Group 6, Item 1].
iii.
Grazing rights where there is no element of care provided for the
animal. [Schedule 8, Group 1, Item 2].
Exempt supplies
16
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
D.
i.
The second and subsequent grant of a major interest and the grant of
other interest (eg, short term lease or letting) in a dwelling or other
qualifying building.
ii.
Provision of leased domestic accommodation for hospital
iii.
The letting of garages or parking spaces in conjunction with the letting
of dwellings for permanent residential use, provided the garage or
parking space is reasonably near to the dwelling and the letting is by
the same landlord to the same tenant, whether under single or separate
agreements. Further guidance is contained in VAT Leaflet 701/24 Parking facilities.
staff.
Supplies which may fall to be exempt or standard rated (where an option
to tax has been made).
i.
The sale of the freehold interest of a non-domestic or other nonqualifying building over 3 years old and all leases, tenancies and
licences to occupy non-domestic or non-qualifying buildings.
ii.
The freehold sale of bare land.
iii.
Easements or wayleaves which grant the owner of neighbouring land a
right (for example of way, or of light or of water) to make the owner's
property better and more convenient.
iv.
Rights of entry, which allow someone to come onto your land to
perform a specific function, for example, the right to lay water pipes,
cables etc.
v.
Hiring out a hall or other accommodation for meetings, conferences
etc, where the grant provides for the occupation of the land, rather than
the right to use the facilities it may offer.
vi.
Granting a catering concession, where the caterer is granted a licence to
occupy specific kitchen and restaurant areas, even if the grant includes
the use of kitchen or catering equipment. See Section 7 for further
guidance on catering.
vii.
Granting a concession to operate a shop within your building where the
concessionaires are granted an area from which to sell their goods or
services.
viii.
Granting space to erect advertising hoardings, display stands etc on
specific sites.
ix.
The rental of space on a roof for siting a telecommunications mast,
where the mast belongs to your customer, but see 26.A(iii) for
guidance on when this is a supply of facilities.
17
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
x.
The provision of spaces at exhibitions, including use of stands and
other equipment supplied with the space.
The relevant part of the law in relation to exempt supplies of land and buildings is
contained in Schedule 9, Group 1, Item 1 to the VAT Act 1994.
For guidance on opting to tax (election to waive exemption) see Section 7. Further
information on these subject of supplies made in connection with land and property
can be found in Notice 742 - Land and property and Notice 708 - Buildings and
construction.
16.
COPYING OR SUPPLY OF ANY REPRODUCTIONS OR OF ANY
DOCUMENTS
A.
B.
Standard-rated supplies
i.
Copies of documents and zero-rated material which does not retain the
form of the original (for example, parts of books, journals, extracts
from periodicals etc).
ii.
Charges made for the private use of NHS photocopiers.
iii.
Providing second and further copies of patients' notes or X-rays
supplied to solicitors, insurance companies or other external
organisations.
Zero-rated supplies
i.
C.
Copies of zero-rated material which retains the form of the original and
can be properly described as a book, booklet, pamphlet, leaflet etc. For
example, to constitute a book, the copies should include all the pages
and be in a permanent binding. [Schedule 8, Group 3].
Non Business
i. The provision of the first supply of medical notes, X ray film etc to solicitors, insurance
companies or other external organisations.
17.
INFORMATION OR INFORMATION SERVICES
A.
Standard-rated supplies
i.
B.
The supply of information or the provision of information services,
where supplied to a UK customer or a customer who belongs outside
the UK but within the EC and the supply is not for the purpose of any
business activity.
Zero-rated supplies
18
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
i.
C.
Supplies which are outside the scope of UK VAT
i.
18.
The supply of information or the provision of information services,
where supplied to a customer who belongs outside the UK but within
the EC, where the customer is registered for VAT in that member state
and the supply is for business purposes. In order to zero-rate the
supply, the customer must provide you with their VAT registration
number which you must show on your sales invoice. [Sections 7, 8 and
9 of the VAT Act 1994 and VAT (Place of Supply of Services) Order
1992.
The supply of information or the provision of information services,
where supplied to customers who belong outside the EC. See also
Note 1 at the end of this Section. [Sections 7, 8 and 9 of the VAT Act
1994 and VAT (Place of Supply of Services) Order 1992.
POSTAL OR DISTRIBUTION SERVICES
A.
Standard-rated supplies
i.
The provision of postal or distribution services where this is not part of
a supply of "delivered goods". To be considered delivered goods, the
delivery must be included in the contract, rather than as an optional
extra, and you must be responsible for safe delivery. This applies
regardless of whether the delivery or postage is separately itemised on
the invoice.
Where the supply is that of delivered goods, the VAT liability of the
supply of postage or distribution will be the same as that of the goods.
NB: If you provide the service of posting your customer's mail for them, you may be
able to treat the postal charge as a disbursement for VAT, subject to certain conditions
(Notice 700/24 - Postage and delivery charges contains further guidance).
19.
SECONDMENT OF STAFF
A.
Standard-rated supplies
i.
Secondment of staff not registered or enrolled in a statutory medical
register as specified in Schedule 9, Group 7, Items 1, 2 and 3 of the
VAT Act 1994 (as defined in Notice 701/31 - Health).
ii.
Secondment of staff to customers who belong outside the UK but
within the EC, where that customer is not registered for VAT in that
member state (eg, the supply is not for the purpose of any business
activity carried out by that customer).
iii.
The provision of care assistants to the Mobility Club, where the care
assistants come under the direction of the Mobility Club.
19
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
Zero-rated supplies
i.
C.
D.
Secondment of staff to customers who belong outside the UK but
within the EC, where that customer is registered for VAT in that
member state and the supply is for the purpose of their business. In
these circumstances the customer must provide you with their VAT
registration number which must be shown on your sales invoice.
[Sections 7, 8 and 9 of the VAT Act 1994 and VAT (Place of Supply
of Services) Order 1992].
Supplies which are outside the scope of UK VAT
i.
Secondment of the staff between and by government departments and
between NHS bodies.
ii.
Secondment of staff to customers who belong outside the EC. See also
Note 1 at the end of this Section. [Sections 7, 8 and 9 of the VAT Act
1994 and VAT (Place of Supply of Services) Order 1992].
Exempt supplies
i.
Secondment of staff registered or enrolled in a statutory medical
register specified in Schedule 9, Group 7, Items 1, 2 and 3 of the VAT
Act 1994 (as defined in Notice 701/31 - Health).
NB: You make a supply of staff for VAT purposes if you receive payment for
providing to another person the use of an individual who is contractually employed by
you. This applies whether the terms of the individual's employment with you are set
out in a formal contract or letter of appointment, or are on a less formal basis. The
determining factor is not that the individual is contractually employed by the recipient
of the secondment, but comes under the direction of the recipient. Further guidance is
contained in VAT Leaflet 700/34 - Staff.
20.
HUMAN BLOOD; HUMAN BLOOD PRODUCTS FOR THERAPEUTIC USE;
HUMAN ORGANS
A.
Exempt supplies
i.
The supply or importation of human blood, products for therapeutic
purposes derived from human blood and human (including foetal)
organs or tissue for diagnostic or therapeutic purposes or medical
research. [Schedule 9, Group 7].
NB: Recombinant pharmaceutical products are not considered to be either human
blood or derived from human blood and as such, are not entitled to be covered by the
exemption. Supplies of these products are liable to VAT at the standard-rate.
20
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
21.
RESEARCH SERVICES
A.
Standard-rated supplies
i.
B.
Zero-rated supplies
i.
C.
Research services supplied to customers who do not qualify as an
"eligible body" (see A(i) above) where that customer belongs outside
the UK but within the EC and is registered for VAT in their own
member state, and the supply is for the purpose of their business. Your
customer must be able to provide you with a VAT registration number
which you must show on your sales invoice. [Sections 7, 8 and 9 of the
VAT Act 1994 and VAT (Place of Supply of Services) Order 1992].
Supplies which are outside the scope of UK VAT
i.
D.
Research services supplied to customers who do not qualify as an
"eligible body" where that customer either belongs in the UK or
belongs in another EC member state but is not registered for VAT in
that member state (eg. private individuals). "Eligible bodies" includes
health authorities, government departments, local authorities, schools,
universities etc.
Research services supplied to customers who do not qualify as an
"eligible body" (see A(i) above) where that customer belongs outside
the EC. See also Note 1 at the end of this Section. [Sections 7, 8 and 9
of the VAT Act 1994 and VAT (Place of Supply of Services) Order
1992].
Exempt supplies
i.
Research services supplied to another "eligible body" (see A(i) above).
[Schedule 9, Group 6, Item 1].
Further information on research services is contained in Notice 701/30 Education.
22.
ADVERTISING
A.
Standard-rated supplies
i.
Supplies of advertising services in the media, for example of radio or
television time; of the right to place an advertisement on an existing
hoarding; or of advertising space in any publication.
ii.
Supplies of publicising another person's products with a view to
encouraging their sale.
iii.
Charges for distributing advertising material, for example, in payslips.
21
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
C.
iv.
Charges for displaying advertisements in NHS Trust publications, for
example, staff newsletters.
v.
Supplies in return for "sponsorship" which involve display of the
sponsor's name, or product, by the sponsored person or team (see
Notice 701/41 - Sponsorship for further
guidance).
vi.
Supplies as described in (i)-(v) above where supplied to customers who
belong outside the UK but within the EC, where that customer is not
registered for VAT in that member state (eg, a private individual).
Zero-rated supplies
i.
Supplies of advertising as described in A.(i)-(v) above where supplied
to customers who belong outside the UK but within the EC where the
customer is registered for VAT in that member state, and the supply is
for the purposes of their business. In these circumstances the customer
must provide you with their VAT registration number which must be
shown on the sales invoice.
ii.
The supply of advertising to a registered charity, which is for fundraising purposes (for example, seeking donations, legacies etc or
publicising fund-raising events like jumble sales, fetes etc) or making
known the aims and objectives of the charity. See also Note 7 at the
end of this Section. [Schedule 8, Group 15, Item 8].
Supplies which are outside the scope of UK VAT
i.
D.
Supplies which are exempt with an option to tax
i.
23.
Supplies of advertising as described in A.(i)-(v) above where supplied
to a customer who belongs outside the EC. See also Note 1 at the end
of this Section. [Sections 7, 8 and 9 of the VAT Act 1994 and VAT
(Place of Supply of Services) Order 1992].
Granting space to erect advertising hoardings, display stands etc on
specific sites. See Section 7 for guidance on options to tax. [Schedule
9, Group 1, Item 1].
FACILITIES OR SERVICES IN CONNECTION WITH CONFERENCES
A.
Standard-rated supplies
i.
Organisation of conferences, symposia and seminars.
ii.
Organisation of exhibitions and displays.
iii.
Provision of lectures and speakers.
22
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
Exempt supplies
i.
Hiring out a hall or other accommodation for conferences, seminars,
exhibitions etc, where the supply provides for the occupation of the
hall or other accommodation only, rather than the right to use the
facilities it may offer. [Schedule 9, Group 1, Item 1].
NB: If, in respect of supplying facilities or services in connection with
conferences etc, you buy in supplies from third parties (such as the right to
attend a conference, catering, hotel accommodation, transport etc) to resell
either singly or as a package, you may find that your supplies fall within the
Tour Operators' Margin Scheme. Although the actual VAT liability of the
supplies remains the same, the way in which you account for the VAT (ie, the
treatment of input and output tax) is different. This scheme does not apply to
supplies provided from your own resources (ie, "in-house" supplies). Nor is it
only applicable to somebody in business as a tour operator. If you are in any
doubt as to whether your supplies fall within this scheme you should read
VAT Leaflet 709/5 - Tour operators' margin scheme.
24.
SERVICES TO OTHER OCCUPANTS IN SHARED BUILDINGS
A.
Standard-rated supplies
i.
Charges made to tenants or licensees of non-domestic property, for the
use of telephones where the telephone account is in your name (as the
landlord). This includes the cost of calls, installation and rental. If,
however, the account is in the name of the tenant but you pay the bill,
the recovery of this amount from the tenant is a disbursement.
ii.
Charges for office services such as typing and photocopying. However,
if under the terms of the lease there is one inclusive charge for office
services and accommodation together, and the tenants are expected to
pay for the services regardless of whether they actually use them, the
liability of the services will follow that of the main supply of office
accommodation.
iii.
Separate charges (in addition to rent) made for the fixtures and fittings.
However, these are usually regarded as part of the overall supply of the
property and any charges for them are usually included in the rent.
iv.
Any service charge where you are the owner or tenant of the premises
and you do not grant an exempt licence to occupy land (eg, you have
not granted them exclusive use of a particular area of property or the
grant is to use specialised facilities). This applies even if you are
simply passing on appropriate shares of your costs, for example,
electricity, gas and telephone bills and staff wages. The only exception
to this is if you are paying and recharging a bill which is entirely the
liability of another occupant, such as a telephone bill or insurance
premium in the other occupant's name. You can treat such payments as
disbursements.
23
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
Supplies which may fall to be exempt or standard-rated
i.
Charges made to tenants or licensees of non-domestic property for the
use of facilities such as reception and switchboard services which form
a common part of the premises. These charges will be further
consideration for the main supply of accommodation and, therefore,
standard-rated where you have opted to tax the rent on the property or
exempt where no option has been made.
ii.
Charges made to tenants or licensees for insurance and rates, where
you (as the landlord) are the policy holder or rateable person, form part
payment for the main supply of accommodation and will be standardrated where you have opted to tax the rent on the property or exempt
where no option has been made.
iii.
Management charges raised to the occupants for managing the
development as a whole and administering the collection of service
charges etc, is also consideration for the main supply of
accommodation. That is, standard-rated where you have opted to tax
the rent on the property or exempt where no option has been made.
NB: Where a landlord makes a separate charge for unmetered supplies of gas and
electricity used by occupants, it should be treated as part of the consideration for the
supply of accommodation itself and thus it will assume the same VAT liability as the
premium or rents payable by the occupants. However, where a landlord operates a
secondary credit meter, the charges to the occupants for the gas and electricity they
use are consideration for separate supplies of fuel and power. These supplies will be
standard-rated to occupants of non-domestic premises and subject to VAT at 8% to
occupants of domestic premises.
Furthermore, where occupants have coin operated gas or electricity meters, or the
landlords agreement with them allows them to receive an identifiable supply of fuel
and power for which a separate charge is made, the charge made to the occupants is
also consideration for separate supplies of fuel and power. Further details of this may
be found in Notice 701/19 - Fuel and Power.
The relevant law relating to exempt supplies of land and buildings is contained in
Schedule 9, Group 1, Item 1 to the VAT Act 1994.
25.
APPLIANCES AND ARTIFICIAL LIMBS
A.
Standard-rated supplies
i.
Supplies of appliances and artificial limbs except where specifically
zero-rated or exempted (see 'B' and 'C' below).
ii.
The supply of hearing aids, and their repair and maintenance, together
with batteries, accessories and spare parts (see also B(ii) below).
24
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
iii.
The supply, where not provided in connection with care or treatment,
of spectacles, contact lenses, or other appliances designed to correct or
relieve a defect of sight. This includes repairing spectacles or
repolishing contact lenses and ancillary goods such as spectacles cases
and contact lens cleaning solution.
iv.
The supply of incontinence products to nursing and residential care
homes.
Zero-rated supplies
i.
The supply of medical or surgical appliances provided that:
*
it is designed solely for the relief of a severe abnormality or
severe injury; and
*
you make the supply to a disabled person for domestic or his or
her personal use, or to a charity for making available to a
disabled person (by sale or otherwise) for domestic or personal
use; and
*
you receive from your customer an eligibility declaration (as set
out in Notice 701/7 - VAT reliefs for people with
disabilities).
Included here is not only appliances such as artificial limbs but also
clothing, footwear and wigs. The words "severe abnormality" and
"severe injury" are not precisely defined by law. Among the
disabilities falling within this category are amputation, spinal injuries,
rheumatoid or severe osteo arthritis, severe disfigurement, congenital
deformities, organic nervous diseases, mental disorders and blindness.
ii.
The supply of hearing aids designed for the auditory training of deaf
children. These are elaborate and expensive systems used by teachers
and parents to give deaf children with a little residual hearing at least
the possibility of acquiring adequate speech. They consist of an
earpiece-receiver worn by the child, linked by wire, radio or induction
loop to a microphone-transmitter worn by the teacher or parent.
Further guidance is contained in Notice 701/7 - VAT reliefs for
people with disabilities.
The relevant law concerning the zero-rating for supplies of medical or surgical
appliances is contained in Schedule 8, Group 12 to the VAT Act 1994.
C.
Exempt supplies
i.
The supply of medical or surgical appliances, where those goods are
supplied in connection with the provision of care or surgical treatment
to residents, infants or patients in a hospital or other eligible institution
(see Notice 701/31 - Health). [Schedule 9, Group 7, Item 4].
25
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
26.
TELECOMMUNICATIONS
A.
B.
Standard-rated supplies
i.
The supply of a payphone. If you rent a payphone from British
Telecom or another supplier, you make supplies to the users of the
telephone and VAT is due on these supplies. The VAT fraction (see
Section 2) of the money removed is your output tax.
ii.
Charges made for the use of telecommunication facilities, including
telephone, telex and facsimile facilities.
iii.
The supply of a telecommunications mast, where the mast belongs to
you. This would be considered to be a supply of facilities and is liable
to VAT at the standard-rate, but see B.(i) below for circumstances
under which the supply would be exempt.
Supplies which are exempt with an option to tax
i.
27.
COMMISSION ON NATIONAL CONTRACTS
A.
Standard-rated supplies
i.
28.
The rent of space on a roof for the siting of a telecommunications mast,
where the mast belongs to your customer. This would be considered to
be the granting of a licence to occupy land and would be exempt from
VAT unless you have opted to tax the building on which the mast is
situated, in which case it would be standard-rated. See Section 7 for
more information on opting to tax. [Schedule 9, Group 1, Item 1].
Payments received from suppliers of goods under national contracts
negotiated by an NHS body.
FUEL AND POWER
A.
Standard-rated supplies
i.
The supply of hot water, including steam, unless there is a provision
for the reduced rate (5%) for qualifying use to apply (see 'B' below).
"Hot water" means water which has been heated so that it is supplied at
a temperature higher than that at which it was before it was heated.
26
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
ii.
Supplies of gases not specified as qualifying for the reduced rate of
VAT. This includes hydrogen, oxygen, ammonia, chloride, nitrogen,
refrigeration and aerosol gases.
NB: Certain gases for medical use, including anaesthetics and oxygen may
qualify for zero-rating or exemption when supplied on prescription (see 13 "Goods supplied to private patients on prescription").
B.
iii.
Supplies of solid fuels such as coal, coke and other solid combustible
materials not held out for sale solely as fuel.
iv.
Supplies of gases for use as road fuel.
v.
Charges to building contractors for the use of electricity, gas or fuel oil
which they consume during construction works on NHS land or
property.
vi.
Other supplies of fuel and power which do not qualify for the reduced
VAT rate.
Reduced rate (5%) supplies
i.
Supplies of fuel and power for a qualifying use. "Qualifying use" means for
domestic use or for use by a charity for it's non-business activities (see Section
7, paragraph 28).
Types of fuel and power which may be charged at a reduced rate when
supplied for a qualifying use are coal, coke, coal gas, water gas, producer
gases, petroleum gases or other gaseous hydrocarbons, fuel oil, gas oil or
kerosene, electricity, heat or air conditioning. It also includes the supply of hot
water, including steam (ie, water which has been heated so that it is supplied at
a temperature higher than that at which it was before it was heated).
NB: Some supplies of fuel and power always qualify for the reduced rate of VAT (for
example, where the supply does not exceed a certain quantity). For details of these
circumstances and further guidance on supplies of fuel and power you should read
Notice 701/19 - Fuel and power.
29.
MANUFACTURE, PRODUCTION, DISTRIBUTION OR SUPPLY OF ANY
FOOD- STUFF, DIETARY SUPPLEMENT OR SIMILAR ARTICLE
A.
Standard-rated supplies
i.
Supplies of ice cream, confectionery, chocolate biscuits, alcoholic
drinks, most soft drinks, crisps, salted or roasted nuts.
ii.
Medicines and medicated preparations which consist of a drug or
medicine added to normal food.
27
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
B.
iii.
Appetite suppressants and slimmers' laxatives made from synthetic
ingredients or produced in the form of tablets, pills or capsules.
iv.
Dietary supplements which are not in a form normally purchased and
used as food. Examples include tablets, pills and capsules containing
vitamins, wheatgerm, iron, calcium, yeast, garlic, ginseng, pollen,
propolis, seaweed or fibre; charcoal biscuits; elixirs and tonics; fish
oils in retail packs held out for sale as dietary supplements; malt extract
with cod liver oil.
v.
Additives and other edible substances which are not themselves food.
Examples include emulsifiers, stabilisers, clarifiers, softeners,
preservatives and antioxidants; enzymes; essential oils.
Zero-rated supplies
i.
Basic food items (excluding those mentioned under 'A' above)
including cakes and biscuits without chocolate.
ii.
Foods taken for medical reasons which are not medicated, for example
complete foods for invalids or for persons needing a special diet (eg,
body building preparations for athletes). However, some foods are
specially excepted from zero-rating - see VAT Leaflet 701/14 - Food
for further guidance.
iii.
Slimming foods such as complete meal replacements and low calorie
foods, unless specifically excepted from zero-rating - VAT Leaflet
701/14 - Food refers.
iv.
Total Parental Nutrition (TPN) solutions. Zero-rating was introduced
for TPN with effect from 1 January 1993, prior to that it was standardrated. In order to be eligible for zero-rating a TPN solution would have
to provide energy in the form of carbohydrate or fat, or nitrogen in the
form of essential amino acids, either separately or in any combination.
Products within this definition would include preparations including:
a.
amino acids, alone or with vitamins and minerals;
b.
amino acids together with carbohydrates;
c.
carbohydrate (eg glucose);
d.
lipid.
Other combinations would also be eligible for zero-rating. The
presence of vitamins and minerals would not alter the identity of the
whole product.
Supplementary preparations consisting of single vitamins or
combinations of vitamins and/or minerals, intended for addition to
28
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
solutions providing the basic nitrogen and energy requirements shortly
before administration to the patient are to be treated as food
supplements and liable to VAT at the standard-rate.
The relevant law relating to this subject is contained in Schedule 8, Group 1 to
the VAT Act 1994.
30.
WASTE DISPOSAL
A.
B.
Standard-rated supplies
i.
Charges made for the incineration of waste products, or for the use of
incineration facilities.
ii.
The supply of the removal, conveyance, treatment or disposal of the
contents of cesspools, septic tanks or similar receptacles, where
supplied to industrial customers.
iii.
The removal of industrial waste not discharged into the sewer.
Zero-rated supplies
i.
31.
ADMINISTRATIVE SERVICES
A.
Standard-rated supplies
i.
32.
The supply of the removal, conveyance, treatment or disposal of the
contents of cesspools, septic tanks or similar receptacles, where
supplied to non-industrial customers.[Schedule 8, Group 2, Item 1].
Charges made by NHS bodies for the administration of client's private
monies. For example, where an NHS Trust manages the private
monies of mentally handicapped NHS clients.
INFORMATION OR STATISTICAL SERVICES
A.
Standard-rated supplies
i.
The provision of information or statistical services.
NOTE 1
Supplies made outside the EC
29
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
Services of this nature (as indicated in the above text) supplied to non-EC
customers are not liable to UK VAT. However, in these circumstances there is
a provision to treat any VAT incurred in making the supply as input tax which
may be reclaimed, subject to the normal rules, as if the supply was being made
in the UK. It should also be noted that although this supply is outside the
scope of UK VAT it is still considered to be a business activity of the NHS.
NOTE 2
Definition of a car for VAT purposes
For VAT purposes, a car is defined in Article 2 of the Value Added Tax (Input
Tax) Order 1992 (SI.1992 No. 3222) as being:
"any motor vehicle of a kind normally used on public roads which has three or
more wheels and either (a)
is constructed or adapted solely or mainly for the carriage of
passengers; or
(b)
has to the rear of the driver's seat roofed accommodation which is fitted
with side windows or which is constructed or adapted for the fitting of
side windows;"
The definition of a car does not include vehicles capable of accommodating
only one person or suitable for carrying twelve or more persons or vehicles of
not less than three tonnes unladen weight. Nor does it include caravans,
ambulances, mobile shops and offices, ice-cream vans etc. However, under
this definition , minibuses with a seating capacity of under twelve would be
considered a car for VAT purposes. Full guidance can be found in Notice
700/64 - Motoring expenses.
NOTE 3
Provision of ambulance services at race meetings and similar events
The supply of transport services for sick or injured persons in vehicles
specially designed for that purpose qualifies for exemption under item 11
Group 7 Schedule 9 to the VAT Act 1994.
In this context "sick or injured" should be interpreted as meaning those in need
of, or having just received medical care. Exemption, therefore, only applies to
the transport of sick or injured persons by ambulance operators, to or from a
place of medical treatment, in a vehicle specially designed for that purpose.
The provision of ambulance services at race meetings and similar events is
seen as a single compound supply of services. Although the transport of
people in an ambulance is an exempt supply as are the services of the
30
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
registered nurses and paramedics, this does not extend to the qualified
volunteer first aiders.
Where you provide a package which comprises of crewed ambulances and
supporting medical staff, the VAT liability hinges on the nature of the
principal supply and what is seen as the predominate feature (this is because
you cannot apportion a single supply for VAT purposes unless there is
provision under the law to allow for it). In this case, because the services
provided involve making available a crewed ambulance, as distinct from
ambulance transport to a person in distress, the supply would fall to be taxable
at the standard-rate.
NOTE 4
Direct supervision
The conditions which need to be met in order for Customs and Excise to
accept that 'direct supervision' has taken place are as follows:
A.
The supervisor must be an appropriately registered person.
B.
Supervision cannot take place via a third party. That is, the supervisor
must always be in a direct relationship with the unqualified staff.
C.
There must be an appropriate measure of supervision by a qualified
medical professional. That is, the presence of the appropriately
qualified supervisor must be required at appropriate times during the
process and he or she must be responsible, contractually, for
supervising the unqualified staff. Customs and Excise will not accept
that direct supervision exists where a supervisor is introduced primarily
to gain VAT exemption and in practice carries out little or no
supervision.
D.
The services performed by the unqualified staff must be predominantly
for the medical needs of the patient/client and must require
supervision. Customs and Excise will not accept exemption for
services performed by unqualified staff for which no supervision is
required and will not accept that services which are not broadly of a
surgical, medical or caring nature can gain exemption simply by the
use of a qualified individual in a supervisory or managerial role.
NB: For an activity to qualify as “care” it would encompass looking after the
generality of a person’s physical, personal and domestic needs and would
cover the medical treatment, protection, control and guidance of that
individual.
NOTE 5
Provision of welfare services
31
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
Where a public body makes business supplies of welfare services on an
"otherwise than for profit" basis, these are exempt from VAT under Item 9
Group 7 Schedule 9 of the VAT Act 1994.
"Otherwise than for profit" does not mean that a public body cannot make a
profit, but it requires that any surplus that is generated is ploughed back into
the same activity. The NHS is a "public body" under Item 9.
Note (6) to Item 9 defines "welfare services" as services directly connected
with the provision of care, treatment or instruction designed to promote
physical or mental welfare of elderly, distressed or disabled persons. This
would include bathing services provided as a social service and not part of
NHS treatment.
NOTE 6
Single supply of a mixture of goods and services
In some circumstances, you may make a supply of hiring out equipment
together with the services of a person registered or enrolled in a statutory
medical register. The hiring out of equipment on its own would be taxable at
the standard-rate, but the professional services of somebody on a statutory
medical register would be exempt from VAT.
It is important, therefore, when making a supply of both the hire of the
equipment together with professional services, to determine what is actually
being supplied in order that the correct VAT liability may be applied.
When you are considering what is being supplied there are a few points which
you should take into consideration which may help you to decide:
1.
Which is the predominant supply?
If the supply of medical services predominates, it lends its exempt
liability to the supply of the machine.
If the supply of a machine on hire predominates, then that lends
standard-rating to the supply of any individuals who happen to operate
it, regardless of their medical status.
2.
Who determines what the machine is used for and how it is used?
If the equipment comes under the jurisdiction of the recipient of the
supply, and it is the recipient who determines what the machine is used
for and how it is used, then the supply would be one of hiring out of
equipment.
If the equipment comes under the jurisdiction of the supplier, and it is
the supplier who determines what the machine is used for and how it is
used, and it is supplied in connection with professional medical
32
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
services, then the supply would be considered to be that of professional
and/or medical services.
3.
Who takes the lead in operating the machine?
This is similar to '2' above, whereby if it is the staff of the recipient
who operate the machine, the supply may be considered to be that of
the hire of equipment and if it is the staff of the supplier who operate
the machine, the supply may be considered to be that of services.
Remember, the supply of goods on hire can only become exempt under Item 1
of Group 7, Schedule 9 to the VAT Act 1994, if it is subsidiary to a service
which would qualify for exemption under Item 1. If the goods on hire are not
operated by, or under the jurisdiction of the person supplying the medical
service then the supply is one of standard-rated hire of equipment.
This is a difficult area, and if you are in any doubt as to the VAT liability of
the supplies you are making, you should contact the NHS Admin Team, at
South Bank VAT office giving full details of the supply, bearing in mind the
above points.
NOTE 7
Advertising supplied to charities
In order for advertising, supplied to a charity, to qualify for zero-rating, an
advertisement must contain more than just the charity's name. The minimum
wording acceptable for a fund-raising advert is, for example, "please support
X" or "give generously to X". The minimum wording acceptable for an advert
publicising a charity's objects is, for example, "X exists to prevent cruelty to
children".
Advertisements which, though indirectly benefiting the charity by securing
additional funds, are not primarily of a fund-raising nature (for example, the
seeking of new pupils by charitable schools), do not qualify for this relief.
However, they can qualify for zero-rating when they also contain a qualifying
advertisement.
This zero-rating includes supplies of advertising in newspapers, programmes,
annuals, leaflets, brochures, pamphlets, on paper coin-collecting boxes,
stickers and draw tickets. Envelopes and notepaper are also included in the
relief when they contain a qualifying advert. The lettering of adverts on
stationery must be similar in size to that of the charity's name.
This relief does not extend to clothing of any material, mugs or other similar
commemorative items, Christmas cards or calendars.
In order to zero-rate supplies of advertising to charities you must obtain from
the charity a completed declaration of the charity's eligibility for relief from
VAT. Further guidance is contained in Notice 701/1 - Charities.
33
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
NOTE 8
Medico-legal services
The supply of services by a person registered or enrolled in one of the statutory
medical registers referred to in items 1-3 of Group 7 to Schedule 9 of the VAT
Act 1994 is exempt.
With effect from 20 January 1997, however, Customs and Excise accept that
“medico-legal” services are standard-rated and not exempt.
What are “medico-legal” services?
For a service to be taxable, it must be predominantly legal rather than
predominantly medical in nature. It must comprise more than just a medical
examination and report. The doctor must play an active role in the legal
process, providing services which are primarily legal, with medical knowledge
being utilised only in support and he must go beyond his normal medical role for example by providing legal representation.
Thus, if a person, or their insurance company, employs a doctor to carry out a
medical examination and provide a report, that supply is exempt because it is
predominantly medical in nature - and it will remain exempt even if the doctor
is later employed to appear as a witness (to endorse his medical findings) in a
subsequent action.
If, however, the doctor goes beyond this and is engaged to take an active part
in the legal process - for example, by negotiating for his client and maybe by
appearing as an advocate - the supply becomes predominantly legal in nature
and thus, becomes a taxable standard-rated supply. If that doctor was asked to
provide a medical report or act as a witness as part of that predominantly legal
supply, then those further services would also be taxable.
This means that the following are now taxable when supplied as a
predominantly legal service:

arbitration, mediation and conciliation services;

investigating the validity of claims against parties such as insurers;

considering medical reports and other evidence in order to resolve
disputes; and

work for lawyers and insurers in preparing reports for the resolution of
disputes following personal injury.
What services remain exempt?
34
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
Services which fall outside the general heading of “medico-legal” work are not
affected by this change. Exemption continues to apply to services provided by
doctors which arise out of the normal doctor/patient relationship and doctors
do not necessarily make taxable supplies simply because they are engaged by
third parties, such as lawyers. The VAT liability of a doctor’s services
depends on whether they are predominantly legal or predominantly medical in
nature. Where the supply is predominantly “legal” it is taxable. Where the
supply is predominantly medical then exemption continues to apply.
Who does this change apply to?
The principle that a supply which is predominantly legal rather than medical is
taxable applies to all professions on a statutory medical register.
NOTE 9
Clinical trials
This is a developing and therefore difficult area. To determine which liability
applies, you need first to ascertain the precise details of what is being supplied,
and then, using that information, determine whether the supply is essentially of
an analytical testing service, or whether it comprises significant elements of
medical care performed by registered medical professionals.
Usually, when a company, including an NHS body, conducts a clinical trial to
ensure the efficacy of a new product which is about to be launched onto the
market, it supplies what is essentially an analytical testing service. Typically,
the drugs will be distributed to patients who have agreed to trial them and then
samples of those patients’ blood or urine will be analysed by a testing
company which has had little or no contact with the patients themselves. In
this situation
the supply must be standard-rated, because a registered medical practitioner even if involved in the supply - would not perform such a service in his normal
capacity.
However, in a very few cases, the company undertaking the clinical trials will
also care for the patients. The company’s medical practitioner will have a far
greater degree of contact with the patient and will for example, consistently
and regularly check the patient to ensure that they are suitable for the trial,
administer the drugs to the patient, and monitor the patient for any subsequent
side effects. In this situation, if the presence of medical professionals on the
statutory medical registers is required to perform these duties, and they have
not merely been artificially inserted into the supply chain to gain relief, the
supply will be exempt.
5.3
NON-BUSINESS ACTIVITIES OF THE NHS
35
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
Non-business activities of the NHS are activities which are carried out on a statutory basis
and/or for no consideration. Such activities are outside the scope of VAT.
The following activities are considered to be non-business activities of the NHS:
1.
Supply of medical, dental and optical treatment and care to patients under the National
Health Service, including:
(a)
catering for patients in hospital;
(b)
hairdressing for patients in hospital;
(c)
goods supplied on prescription when dispensed in an NHS hospital to NHS inpatients and out-patients;
(d)
dentures, artificial eyes and artificial limbs;
(e)
maintenance of working patients;
(f)
industrial and occupational therapy sales to patients on a recovery of costs
basis;
(g)
amenity beds;
(h)
supplies of medicated sanitary towels in the course of treatment;
(i)
laboratory services supplied to patients;
(j)
treatment under the Road Traffic Act.
(k)
First supply of medical notes to solicitors, insurance companies and other
interested bodies.
2.
Medical education courses for the training of hospital staff in connection with hospital
activities.
3.
Supply of integrated health and personal social services by Health and Social Services
Boards (Northern Ireland) under statutory authority, including:
(a)
catering for patients in hospital and for residents in residential
accommodation;
(b)
hairdressing for residents and patients;
(c)
goods supplied on prescription when dispensed in hospital;
(d)
dentures, spectacles, artificial eyes and artificial limbs;
(e)
maintenance of working patients and residents;
(f)
industrial and occupational therapy sales to users on a recovery of costs basis;
36
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
4.
(g)
amenity beds;
(h)
supplies of medicated sanitary towels in the course of treatment;
(i)
laboratory services supplied to patients;
(j)
treatment under the Road Traffic Act;
(k)
meals on wheels and dining clubs;
(l)
home help services;
(m)
domiciliary laundry service;
(n)
recuperative holidays;
(o)
adaptation of property for disabled persons;
(p)
aids for the handicapped;
(q)
pre-school play group;
(r)
maintenance of children.
Provision of residential welfare accommodation by Health and Social Services Boards
(Northern Ireland) as follows:
-
Old peoples homes
-
Childrens homes
-
Rehabilitation centres
-
Family group homes
-
Hostels for adolescents, mentally ill, mentally handicapped, homeless families,
physically handicapped.
5.
Statutory fees in respect of the registration and inspection of private nursing homes.
For example, Statutory Registration Fees advocated by HC (88) 48.
6.
The supply of case notes in respect of an NHS patient to an insurance company or a
solicitor, for example, is a non-business activity of the NHS. Where additional copies
are requested, this supply is standard-rated.
37
JK\KEEP\106760013
SECTION 5 BUSINESS AND NON BUSINESS ACTIVITIES
SECTION 6 - CONTRACTED-OUT SERVICES
This Section deals with the rules relating to Contracted-Out Services in respect of the nonbusiness activities of the NHS. The guidance in this part is applicable only to the NHS and
other Government Departments and does not apply to normal private sector traders. The
Contracted-Out Services provisions should be viewed independently of the general VAT
guidance relating to business activities.
6.1
CONTRACTED-OUT SERVICES
6.1.1 BACKGROUND
In 1983 the Government decided to encourage NHS bodies (and other Government
departments) to contract out to the private sector, services which had traditionally been
performed in-house, where it was more cost effective to do so.
Under the normal VAT rules, NHS bodies would be unable to reclaim any VAT incurred on
services bought-in for their non-business activities, such as health care. It was recognised that
many of the services would be subject to VAT if contracted out to the private sector, and that
where they were acquired for non-business purposes, the non-reclaimable VAT could act as a
disincentive to contracting-out.
It was, therefore, decided to compensate NHS bodies by a direct refund mechanism. This
meant that, providing certain conditions were fulfilled, NHS bodies were able to obtain from
Customs and Excise a refund of the VAT incurred on certain services (as specified by the
Treasury) contracted out to the private sector.
This was put on a statutory basis by Section 11 of the Finance Act 1984 which inserted
Section 27(2A) to the VAT Act 1983. The Directions under Article 27(2A), which were
sometimes referred to as Section 11 regulations, came into force on 7 November 1984 and
have been regularly updated since.
6.1.2 ELIGIBLE SERVICES
The Refund Directions - commonly referred to as the Contracting-Out Directions - are
published each year, normally in April, in the London, Edinburgh and Belfast Gazettes. An
extract from the current Treasury Direction is reproduced at Appendix E.
Prior to 1 April 1993, refunds were only considered for those services which had been
traditionally performed in-house by each Government Department and the list of eligible
services were specific to each Department.
This was changed on 1 April 1993 and it is now the case that the Directions contain a single
list of all eligible bodies (List 1 in the Directions) together with a single list of all eligible
services (List 2 in the Directions). Each body listed as an eligible Department may now
recover the tax on all the services shown in the list of eligible services, provided that the
capability to perform the service in-house existed within Government and that the service
relates to the departments non-business activities.
A Government Department does not have to have previously performed the service in-house
itself in order to claim a refund. This was a criteria for services which were contracted out
38
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
before 1 April 1993, but was extended with effect from 1 April 1993 so that the in-house
capability must have existed within Government.
Each June the Treasury will ask Departments for details of any changes (including deletions)
to be reflected in the following years Contracting-Out Directions. Unless a service has been
approved by the Treasury under the contracting-out provision, VAT cannot be recovered.
Health Authorities, Special Health Authorities, National Health Service Trusts, Area Health
Boards (Scotland), The Common Services Agency (Scotland), The Mental Welfare
Commission for Scotland and The Welsh Common Services Agency are all included in the
list of eligible departments in the Directions (List 1).
A full list of eligible services (List 2), as published in The London Gazette on 26 April 1996
is reproduced at Appendix F.
From the introduction of Section 27(2A) until 1 April 1993, one of the conditions laid down
was that a claim could only be made for a refund of the tax charged on the supply of services
of the nature listed in relation to the NHS (or on goods incidental to the supply of those
services), if and only if the charge of the tax would raise the price of obtaining those services
from outside the NHS above the cost to the NHS of providing them itself. This was known as
the "disincentive criteria", and was abolished on 1 April 1993.
Section 27(2A) did not apply to contracted-out activities traditionally done by outside
contractors. Nor did it apply to the supply of goods on their own, since there is no distortion
of competition caused by the VAT in these circumstances. It must be remembered that any
goods on which refunds are claimed must be only an incidental, intrinsic or minor part of the
service to which they relate.
6.1.3 CURRENT LEGISLATION
The current legislation relating to VAT refunds on Contracted-Out services is contained in
Section 41(3) of the VAT Act 1994, which empowers Customs and Excise to refund VAT to
Departments, to the extent that the Treasury directs, provided that:
(a)
the goods and services are acquired for non-business purposes; and
(b)
the claim meets any conditions which may be laid down regarding timing, form and
manner.
The whole of Section 41 of the VAT Act 1994 is reproduced in Appendix A.
6.1.4 CONDITIONS FOR CLAIMING VAT ON CONTRACTED-OUT SERVICES
The conditions which have to be met to ensure that VAT can be recovered under the
Contracted-Out Directions are as follows:
(A)
The services have been agreed with the Treasury as qualifying and are published
in the relevant Treasury Directions at the time.
The Directions are updated every year by the Treasury and it is only those services
approved as qualifying on which a refund of VAT may be considered (see Appendix
39
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
for current list). If the service is not listed in the Directions then no refund of VAT
may be made under these provisions.
The Contracted-Out Directions do not apply to the supply of goods. However, some
services will inevitably involve the supply of goods or equipment. In these
circumstances the general rule to be applied is that in order for a refund of VAT to be
considered, the goods must only be an incidental or minor part of the service to which
they relate, that is, that the goods are intrinsically part of the service supplied. The
point to remember is whether the supply is essentially that of goods or services.
(B)
The services are not for the purpose of any business activity.
In general, the non-business activities of the NHS are those carried out on a statutory
basis and/or for no consideration, such as NHS patient care, and it is only in respect of
these activities that VAT refunds under these provisions may be made.
For example, repairs and maintenance carried out in pursuance of NHS patient care
will, subject to all conditions being met, be covered by the Contracted-Out Directions.
However, private patient care is deemed to be a VAT exempt business activity, and as
such any VAT incurred on repairs and maintenance in connection with this activity
would not be covered by the provisions.
(C)
The capability to perform the service in-house existed within Government.
The NHS does not necessarily have to have previously performed the service in-house
itself in order for the service to be considered eligible for a refund. The determining
factor is whether the capability to perform the service in-house existed within
Government.
Services which, by law or for other reasons, must be carried out by outsiders, are
ineligible for a VAT refund under these provisions. Examples of such ineligible
services are:
i.
External Audit fees. This service, by its very nature, cannot be carried out inhouse, but by firms appointed by the Audit Commission.
General consultancy work, however, carried out by those same firms would be
considered an eligible service as the NHS is under no obligation to use them.
ii.
Value for Money audit. Where it is a requirement of the Department of Health
that these audits are carried out by independent parties, the VAT charged by
the auditor may not be claimed as a refund under the Contracting-Out
provisions.
Where, however, additional consultancy work is undertaken at the behest of
the NHS body at the same time as the audit, a refund of tax may be claimed on
this additional work where it is shown as a separate supply.
iii.
Assessment, monitoring and other fees charged by organisations conferring
awards.
40
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
Examples include The British Standards Institution, Investors In People, The
British Safety Council for its Five Star Audit award. These services would not
be considered eligible as the NHS cannot award itself these distinctions.
Consultancy work, however, by other firms to help the NHS achieve these
awards would be considered to be an eligible service.
iv.
Statutory engineering inspections of boilers, other pressure vessels and lifts for
insurance purposes. These services must be carried out by nominated external
engineers, and VAT incurred on the inspection fees would not be eligible for a
refund.
However, repair and maintenance work done to meet inspection standards and
normal boiler and lift servicing and repairs would be considered eligible.
(D)
The VAT incurred on the service relates to the current financial year.
VAT recovery on contracted-out services is confined to a current-year basis because
Treasury funding will have taken into account non-recoverable VAT for earlier years.
Claims must be lodged at NHS Team within the first three months of the following
financial year.
6.1.5 RETENTION OF RECORDS
All records and supporting documentation relating to a refund of VAT under the ContractedOut provisions, including evidence required to substantiate the disincentive criteria, must be
retained for a period of six years from the date the claim is made.
In order to alleviate any problems with storage of records, you may, if you wish, transfer the
records onto microfilm or microfiche, provided that copies can be easily produced and that
there are adequate facilities for allowing a Customs and Excise officer to view them when
required. Microfilm or microfiche records must also be kept for a period of six years from the
date the claim is made.
6.2
GUIDANCE ON INDIVIDUAL CATEGORIES CONTAINED IN THE LIST OF
ELIGIBLE SERVICES
REPAIRS AND MAINTENANCE
6.2.1 INTRODUCTION
This is possibly one of the most complicated areas in relation to the eligibility to VAT
refunds under the Contracted-Out regulations.
The following are some of the eligible headings which fall under the category of repairs and
maintenance in the 1996 Treasury Direction:
*
Land maintenance
*
Maintenance and non-structural repair of buildings
41
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
*
Maintenance and repair of civil engineering works
*
Maintenance and repair of plant, equipment and furniture, including surgical
appliances and wheelchairs
*
Maintenance and repair of statues and monuments
*
Maintenance and repair of vehicles
*
Maintenance of grounds, trees and nurseries, including land attached to
buildings, farms, gardens and sports grounds
*
Maintenance of information technology equipment
6.2.2 GENERAL
Repairs and maintenance is work which reinstates a building, room, plant (see 6.2.4) 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. Replacement of an item, which is listed as eligible under Appendix G, which is a
non-structural part of the building, would also be considered to be repairs and maintenance as
long as that item is in the same place.
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. ie, 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.
42
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
A list of examples of work which would be considered both eligible and ineligible is
contained in Appendix G.
6.2.3 NHS CAPITAL SPENDING BELOW £5000
Customs and Excise 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 be 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 (eg 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.
The supply and fitting of carpets does not come under the definition "building elements" and
VAT would not be reclaimable under this scheme. However, repair of existing floor covering
by contractors would be VAT reclaimable within the Contracted-Out provisions under the
heading of "maintenance and non-structural repair of buildings".
In respect of fixtures and fittings, if an item needs, by it's very nature, to become a fixture
then it would be considered that as long as the whole contract for fitting that equipment was
below the monetary restriction of £5000 (excluding VAT), then the VAT may be reclaimed.
For example, fire and security alarm systems would fall into this category. It would not
suffice to just attach items to the floor or wall and call them fixtures, for example, dental
chairs or domestic dishwashers.
The £5000 limit was introduced for projects started after 1 April 1993. For projects started
prior to this date the limit was £1000 (excluding VAT).
6.2.4 DISTINCTION BETWEEN NON-STRUCTURAL BUILDING ITEMS AND PLANT
(FIXED EQUIPMENT)
Plant is an item which is genuinely fixed in the sense of being permanently incorporated into
the structure of the building and, where appropriate, permanently attached to utilities. It must
not be capable of being moved away, from or within the building. Plant will include lifts,
boilers and generators (large industrial type equipment).
6.2.5
MATERIALS, PARTS AND SPARES ELEMENT OF BUILDING AND
ENGINEERING WORKS
The Contracted-Out provisions only apply to services and in general do not extend to supplies
of goods. However, some services will involve the supply of goods or equipment and in
certain circumstances the VAT may be refundable.
The general rule is that in order for a refund of VAT to be made, the goods must only be an
incidental or minor part of the service to which they relate. That is, the goods are an intrinsic
part of the service supplied.
43
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
Where parts are included under a repair and maintenance contract, and no additional charge is
made, then the VAT would be recoverable. Usually a maintenance contract for an item of
equipment will include a provision for parts as well as the labour element. The parts are not
normally subject to a separate charge but are seen as an integral part in the cost of the
maintenance agreement.
Repair and maintenance of plant and equipment is eligible for VAT recovery, but not the
supply and installation of new plant or equipment. Parts that repair plant or equipment as a
whole, back to its original state would be eligible, but the replacement of a whole item of
plant or equipment would not.
Materials would be considered to be an integral part of the service being provided.
6.2.6 MAINTENANCE OF GROUNDS AND GARDENS
VAT can be refunded for all maintenance activities including tree surgery, grass cutting,
surface maintenance, road cleaning and gardening. This does not extend to new or
replacement design or landscaping services or complete removal of trees.
Replanting and laying of new paths or roads is not eligible for a refund. Where the activities
are combined, for example maintenance of an old path and the laying of a new one, a VAT
refund can only be taken on that part of the invoiced work relating to the maintenance of the
old path and this should be separately and clearly described on the invoice.
The relaying of an old path will not count as maintenance and is ineligible, as is landscaping.
6.2.7 HIRE OF PLANT AND EQUIPMENT
Where you hire plant and equipment to effect work of repair and maintenance by your own
staff, there can be no claim for a refund. This would also include the hire of items such as
power tools, compressors, dumper trucks (without a driver), power cradles and scaffolding
(even when the scaffolding firm erect it).
Where the works of repair and maintenance are contracted out and the supplier, as part of that
service invoices for the hire of such plant and equipment, refunds of tax may be made.
6.2.8 MAINTENANCE AND REPAIR OF PLANT, EQUIPMENT AND FURNITURE
To qualify, the maintenance and repair service would normally be under a service contract or
agreement renewed annually. All parts (whatever their value) fitted under an agreement are
fully VAT refundable. The calling out of a service agent on an ad hoc basis to carry out a
repair is VAT refundable.
6.2.9 LEASE OR RENTAL OF MEDICAL EQUIPMENT
The VAT on the lease or rental of medical equipment is not recoverable. This applies even
where repair and maintenance is included in a composite charge by the supplier.
Furthermore, where the maintenance is included as part of the all inclusive charge for the
lease or rental of medical equipment and is not represented by a separately negotiated
agreement, you may not extract that part of the cost of maintenance and claim the VAT under
44
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
the Contracted-Out provisions. However, a separate contract for repair and maintenance
outside the lease or rental is VAT reclaimable. Neither a finance lease nor an operating lease
of such equipment is VAT reclaimable.
6.2.10 STAFF HOUSES AND FLATS
The Contracted-Out regulations only apply to the non-business activities of the NHS. The
provision of staff accommodation is an exempt business activity, as the rents from tenants are
VAT exempt. Therefore, VAT cannot be reclaimed on the repair and maintenance of such
properties. The only exception to this is if the tenants live rent free or with manifestly
uneconomic rents still imposed by Department of Health circulars as part of the Whitley
Council arrangements. In these circumstances Customs and Excise allow the provision of
staff accommodation to be treated as non-business.
6.2.11 MAINTENANCE AND REPAIR OF VEHICLES
Where the regular servicing of vehicles is placed with a private firm, the VAT charged is fully
refundable, as is the ad hoc placing of a vehicle with a garage for a repair.
6.2.12 MAINTENANCE AND REPAIR OF PATIENTS APPLIANCES
The term "patients appliances" refers not only to items worn on the body such as surgical
footwear, callipers, corsets and wigs, but also to aids like wheelchairs and zimmer frames.
Maintenance and repair of patients appliances is VAT reclaimable under the heading
"Maintenance and repair of plant, equipment and furniture, including surgical appliances and
wheelchairs".
VAT may be recovered on the storage, repair, maintenance and reconditioning of wheelchairs
owned by an NHS body.
Repairs and maintenance of existing patients appliances and wheelchairs may also include
certain modifications and adaptations to such items. Examples of modifications which would
be considered repairs and maintenance are:
*
raising a shoe or a heel on a patients own shoe;
*
fitting a strap on a patients own shoe;
*
fitting a pocket in a patients bra to take a prosthesis;
*
adapting a shoe to take a leg iron;
*
adding loops to callipers.
To be eligible, the supply must be primarily of services as opposed to goods. VAT may be
reclaimable on the parts and spares elements if they form only a minor or incidental part of
the service. However the professional service of assessing the patients needs will be exempt
from VAT, therefore no VAT will be recoverable.
45
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
The supply of bespoke surgical footwear or of a wheelchair specifically designed for
particular patients is not reclaimable as the supply is primarily of goods. However, if the
appliance manufacturer differentiates on the invoice between the professional service of
assessing the patients needs and requirements and the supply of the appliance itself, VAT may
be reclaimed on the first element under the heading "Professional services".
The supply of ready made patients appliances such as standard wheelchairs or piedro boots of
various sizes is not VAT reclaimable, being the supply of goods only.
6.2.13 EXCHANGE UNITS
In some circumstances, an NHS body will exchange unserviceable articles of medical or other
equipment for similar reconditioned articles. Where this happens, providing this is not a oneoff exchange by the supplier (that is, that this is how the supplier operates on a day to day
basis), then the supply is that of services and not goods, and the VAT would be eligible for
refund under the heading "Maintenance and repair of plant, equipment and furniture,
including surgical appliances and wheelchairs".
If a supplier, on a one-off basis, exchanges a serviceable article for one which is
unserviceable, or they exchange goods for other goods at a reduced price in any other
circumstances, the supply is treated as part-exchange of goods and any VAT incurred would
not be eligible for a refund under the Contracted-Out provisions.
46
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
OTHER ELIGIBLE SERVICES
As per London Gazette dated December 2002
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).
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.
47
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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 (eg 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.
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
48
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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 Trusts inter-departmental sections.
16.
Debt Collection.
VAT is recoverable if you were to use the services of professional debt collection agencies.
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.
49
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT 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 a Trust commissions an external
provider to deliver a health promotion campaign, but has limited NHS application.
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
50
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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.
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.
51
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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
Includes
VAT on repairs and maintenance work carried out on goods a Trust owns. VAT cannot be
recovered on the purchase of the goods themselves.
Repairs to existing lifts
Excludes
Installation of new lifts
Complete replacement of central heating systems and air conditioning systems
38.
Maintenance and repair of statues, monuments and works of art
Includes
cleaning
restoration costs
removal & resiting costs.
39.
Medical and social surveys
52
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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.
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 most services 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
53
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
equipment, and it includes utilities when provided as a part of the whole package and paid for
within the single unitary charge.
46.
Operation of prisons, detention centres and remand centres, including medical services.
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 nonbusiness 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.
54
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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.
53.
Provision and management of accommodation, including leased accommodation, for
office use or as part of any other listed service
This heading covers PFI and similar 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.
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.
57.
Recruitment and relocation of staff and other related services
55
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT 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 non-business
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
Trust.
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.
56
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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 Trusts merging
would be recoverable, as would repairs to existing signs.
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 both supplies of agency staff and
fees incurred where work is contracted out.
VAT is recoverable on the supply of telephonist services (for example, the supply of agency
staff). This heading does not include the hire of telephones, telephone lines, switchboard
equipment etc.
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
57
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
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.
6.2.15 MRI SCANNERS
The Treasury have advised that with effect from 1 April 1997, Section 41(3) refunds may,
under certain circumstances, be allowed on the hire of MRI Scanners and similar medical
equipment (eg. kidney dialysis machines), supplied as part of a PFI project or otherwise,
under the heading “Operation of hospitals, healthcare establishments and healthcare facilities
and the provision of any related services”.
The circumstances that must prevail in order that the VAT may qualify for a refund are as
follows: The supplier must provide the equipment with a staff presence of labour and
expertise. The hire of equipment other than that of reprographic equipment including repair
and maintenance, is not eligible for VAT recovery within the Contracted-Out Services
provisions. It is not sufficient for the supply of a hire of equipment to be thinly wrapped in a
minimal service. The supply of such services may be provided as part of the operation of a
hospital or on their own.
6.2.16 BOILER HOUSE SCHEMES
NHS bodies may only claim refunds of VAT on Contracted-Out Services if they are covered
by an appropriate heading in List 2 of the Direction made by the Treasury under Section 41(3)
of the VAT Act 1994. The Direction does not cover the supply of hot water and power, as
this is not supply of a service but a supply of goods. Hence it is not covered by a heading in
List 2.
A contractor may, however, wish to enter into an agreement to supply a complete contract
energy management service, under PFI or otherwise. This could consist of the entire running
58
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
of the hospital boiler house, that is, its maintenance and cleaning and the supply of hot water,
steam and heating.
It had been suggested that such a complete service is covered by the List 2 heading
“Operation of hospitals, healthcare establishments and healthcare facilities and the provision
of related services” and VAT relating to the supply of hot water or heating, which would not
otherwise be recoverable, could thus be reclaimed under the all-inclusive heading. This is not
the case.
The supply of hot water and heating is not covered by the heading “Operation of hospitals,
healthcare facilities etc”. This List 2 heading means the supply of an establishment such as a
hospital or clinic. “Related services” in this context would cover the supply of a range of
services related to the operation of a hospital or a healthcare establishment, from
haemodialysis services to care taking and security. However, it would not extend to a service
based on the supply of hot water or heating, on which VAT would be properly due as a supply
of goods, and which is not covered by the Section 41(3) Direction. Customs and Excise do
not, of course, dispute that the supply of heating and hot water is essential to the running of a
hospital, but this does not mean that VAT must be refunded.
A contract energy management service may however, include the following services covered
by List 2 on which Section 41(3) refunds are allowed:-
“Professional services, including those of any manager, adviser, expert, specialist or
consultant” (for energy efficiency consultation or similar advisory services).
-
“Maintenance and repair of plant, equipment and furniture, including surgical
appliances and wheelchairs”.
-
“Cleaning of equipment”.
Thus, in general, VAT can be refundable on the facilities management aspects of energy
management services, as covered by the above headings, but not on the supply of hot water
on energy.
6.2.17 X Ray Tubes
With effect from 12 September 1997, treasury has ruled that replacement X Ray tubes may be
recovered under the heading. “Maintenance and cleaning of equipment, plant vehicles and
vessels”.
59
JK\KEEP\106760013
SECTION 6 CONTRACTED OUT SERVICES
SECTION 7 - POSSIBLE AREAS OF RELEVANCE TO THE NHS
This Section gives further guidance on the more complex areas of VAT that, as an NHS body,
you may be involved in to some extent from time to time.
7.1
PARTIAL EXEMPTION
7.1.1 GENERAL
As an NHS body, it is likely that in the course of your business activities you will be making
exempt supplies (for example, the supply of private beds and supplies to private patients in
the course of care).
If you incur input tax that relates to exempt supplies you are "partly exempt". This means
you may not be able to claim all the input tax you incur and you will normally have to use a
method to work out how much of your input tax you can claim.
When you use a method, input tax, or a proportion of input tax, which is attributable to
exempt supplies in accordance with your method, is known as "exempt input tax".
7.1.2 NON-BUSINESS ACTIVITIES
Activities that are carried out by you on a statutory basis and/ or, for no consideration are
outside the scope of VAT and are deemed to be "non-business" activities for VAT purposes.
Any VAT incurred relating to these activities is not input tax and you must disregard
any such VAT for the purposes of applying the rules relating to partial exemption.
You will, therefore, need to first determine what proportion of the VAT you incur relates to
these non-business activities. This will include any VAT refundable under Section 41(3) of
the VAT Act 1994 in respect of contracted-out services.
7.1.3 THE "DE MINIMIS" LIMIT
In general, if your exempt input tax is not more than £625 per month on average AND no
more than half of all your input tax, you can claim all your input tax as if you are "fully
taxable". This is known as the de minimis limit. However, this is subject to certain other
conditions, including an annual adjustment to take into account a full year's exempt input tax.
These conditions are laid out in Notice 706 - Partial exemption. If you cannot be treated as
fully taxable, you will need to work out how much of your input tax you can claim.
1
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
7.1.4 METHODS OF CALCULATION
To work out how much of your input tax you can claim, you should first of all identify all the
imports of goods and supplies of goods and services you receive. Of the input tax on such
goods and services:
*
You can claim all the input tax on those goods and services you use, or intend to use,
only in making taxable supplies;
*
you cannot claim any of the input tax on those goods and services you use, or intend
to use, only in making exempt supplies;
You can also claim input tax on imports or supplies which you use, or intend to use, in whole
or in part in making supplies outside the UK which would be taxable supplies if made within
the UK. But you cannot claim any input tax, which is always non-deductible such as that on
the purchase of cars or on business entertainment.
When you identify input tax on goods and services you use, or intend to use, only in making
taxable supplies, remember you cannot simply claim all input tax on imported services or
self-supplies by relating it back to the imported services or self-supplies on which you
accounted for VAT. You can claim this input tax if the imported services or self-supplies are
used, or to be used, only in making taxable supplies. If they are not used, or to be used, at all
in making taxable supplies you cannot claim any of this input tax. If they are used, or to be
used, partly in making taxable supplies, you must include this input tax in your nonattributable input tax (see below).
You will then need to consider the input tax on goods and services you do not use, or intend
to use, only in making taxable or exempt supplies. This is your "non-attributable" input tax.
The standard method of working out the claimable proportion of your non-attributable input
tax is that you may claim "such proportion of your non-attributable input tax as bears the
same ratio to the total of such input tax as the value of your taxable supplies bears to the
value of all your supplies". The ratio is expressed as a percentage and if that percentage is not
a whole number it is rounded up to the next whole number.
Your calculations in each tax period are provisional and are subject to adjustment at the end
of the annual adjustment period.
If you do not want to use the standard method to work out the claimable proportion of your
non-attributable input tax, you may apply to The NHS Admin Team at South Bank VAT
Office for approval to use a special method. You must make your application in writing,
explaining precisely how your proposed method would work.
A special method can be any method you devise to suit the circumstances of your activities.
You may, for example, find it convenient to work out the claimable proportion of your nonattributable input tax using a single calculation based on the ratio of the area of a building
used for making taxable supplies to the area of the building used for business activities (ie
taxable and exempt supplies). The ratio here will again be expressed as a percentage, but
where that percentage is not a whole number no rounding up is allowed.
2
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
You will normally be allowed to use a special method if it will enable you to claim no more
input tax in any annual adjustment period than you incur in making taxable supplies and its
accuracy can be readily checked by our visiting officers. But you must have written approval
from Customs and Excise before you start to use a special method.
For full detailed guidance on partial exemption you should read Notice 706 - Partial
exemption.
7.2
CAPITAL GOODS SCHEME
7.2.1 GENERAL
The Capital Goods Scheme was introduced on 1 April 1990 and affects input tax on certain
capital goods. Under the scheme, which is applicable to all VAT registered traders, including
the NHS, if you acquire computers, computer equipment, land or buildings on or after 1 April
1990 wholly or partly for use in connection with your business activities, you must review
their use year by year over a given period of time. If, during this time, there is any change in
the extent to which they are used for making taxable supplies (eg they are first used for
making taxable supplies and later for making exempt supplies or vice versa), you must make
an input tax adjustment to take account of this.
Before the introduction of this scheme, under the normal rules recovery of input tax was
usually determined once and for all by the first use of the goods. The scheme recognises that
capital goods have a useful life of several years and the extent to which they are used for
making taxable supplies can change, and now provides a fairer basis for the recovery of input
tax on certain items.
The scheme covers only:
*
computers and items of computer equipment of a tax-exclusive value of £50,000 or
more; and
*
land and buildings of a tax-exclusive value of £250,000 or more
where you acquire these as capital items for use in connection with your business activities.
When you acquire a capital item covered by the scheme you follow the normal rules for
claiming the input tax you incur on it. If it is first used wholly for making taxable supplies
you claim the input tax on it in full; if you use it wholly for exempt supplies you do not claim
any of the input tax on it; if you use it for making both taxable and exempt supplies you claim
a proportion of the input tax to reflect the extent of the taxable use.
If there is later any change in the extent of taxable use within a given "adjustment period" you
make an input tax adjustment. When the taxable use increases you claim a further amount of
input tax; when it decreases you repay some of the input tax you have already claimed.
Remember that you should take no account of any adjustments required under the capital
goods scheme when applying the partial exemption de minimis limits.
3
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
The adjustment period is basically 5 years for computers and computer equipment, and 10
years for land and buildings. You must review the use of the goods (and make an adjustment
if necessary) year by year throughout this period.
7.2.2 TYPES OF COMPUTERS AND COMPUTER EQUIPMENT COVERED BY THE
SCHEME
In practice the scheme will mainly cover mini-computers and mainframe computers. This is
because the minimum value of £50,000 applies to individual items of computer equipment,
not to complete systems.
Computer systems are generally made up of a number of separate pieces of equipment linked
together (disk drives, VDU's, printers etc). A computer or item of equipment for use in
connection with your business activities is covered by the scheme only if it is worth £50,000
or more on its own. For example, if one computer printer is valued at £50,000 or more it
would be covered by the scheme, but a whole system made up of a number of items of
equipment each individually valued at less than £50,000 would not.
The scheme does not apply to:
*
any item acquired before 1 April 1990;
*
any item of a value of less than £50,000;
*
any item acquired for resale, or sold before it is used;
*
computer software;
*
computers or computer equipment which you manufacture yourself;
*
computerized equipment, eg a computer-controlled blast furnace, computerized
telephone exchange, lift system etc (but if computerized equipment is installed as a
fixture in a new building covered by the scheme it would be treated as part of the
building).
7.2.3 TYPES OF LAND AND BUILDINGS COVERED BY THE SCHEME
Supplies of land and buildings may be exempt from VAT, zero-rated or standard-rated. The
scheme can only apply where VAT is charged on the acquisition of the land or building at the
standard-rate.
Here are some examples of acquisitions that are covered by the scheme where the taxexclusive value of the supply is £250,000 or more:
*
the freehold of a building which you either occupy for your own business use or lease
to someone else;
4
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
*
an extension or annex which you construct, or an alteration which you make, to a
building in which you have an interest, where this results in at least a 10% increase in
the floor area of the building;
*
land or buildings which you acquire on a lease, where you pay a premium of £250,000
or more;
*
any building self-supplied on or after 1 April 1990 (Notice 742 - Land and property
explains this further);
*
any building you construct which is not liable to a self-supply charge, but where the
building costs incurred on or after 1 April 1990 amount to £250,000 or more.
The scheme does not apply to:
*
any acquisition of a value of less than £250,000;
*
any land or building acquired for resale, or sold before it is used;
*
the acquisition of a lease of land or a building where the premium is less than
£250,000 (or where no premium is said - ie involving rent only);
*
the freehold of a piece of bare land purchased for possible future development, eg
acquired for your "land bank" and not used before development or sale.
If you make any change in the use of a capital item between taxable and exempt supplies
within the adjustment period, you will have to make an adjustment under the scheme.
Remember that this scheme only applies where there is a change in the business use of the
computers, land or buildings. It does not apply where the change is from a business to a nonbusiness use or vice versa.
Full details on the capital goods scheme (including guidance on when and how to make any
adjustments) is contained in VAT Leaflet 706/2 - Capital goods scheme: input tax on
computers, land and buildings acquired for use in your business.
7.3
FUEL AND POWER AND BUILDING WORK - MEANING OF "RESIDENTIAL"
Supplies of fuel and power can be charged at a reduced rate of VAT (currently 5%), but only
when made to final consumers. A final consumer is someone who acquires goods and
services for personal use and not for an economic activity.
The reduced rate of VAT may apply only if the goods supplied are for use in:
(a)
a building, or part of a building, which consists of a dwelling or number of dwellings;
(b)
a building, or part of a building, used for a relevant residential purpose (see below); or
(c)
self-catering holiday accommodation, caravans or houseboats.
5
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
Use for a relevant residential purpose includes use as:
(a)
a home or other institution providing residential accommodation for children;
(b)
a home or other institution providing residential accommodation with personal care
for persons in need of personal care by reason of old age, disablement, past or present
dependence on alcohol or drugs or past or present mental disorder;
(c)
a hospice;
(d)
residential accommodation for students or school pupils;
(e)
residents.
an institution which is the sole or main residence of at least 90 per cent of its
Hospitals, prisons and "similar institutions" are specifically excluded from qualifying for the
reduced rate of VAT.
Similarly, in some circumstances the construction of a new building may qualify for zerorating (Notice 708 - Buildings and construction refers). The type of building qualifying for
zero-rating would be a dwelling or a number of dwellings or a relevant residential or relevant
charitable building.
A building is a relevant residential building if it is:
*
a residential building or a residential part of a building which the person to whom the
supply is made has certified will be used as:
-
a children's home;
-
an old people's home;
-
a home for the rehabilitation of persons who suffer or have suffered from
alcohol dependency, drug dependency or mental disorder;
-
a hospice;
-
living accommodation for students or school children;
-
living accommodation for members of the armed forces;
-
living accommodation for members of religious communities; or
-
any communal living accommodation which at least 90% of the residents use
as their sole or main residence;
but not a hospital, prison or other penal institution, hotel, inn or similar establishment.
The Department considers that no building work undertaken by an NHS Trust, will qualify
for relevant residential relief. All Trusts operate under the terms of the National Health Act
1977 which defines the services provided by a hospital; which includes the treatment of any
6
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
illness, and the provision of convalescent, rehabilitation and maternity care. It is considered
that only units operated by non-profit making charities providing the services outlined above
will benefit from relevant residential status on construction.
A relevant charitable building is a building used by a charity solely in one of two ways: either
as part of its non-business activities; or as a village or similar hall, providing social or
recreational facilities for a local community.
For fuel and power provisions there has been uncertainty in respect of institutions which may
be called "hospitals" but where individuals stay on a long term basis and where the institution
is effectively their home.
Where the primary purpose of individuals' residence in an establishment is not to live there,
but is treatment or containment, such an establishment is excluded from relief.
The necessary test for a hospital is with regard to the liability of fuel and power supplies,
therefore is whether curative treatment is received. If no treatment is provided, or merely
palliative treatment (as in a hospice), the VAT relief’s mentioned above would be
appropriate.
With regard to specific institutions:
7.4
*
Geriatric units are not hospitals, if they do not provide curative treatment.
*
Hospices are not hospitals, even if they are called hospitals.
*
Mental institutions may be subdivided as follows:
a.
Psychiatric hospitals, which may have a secure ward, these are hospitals if they
provide curative treatment and are not hospitals if they do not.
b.
Regional secure units, which contain persons expected to improve sufficiently
to be released after 2 years, but 80% of whom are there because of a court
sentence, and the rest of whom are detained on an involuntary basis. These are
hospitals/prisons: in many cases providing curative treatment, their primary
purpose is containment, not residence. Either way zero-rate and reduced-rate
supplies are not appropriate.
c.
Maximum Security Hospitals: all their inmates are detained on an involuntary
basis, and 80% are under court sentence. In many cases treatment received is
likely to be palliative, or a means of controlling difficult behaviour. These
institutions may not be hospitals, but as their primary purpose is containment,
they are prisons or similar institutions.
ELECTION TO WAIVE EXEMPTION (OPTION TO TAX)
7.4.1 GENERAL
7
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
Supplies of non-qualifying buildings which would otherwise be exempt from VAT will, in
the majority of cases, be standard-rated if you elect to waive exemption in relation to that
property. This should allow you to recover some or all of the input tax you incur in making
supplies of the property.
An election to waive exemption is also known as an option to tax. For the purposes of this
section "property" is used to mean buildings, land and civil engineering works, and "tenant"
to mean any person to whom you grant an interest in, right over or licence to occupy property.
Once you have opted to tax a property you must charge tax on all the supplies you make of it
which would otherwise be exempt. For example, if you charge tax on rents you must also
charge tax on a subsequent sale of your building.
If you sell property that you have opted to tax and then acquire an interest in it again, your
original option still has effect. This is because your option is in respect of the land and not
the particular interest held from time to time.
An option to tax can be revoked in certain circumstances. Where more than 20 years has
elapsed since the date when your option had effect, it will be possible to apply to have it
revoked from an agreed date. There are also provisions for revoking an option to tax within
the first three months after it would have had effect, if certain criteria are met (see below).
Even when you have opted to tax a property, there are some supplies to which the option will
not apply due to the use to which the property will be put or the status of the parties involved.
For example, any supply of a building where the other party informs you that the intended use
is as a dwelling or solely for a relevant residential or charitable purpose, or a supply of land to
a registered housing association to be used by it for the construction of dwellings or relevant
residential buildings.
7.4.2 SCOPE OF THE OPTION
Buildings
An option has effect in relation to the whole of the building and all the land within its
curtilage. Buildings linked internally or by a covered walkway are treated as parts of a single
building, as are buildings making up a complex, if they are grouped around a fully enclosed
concourse.
Land
Land associated with a building and lying immediately around it (within its curtilage) is
treated as part of the building. The cartilage is the area of land surrounding a building which
forms the grounds of that building. It may include forecourts, yards, parking bays and
landscaped areas. An option to tax a building ceases to apply to the land on which the
building stands if the building is destroyed or demolished. You are not obliged to opt to tax a
new building you construct on the site.
An option to tax a specified area of non-agricultural land includes civil engineering works
which are part of the land. It does not affect any adjoining land, nor does it apply to any
building later constructed on that land.
8
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
7.4.3 HOW TO OPT TO TAX PROPERTY
To have legal effect, any option to tax property made on or after 1 March 1995, must be
notified in writing to Customs and Excise within 30 days. You should notify your option to
the NHS Admin Team at South Bank VAT Office. An option to tax made before 1 March
1995 which at the time did not require to be notified to Customs and Excise in writing, due to
the expected value of supplies of the property in the year ahead being less than £20,000, does
not require written notification after 1 March 1995.
The written notification of your option should state unambiguously what property you are
opting to tax and the date from which the option has effect.
If you have made any exempt supply of the property (sale, leasing or letting) between 1
August 1989 and the date from which you intend your option to have effect, you must also, in
most cases, first obtain written permission from Customs and Excise to opt to tax that
property.
Remember that all options to tax property must be notified in writing even where written
consent has first been obtained.
7.4.4 WITHDRAWAL OF AN OPTION TO TAX
If, once you have notified your option to tax in writing, you consider that it was made in error,
you can write to the NHS Admin Team requesting to withdraw it. However, you can only do
this if:
*
less than 3 months has elapsed from the date you said your option was to take effect;
and
*
the option to tax has not taken practical effect (that is, no tax has been charged by you
to your tenants and no input tax has been recovered by you by virtue of the option);
and
*
the property has not been sold together with a business, or part of a business, which is
transferred as a going concern.
You will need to receive the written consent of the NHS Admin Team before your option
lapses.
There are various implications as far as the recovery of input tax is concerned, and details of
this and further guidance on options to tax can be found in Notice 742 - Land and property.
7.5
CATERING
7.5.1 VAT ON PURCHASES
9
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
Catering supplied to patients within the hospital as part of the provision of NHS health care is
considered to be a non-business activity of the NHS, and as such any VAT incurred in respect
of patient catering cannot be treated as input tax. However, where an NHS body buys in
supplies of catering from an outside catering firm for the purpose of their non-business
activities, the VAT may be eligible for a refund under the Contracted-Out provisions (see
Section 6).
Supplies of catering, where a charge is made to the customer (eg to staff, patient's relatives,
patients as members of the public etc), is a business activity of the NHS, and is taxable at
either the standard or zero rate. The VAT incurred in respect of this non-patient catering is,
therefore, fully reclaimable as input tax.
Where an NHS body grants a catering concession and the caterer is granted a licence to
occupy specific kitchen and restaurant areas (even if the grant includes the use of kitchen or
catering equipment), the fee charged would be exempt from VAT with an option to tax.
Unless an option to tax has been made, any VAT incurred in connection with the
catering concession would not be reclaimable as input tax because it relates to an
exempt business activity. It would also effect the level of general non-attributable
overheads that can be recovered under the provision of the COS provisions.
Where an NHS body grants a catering concession (as described above) free of charge, it
would be considered to be a non-business activity. Depending on the exact arrangement the
NHS body has with the caterer, it is likely that the day-to-day running costs, if paid by the
caterer, would be part of that caterers business activities and any VAT incurred would be their
input tax and not that of the NHS body. If, however, refurbishment work was carried out on
the kitchen area (for example) and the cost was borne by the NHS body, then it is likely that
any VAT would only be eligible for a refund to the extent that it meets the Contracted-Out
Services criteria. Remember, each case must be considered on the particular circumstances
prevailing.
7.5.2 APPORTIONMENT OF VAT
Purchases made in connection with catering can include equipment (eg microwave ovens,
cash registers, chairs, tables, cookers, refrigerators etc), materials, consumables and
overheads (eg heating, lighting etc). It would also include work such as the construction of a
new restaurant or kitchen area or the refurbishment of an existing restaurant or kitchen area.
Any VAT incurred can only be reclaimed to the extent that it relates to taxable business
supplies. For example, if a new restaurant and kitchen were to be constructed solely for nonpatient catering, the VAT incurred on the construction would be reclaimable in full as input
tax, being directly related to an onward taxable supply. If, however, the restaurant and
kitchen were to be used for both patient and non-patient catering, a proportion of the VAT
incurred in constructing the kitchen could not be treated as input tax, being directly related to
a non-business activity. Remember, VAT incurred in connection with a non-business activity
is NOT input tax.
When dealing with the VAT on any purchases connected with catering (eg construction,
overheads, consumables, materials etc), you must first consider to what extent it relates to an
onward taxable business activity and, if necessary, apportion it as appropriate.
10
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
Appendix B gives guidance on apportionment of tax between business and non-business
activities. This is only a suggested method and should not be used if it does not produce a
fair and equitable result. You may have to devise your own method of calculation.
Whatever method you decide to use, it must produce a result which fairly reflects the use to
which the purchase or purchases are put. You must advise the NHS Admin Team at South
Bank VAT Office of any apportionment calculation you decide to use.
7.5.3 CAPITAL GOODS SCHEME
Another point to bear in mind here is the possible implications of the Capital Goods Scheme
(see paragraph 27 for more information). The Scheme applies under certain circumstances
where there is a change in the use of a building (or computer equipment) from a taxable
business use to an exempt business use or vice versa.
If, for example, you construct a new hospital building which includes a restaurant and kitchen
facilities, you may reclaim as input tax the VAT incurred on the cost of the construction of
the restaurant and kitchen area (to the extent that it relates to non-patient catering). If,
however, after a period of time (for example, one year later) you decide to grant a catering
concession and do not exercise your option to tax, there will be a change in the use of the
restaurant and kitchen from making taxable supplies to making exempt supplies. You may,
therefore, find that you will need to make an adjustment to the input tax claimed to reflect the
change in use.
Remember, the Capital Goods Scheme only applies to the business use of a building. Where
there is a change from a business use to a non-business use this Scheme will not apply.
7.5.4 OUTPUT TAX
For guidance on how to account for the VAT on your supplies of catering you should refer to
Section and VAT Leaflet 709/2 - Catering and take-away food.
7.6
AGENTS AND PRINCIPALS
7.6.1 GENERAL
When you make supplies for business purposes, you will normally be acting as a principal
and any VAT applicable will be dealt with in accordance with the general VAT rules.
Under certain circumstances, however, depending on your agreement with your
customer/supplier, you may find that you are, in fact, acting as an agent, in which case the
treatment of the VAT may differ.
7.6.2 ACTING AS AN AGENT
11
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
You are an agent if you act for, or represent, someone else ("your principal") in arranging
supplies of goods or services. The supplies which you arrange are made by or to the principal
you represent.
To act as an agent, you must have agreed with your principal to act on their behalf in relation
to the particular transaction concerned. This may be a written or oral agreement, or merely
inferred from the way you and your principal conduct your business affairs.
The relationship between you and your principal must always be clearly established, whatever
form it takes. You must be able to show to Customs and Excise that you are arranging the
transactions for your principal, rather than trading on your own account.
You cannot alter the nature or value of any of the supplies made between your principal and
third parties. Furthermore, you cannot take ownership of any of the goods, or use any of the
services which you buy or sell for your principal.
7.6.3 VAT IMPLICATIONS OF SUPPLIES MADE AS AN AGENT
As an agent you will usually be involved in at least two separate supplies at any one time:
*
the supplies made between your principal and the third party; and
*
the supply of your own services to your principal, for which you charge a fee, or
commission.
It is important to distinguish between the supply of the services which you, as an agent, are
making yourself and the supply which you are arranging for your principal.
The VAT liability of your supplies of agent's services to your principals will not necessarily
be the same as the liability of the supply between your principals and the third parties.
7.6.4 AN AGENT ACTING IN THE NAME OF A PRINCIPAL
Sometimes as an agent you may take a minor role in a transaction, and simply introduce your
principal to potential customers or suppliers (third parties). At other times you may be more
closely involved. You might receive or deliver goods, hold a stock of goods for your
principal, or make or receive payment. However, provided that the invoicing for the supply is
between the principal and the customer, the only VAT supply being made by you will be the
provision of your services to your principal.
7.6.5 AN AGENT ACTING IN THEIR OWN NAME
Sometimes you may be empowered by your principals to enter into contracts with a third
party on their behalf. In such cases, you may receive and issue invoices in your own name for
the supplies concerned.
In commercial terms, the transaction you arrange as an agent remains between your principal
and the third party involved. But if you issue an invoice in your own name for a supply of
12
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
goods which you arrange for your principal, then for VAT purposes only, the transaction must
be treated as though it was a supply to you and a supply by you.
If the transaction you arrange is a supply of services and both you and the supplier are
registered for VAT and the supply is taxable you may treat yourself as both receiving and
supplying those services.
In both circumstances, you must account for VAT on the supply of the goods or services, as
well as on your own supply of services to your principal. But, you may also reclaim as input
tax any VAT charged on the supply made to you. As you do not alter the nature or value of
your principal's supply, the amount of input tax reclaimed will normally be equal to the output
tax you account for on that supply.
You must not reclaim input tax under this procedure before you have accounted for the
relevant output tax and it is important to remember that the VAT treatment of the supply you
arrange does not affect your liability to account for tax on your own supply of services to your
principal.
Further guidance on supplies made by or through agents is contained in Notice 700 - The
VAT Guide.
7.7
INCONTINENCE PRODUCTS
The recent Tribunal decision in the Molnlycke case upheld Customs and Excise’s view that
the supply of incontinence products to nursing and residential care homes must be standardrated. As the result of Statutory Instrument 2744/97 incontinence products are zero-rated
only when bought and paid for by a handicapped person. This over-rules a previous Tribunal
decision that incontinence products could be zero-rated when paid for by the NHS but
delivered to patients who reside in their homes, as long as it could be demonstrated that
ownership of the goods transferred directly from the supplier to the individual.
7.8
PRIVATE FINANCE INITIATIVE
Transactions entered into under the PFI are services contracts, where the public sector entity
specifies the content and performance of services which are provided by a private sector
operator. As a trading entity, the operator will charge VAT on the payments made for these
services, unless there are particular circumstances in which the services do not constitute a
taxable supply.
The alternative for NHS bodies to taking out a PFI services contract would usually be to carry
out the services in-house; some of the components of the costs would not be subject to VAT,
either being exempt or zero-rated supplies; in most cases the largest cost component would be
in-house salary costs which are outside the scope of VAT. This distorts the comparison of
costs between in-house and PFI alternatives, as VAT may be charged on the full amount of
services under PFI, but only on some of the costs on the in-house option.
This is not a new problem; it has been encountered as a barrier in Contracting-Out Services,
an initiative which has now been running in Government for over ten years. In general, there
is no effect on the public sector’s overall financial position if one public sector entity pays or
does not pay VAT, other than on the allocation of funds between Departments and HM
Treasury. To deal with this problem, the VAT Act 1994 Section 41(3) provides that
13
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
Government Departments and NHS bodies may apply to HM Treasury for a refund of VAT
for certain defined services.
PFI transactions are very similar to Contracted-Out Services with one essential difference;
they also involve the service provider designing and building property, plant or equipment
used to provide the service. There has, however, previously been some doubt that PFI
transactions would be eligible for such refunds due to this underlying capital nature.
Construction of new buildings and the purchase of equipment by public sector bodies does
not qualify for a VAT refund, the former as a result of a Ministerial decision not to include
this service in List 2, and the latter because it is a supply of goods and therefore ineligible for
refund. The supply of leased accommodation for more than 21 years did not previously
qualify for a refund, as for VAT purposes, it is a supply of goods.
In April 1996, HM Treasury issued a new direction which extended those services entitled to
the refund. The supply of leased accommodation including that for a period of more than 21
years now qualifies for a refund, provided it is part of the supply of any other services on List
2.
The additions to the Treasury Directions were intended to facilitate full PFI contracts under
the headings “Operation of hospitals, healthcare establishments and healthcare facilities and
the provision of any related services” and “Provision and management of accommodation,
including leased accommodation, for office use or as part of any other listed service”, (see
individual headings in Section 6 - Contracted-Out Services for further guidance).
If you are entering into a PFI contract and require guidance as to whether the service provided
qualifies for a VAT refund please write to the NHS Admin Team at South Bank VAT office.
14
JK\KEEP\106760013
SECTION 7 POSSIBLE AREAS OF RELEVANCE
SECTION 8 - OTHER INFORMATION
This Section covers the organisation and VAT implications of the NHS VAT Divisional
registration and other miscellaneous information not covered elsewhere.
8.1
INTER AND INTRA-AUTHORITY SALES AND NHS VAT DIVISIONAL
REGISTRATION
8.1.1 INTER AND INTRA-AUTHORITY SALES
Previously, business supplies between NHS bodies covered by different Health Authority
VAT registrations had to bear VAT at the appropriate rate.
From 1 July 1992 most NHS bodies became part of a Divisional VAT Registration. All sales
between and amongst the NHS bodies who are members of the Divisional VAT Registration
are not liable to VAT as they are not classed as business supplies for VAT purposes.
VAT must not be charged nor output tax declared on inter or intra authority sales and it
follows that tax invoices must not be issued for these transactions.
As these supplies are not regarded as a business activity for VAT purposes, any VAT incurred
on the purchase of goods or services which are bought-in for onward supply to another
member of the NHS VAT Division cannot be treated as input tax and may not, therefore, be
reclaimed as such. Instead the VAT will form part of the overhead cost and is passed on to
the NHS customer in the same way as any other overhead expense.
As the tax becomes part of the overall cost to the NHS of purchases used for the non-business
activity of provision of NHS health care, if a service bought-in as part of an onward supply to
another NHS VAT Division, falls within a category under the Contracted-Out services
regulations, the VAT may, subject to all other conditions being met, be eligible for a refund
under these provisions.
8.1.2 NHS SUPPLIES
Customs and Excise recognise that within the NHS, members of the VAT Division will make
purchases for their business activities from NHS Supplies (which is itself a member of the
NHS VAT Division) and will, therefore, require proper evidence of the VAT paid in order to
recover their input tax.
NHS Supplies cannot issue tax invoices to NHS VAT Division customers, but special
arrangements have been made to allow NHS Supplies to issue "VAT acceptable"
documentation to Divisional registration customers. This documentation, which is regarded
by Customs and Excise as "ACCEPTABLE ALTERNATIVE EVIDENCE FOR INPUT TAX
PURPOSES" will not be in the form of a tax invoice, but will contain the necessary
information to enable NHS VAT Divisional customers to recover input tax.
1
JK\KEEP\106760013
SECTION 8 OTHER INFORMATION
Customs and Excise have agreed with NHS Supplies that they will issue this alternative
evidence only where the customer requires it to substantiate a claim to input tax. It will not
be issued as a matter of course, and it will not be issued for those purchases which are used by
the VAT Divisional customer in the provision of NHS health care.
This arrangement is a concession and only applies in respect of business activities such
as the supply of confectionery.
The same principle does not extend to contracted-out services such as maintenance contracts,
stationery or window cleaning etc. In these circumstances, NHS Supplies should recover the
VAT applicable under the provisions of Contracting-Out as the recipient of the service and
pass on the net cost and any fee to the NHS customer.
8.1.3 DIVISIONAL VAT REGISTRATION
NHS bodies which are part of the NHS VAT Divisional Registration is currently all parts of
the NHS in England except Moorfields.
NHS Bodies in Scotland and Wales have separate Divisional VAT Registrations and are not
members of the NHS VAT Divisional Registration for England.
Business supplies between NHS Bodies covered by different VAT Registrations who are not
members of the same NHS VAT Division must bear VAT at the appropriate rate. Divisional
VAT Registration members making business sales to non-Divisional VAT Registration
members must also charge VAT at the appropriate rate on their sales.
With regards GP fundholding, it is the view of Customs and Excise that this is integral to the
GP’s provision of medical services and is not an activity of the NHS. GP fundholders are not,
therefore, considered to be part of the NHS VAT Divisional Registration.
8.2
TRANSFER OF A BUSINESS AS A GOING CONCERN
When you sell or dispose of a business or part of a business, subject to certain conditions
being met, you may find that the sale will not be treated as a supply for VAT purposes. The
sales affected will be those where a business is sold as a going concern or where the sale is of
part of a business capable of separate operation.
For NHS purposes, for a 'business' to have existed, it must have made supplies to customers
outside the NHS, for a consideration. This does not mean that supplies must have been
exclusively to non-NHS customers, but there must have been an element of business supplies
being made.
With regard to input tax recovery on the original purchase of any equipment used in the
business (or part of it) being sold, this would only be reclaimable to the extent that it applied
to your business activities (ie, non-NHS supplies). Selling the business as a going concern
does not affect this position.
2
JK\KEEP\106760013
SECTION 8 OTHER INFORMATION
You must meet all the conditions listed below, in order that the transfer of the assets of the
business (other than premises) not be treated as a taxable supply and, therefore, VAT not
charged on the supply:
*
The effect of the transfer must be to put the new owner in possession of a business
which can be operated as such.
*
The business, or part business, must be a going concern at the time of transfer.
*
The assets you are transferring must be intended for use by the new owner in carrying
on the same kind of business.
*
There must not be a series of immediately consecutive transfers of the business.
*
The new owner must be registered for VAT or, at the time of the transfer, become
liable to be registered or be accepted for voluntary registration.
*
There must be no significant break in the normal trading pattern before or
immediately after the transfer.
*
If you are transferring only part of a business, that part must be able to operate alone.
More detailed guidance (including the rules regarding the transfer of premises) is contained in
VAT Leaflet 700/9 - Transfer of a business as a going concern. If, after having read that,
you are still unsure as to whether a disposal or sale falls within these rules, you should contact
the NHS Admin Team at South Bank VAT Office.
8.3
SALE OF NHS NON-BUSINESS ASSETS
When you sell NHS assets which have been used for non-business purposes (eg, the
provision of NHS healthcare), then you must account for VAT on that sale.
If, at the time of purchase, an input tax deduction was made (whether the input tax was
reclaimed in full because the asset was originally purchased for business use and that use
subsequently changed, or reclaimed in part because the asset was purchased for both business
and non-business purposes), then you must still account for VAT on the sale, but will not be
entitled to any further deduction of input tax.
8.4
CHARITABLE FUNDS
NHS charitable funds do not come under the same VAT registration as the NHS bodies which
administer them. The NHS is not a charity and its statutory functions are not charitable.
NHS charitable funds are not necessarily VAT registered because they are not engaged in
business activities and, therefore, are not in a position to reclaim the VAT on their
expenditure.
There are, however, certain circumstances where supplies made to charities may qualify for
zero-rating. Notice 701/1 - Charities gives details of these reliefs. It should be noted that
they only apply where the purchase is made from charitable funds. If a purchase is financed
3
JK\KEEP\106760013
SECTION 8 OTHER INFORMATION
from a combination of charitable and exchequer funds or entirely from exchequer funds, the
purchase will not qualify for charity VAT relief.
Grants provided by one NHS body for use by another are not considered to be the same as
funds provided by a charity or from voluntary contributions, and as such any purchases of
relevant goods made from this 'funding' would not be eligible for zero-rating.
The concession for certain reliefs for charities is intended for the benefit of new money by
donors as voluntary contributors, not for achieving extra benefit from using public money for
a purpose for which it was not intended.
Another point to remember is that the construction of a new relevant charitable building may
qualify for zero-rating, but only where it is to be used solely for the non-business activities of
a charity. A new building to be used for NHS purposes would not qualify for zero-rating,
even if the construction was financed from charitable funds.
Where charitable funds are used to purchase services that are used by it’s associated NHS
Trust solely for it’s non-business activities, and those services fall within the list of contracted
out services. The VAT incurred may be reclaimed by the NHS trust as if it had purchases the
service with it’s own funds.
8.5
CLIENTS MONIES
Clients' monies are not charitable funds and the VAT law relating to charities does not apply
to them. NHS Trusts manage clients private monies for them under legal powers. VAT on
expenditure met from clients monies is not reclaimable. However, there are certain reliefs
from VAT for people with disabilities. Full details of these reliefs can be found in Notice
701/7 - VAT reliefs for people with disabilities.
4
JK\KEEP\106760013
SECTION 8 OTHER INFORMATION
SECTION 9 - COMPLETION OF VAT DOCUMENTS
This Section provides guidance on when and how to complete VAT documentation and what
information is required for their completion.
9.1
VAT REFUNDS
Tax to be claimed back from Customs and Excise, whether as input tax resulting from a
business activity or by Section 41(3) refund, should be recorded on the same VAT Return as
that used to declare output tax on business activities. NHS bodies should obtain VAT
invoices from their suppliers in order to substantiate any refunds of VAT. The tax point date
shown on the invoice indicates the tax period in which the refund should be claimed.
NHS bodies should arrive at separate amounts of deductible input tax and refunds due under
the Contracting-Out provisions. These amounts should be recorded in the appropriate boxes
of the Form VAT 21 - "Certificate of VAT Reclaimed Under Section 41(3) of the VAT Act
1994", which must be attached to the VAT Return form (VAT 100). The deductible input tax
and Contracting-Out refunds are to be totalled on this certificate and the total transferred to
Box 4 of the VAT Return.
You are not required to enter the value of Section 41(3) services in the value of inputs Box 7
on the VAT Return. You should, however, include in Box 7 the value of all business
purchases (whether input tax is claimed or not).
9.2
VAT RETURNS
It is a condition of granting Divisional Registration for VAT that all members of the
Divisional Registration shall adopt the same VAT accounting period. Each NHS VAT
Division has been given the calendar month as its VAT accounting period. Any NHS body
wishing to adopt a different period should apply to the NHS Admin Team at South Bank
VAT Office explaining why non-standard treatment is required.
The VAT Return Form VAT 100 and the Certificate of VAT Reclaimed Form VAT 21 are
issued automatically to accounting bodies by the Customs and Excise Office, ASD 2c at
Southend.
The VAT Return must be completed and sent off in time to be received by Customs and
Excise within the time allowed. As is the case with ordinary private sector traders, the time
allowed is one calendar month after the end of the VAT period. For example, for a VAT
period ending 31 March, the completed VAT Return must be received by Customs and Excise
on or before 30 April. Penalties may be applied for late submission of Returns.
It is important that all VAT Returns are submitted. If you have outstanding returns, any
subsequent repayments of either input tax or VAT refunds under the Contracted-Out
provisions will be withheld pending receipt of the missing Returns.
Box 1 of the VAT Return must show the total VAT you have charged to your customers on
your taxable business activities.
1
JK\KEEP\106760013
SECTION 9: COMPLETION OF VAT DOCUMENTS
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.
9.3
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 in respect of items for which VAT has not
previously been recovered the procedure for recovering the VAT is as follows:
1.
All claims exceeding £2000 must be notified, in writing, to the NHS Admin Team at
South Bank VAT Office, 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 contracted out service related, and should give a summary of the
amount involved together with any relevant supporting documentation.
2.
Once you have received written approval from the NHS Admin Team, the error
should be declared on a Voluntary Disclosure form (VAT 652). It should also be
2
JK\KEEP\106760013
SECTION 9: COMPLETION OF VAT DOCUMENTS
included on the next monthly VAT Return and form VAT 21 - Certificate of VAT
Reclaimed under Section 41(3).
Despite the directions on the VAT 652, the error must be put onto the VAT Return as
repayment can only be made in this way for the NHS.
3.
The VAT Return, VAT 21 and VAT 652 should then be sent, for processing, to the
Customs and Excise office in Southend, supported by a copy of the approval letter.
Where errors are found favour of Customs and Excise, 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 favour of Customs and Excise in respect of contracted-out
services should be included on the form VAT 21 and in Box 4 of the VAT Return.
If the error results in a negative figure in the appropriate box on the VAT Return then you
should clearly indicate that it is a negative figure by putting it in brackets.
A form VAT 652 (Voluntary Disclosure) or letter of explanation should accompany the VAT
return. It is not necessary to obtain approval for errors found in favour of Customs and
Excise.
If the net value of errors you have discovered on previous VAT Returns is £2000 or less, you
can adjust your VAT account and include the value of that adjustment in your current VAT
Return.
9.4
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 (ie those for VAT incurred outside the current tax period but within
the financial year) must be with the NHS Admin Team, for authorisation, at the latest by 30
June following the financial year in question.
Retrospective claims for refund based on estimation will not be accepted.
In respect of input tax (ie VAT incurred on purchases made for business use), the time
allowed for making retrospective repayment claims is limited to three years. This means that
no amount of tax will be recoverable if paid more than three years before the date on which a
claim is made.
9.5
RETENTION OF RECORDS
All records and supporting documentation relating to VAT must be retained for a period of
six years.
3
JK\KEEP\106760013
SECTION 9: COMPLETION OF VAT DOCUMENTS
In order to alleviate any problems with storage of records, you may, if you wish, transfer the
records onto microfilm or microfiche, provided that copies can be easily produced and that
there are adequate facilities for allowing a Customs and Excise officer to view them when
required. Microfilm or microfiche records must also be kept for a period of six years.
4
JK\KEEP\106760013
SECTION 9: COMPLETION OF VAT DOCUMENTS
APPENDIX A
SECTION 41 OF THE VALUE ADDED TAX ACT 1994
In respect of application of the VAT Act 1994 to the Crown, Section 41 states:
(1)
This Act shall apply in relation to taxable supplies by the Crown as it applies in relation to
taxable supplies by taxable persons.
(2)
Where the supply by a Government department of any goods or services does not amount to
the carrying on of a business but it appears to the Treasury that similar goods or services are
or might be supplied by taxable persons in the course or furtherance of any business, then, if
and to the extent that the Treasury so direct, the supply of those goods or services by that
department shall be treated for the purposes of this Act as a supply in the course or
furtherance of any business carried on by it.
(3)
Where VAT is chargeable on the supply of goods or services to a Government department, on
the acquisition of any goods by a Government department from another member State or on
the importation of any goods by a Government department from a place outside the member
States and the supply, acquisition or importation is not for the purpose:
(a)
of any business carried on by the department, or
(b)
of a supply by the department which, by virtue of a direction under subsection (2)
above, is treated as a supply in the course or furtherance of a business,
then, if and to the extent that the Treasury so direct and subject to subsection (4) below, the
Commissioners shall, on a claim made by the department at such time and in such form and
manner as the Commissioners may determine, refund to it the amount of the VAT so
chargeable.
(4)
The Commissioners may make the refunding of any amount due under subsection (3) above
conditional upon compliance by the claimant with requirements with respect to the keeping,
preservation and production of records relating to the supply, acquisition or importation in
question.
(5)
For the purposes of this section goods or services obtained by one Government department
from another Government department shall be treated, if and to the extent that the Treasury so
direct, as supplied by that other department and similarly as regards goods or services
obtained by or from the Crown Estate Commissioners.
(6)
In this section "Government department" includes a Northern Ireland department, a Northern
Ireland health and social services body, any body of persons exercising functions on behalf of
a Minister of the Crown, including a health service body as defined in section 60(7) of the
National Health Service and Community Care Act 1990, and any part of a Government
department (as defined in the foregoing) designated for the purposes of this subsection by a
direction of the Treasury.
1
JK\KEEP\106760013
VAT GUIDE NHS APPENDIX A
(7)
For the purposes of subsection (6) above, a National Health Service trust established under
Part I of the National Health Service and Community Care Act 1990 or the National Health
Service (Scotland) Act 1978 shall be regarded as a body of persons exercising functions on
behalf of a Minister of the Crown.
(8)
In subsection (6) "a Northern Ireland health and social services body" means:
(a)
a health and social services body as defined in Article 7(6) of the Health and Personal
Social Services (Northern Ireland) Order 1991; and
(b)
a Health and Social Services trust established under that Order.
2
JK\KEEP\106760013
VAT GUIDE NHS APPENDIX A
APPENDIX B
APPORTIONMENT OF TAX BETWEEN BUSINESS AND NON-BUSINESS ACTIVITIES
Explained here is how to treat tax incurred on goods and services that are used only partly for
business purposes. There are special rules for private use of road fuel. These are set out in Notice
700/64 - Motoring expenses.
1.
Need for apportionment.
You cannot treat VAT incurred on purchases of goods and services as input tax unless you
intend to use those goods or services for business purposes.
If you buy goods or services for both business and non-business (including private) purposes
you can treat only part of the VAT as input tax. You must work out what proportion of the
use of the services is for business purposes. This is called apportionment. You can then
make any further apportionment for partial exemption purposes.
2.
Private use.
If you buy goods or services for both business and private use you must first decide on the
percentage of business use. You can then work out the amount of VAT you can treat as input
tax. For example, if the VAT on the purchase is £100 and only one quarter is used for
business purposes the input tax will be:
£100 x 1/4 = £25
3.
Non-business activities.
If you use goods or services partly for non-business activities, you will not be able to treat all
the VAT you pay as input tax.
You should begin by identifying, as far as you can, VAT on those purchases that are wholly
attributable to either a business or a non-business use. Remember, VAT on purchases used
wholly for non-business purposes is not input tax. The VAT incurred on your remaining
purchases which you cannot attribute wholly to a business or non-business use must then be
apportioned.
There is no special method of apportionment but your calculations must be fair and
reasonable, and you must be able to justify them.
Here is an example of how you could apportion VAT based on your income. It is only a
suggested method and should not be used if it does not produce a fair and equitable
result.
You should exclude from the calculation:
1
JK\KEEP\106760013
VAT GUIDE NHS APPENDIX B
*
the VAT on purchases which will be used wholly for either business or non-business
purposes and deal with this as set out above; and
*
purchases on which you can never reclaim input tax.
You pay £1,000 VAT on purchases which are used for both business and non-business
purposes. Your income from business activities (taxable and exempt supplies) amounts to
£20,000 per year. Your total income from all sources (including business activities) amounts
to £50,000 per year. You can work out your input tax like this:
(a)
(b)
(c)
Total VAT paid
Income from business activities
Total income
£ 1,000
£20,000
£50,000
To work out the proportion which is business income:
(d)
Divide (b) by (c)
£20,000
£50,000
=
2
5
To work out how much of the VAT you have paid you can treat as input tax:
(e)
Multiply (a) by (d) £1,000 x 2/5 = £400
This is your provisional input tax for the VAT period.
At the end of each tax period, you can reclaim the input tax provisionally, subject to the
normal rules. At the end of each tax year you should make an adjustment by making the same
calculation using your total figures for the year. If you make monthly returns your tax year
ends on 31 March.
Remember, this is only a suggested method. It should only be used if it produces a result
which fairly reflects the use to which the purchases have been put. If it does not, you should
devise a more suitable method. Whatever method you use, it must include an annual
adjustment.
When visiting you, VAT officers will check to ensure that the amount treated as input tax is
fair and reasonable.
If you are partly exempt you must work out how much VAT you can treat as input tax
before you deal with any apportionment under your partial exemption method.
2
JK\KEEP\106760013
VAT GUIDE NHS APPENDIX B
APPENDIX C
ATTRIBUTION OF VAT INCURRED - DECISION CHART
VAT Incurred
Wholly Business
Non-Attributable
Wholly Non-Business
Business/Non-Business
Method
Is the VAT related to
an eligible
Contracted-Out Service?
YES
NO
VAT Recoverable
under Contracted-Out
Regulations
Non-Recoverable VAT
Input Tax
Wholly Taxable
Non-Attributable
Wholly Exempt
Partial Exemption
Method
Fully Recoverable
Input Tax
Recoverable subject to the
De-Minimis limit.
Otherwise non-recoverable
NB: The De-Minimis limit, together with further information on partial exemption can be found in
Section 7 and Notice 706 - Partial Exemption.
JK\KEEP\106760013
VAT GUIDE NHS APPENDIX C
APPENDIX D
BUSINESS ACTIVITIES OF THE NHS AS LAID DOWN IN THE
CURRENT TREASURY DIRECTION
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.
Catering food or drink; tobacco products; alcoholic drinks.
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.
Attendance of officers at court or at any similar forum.
Equipment, vehicles, hospital facilities or services; any related goods.
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.
Mortuary, laboratory or computer services or any related goods.
Agency services.
Training, tuition or education; related goods or services.
Goods supplied to private patients on prescription.
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.
Copying or supply of any reproductions or of any documents.
Information or information services.
Postal or distribution services.
Secondment of staff.
Human blood; human blood products for therapeutic use; human organs.
Research services.
Advertising.
Facilities or services in connection with conferences.
Services to other occupants in shared buildings.
Appliances and artificial limbs.
Telecommunications.
Commission on national contracts.
Fuel and power.
Manufacture, production, distribution or supply of any foodstuff, dietary supplement or
similar article.
Waste disposal.
Administrative services.
Information or statistical services.
JK\KEEP\106760013
VAT GUIDE NHS APPENDIX D
APPENDIX E
CURRENT TREASURY DIRECTION
The following is an extract from the current Treasury Direction dated 22 April 1996 under section
41(3) of the Value Added Tax Act 1994, as published in The London Gazette on 12 September 1997:
The Treasury, in exercise of the powers conferred on them by section 41(3) of the Value
Added Tax Act 1994 (1994 c.23), hereby direct as follows:
1.
This direction shall come into operation on 12 September 1997.
2.
Subject as provided in paragraph 3, a Government department listed in, or belonging
to a category of departments listed in List 1 of this direction may claim and be paid a
refund of tax charged on:
3.
(a)
the supply to it of any services of a description in List 2;
(b)
the supply to it of leased accommodation for more than 21 years as part of the
supply to it of any services of a description in List 2; or
(c)
the supply to it or acquisition from another member State or importation from
outside the member States by it of goods closely related to the supply to it of
any services of a description in List 2.
A tax refund as described in paragraph 2 will only be paid if:
(a)
(b)
either the supply of those services or goods is not for the purpose of:
(i)
any business carried on by the department; or
(ii)
any supply by the department which, by virtue of directions made
under section 41(2) and (5) of the Value Added Tax Act 1994, is
treated as a supply in the course or furtherance of a business; and
the department complies with the requirements of the Commissioners of
Customs and Excise both as to the time, form and manner of making the claim
and also on the keeping, preservation and production of records relating to the
supply, acquisition or importation in question.
JK\KEEP\106760013
VAT GUIDE NHS APPENDIX E
APPENDIX F
LIST 2 - ELIGIBLE SERVICES
List of services eligible for refunds of VAT under the Contracting-Out Directions, as published in
The London Gazette dated 10/1/03
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.
Accounting, invoicing and related services.
Administration of the following career development loans.
government support payments to the Railway Industry pension Funds.
grants awards services.
supplied under the Companies Acts and the Patent and Trademarks Acts.
the Teachers' Superannuation Scheme.
Administration and collection of toll charges.
Aerial photographic surveys and aerial surveillance.
Agricultural services of the kind normally carried out by the Agricultural Development and
Advisory Service.
Alteration or road schemes; repairs and maintenance of road schemes except (a) any works
carried out under pursuant to an agreement made under section 27 of the Highways Act
1980 or (b) works involving construction on land not already used for road scheme.
Broadcast monitoring services.
Cartographic services.
Cash in transit services.
Catering.
Ceremonial services
Childcare services.
Collection, delivery and distribution services.
Computer services in connection with the collection, preparation and processing of data.
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.
Estate management services.
Export intelligence services.
Filming and production services.
Health promotion activities.
Hire of reprographic equipment including repair and maintenance.
Hire of vehicles including repair and maintenance.
Insolvency services.
Interpretation services.
Issue of documents to, and control of, bingo halls and off-course bookmakers.
Issue of documents under Wireless and Telegraphy Act.
Laboratory services.
1
VAT GUIDE NHS APPENDIX F
JK\KEEP\106760013
32.
33.
34.
35.
36.
37.
38.
39.
40.
41.
42.
43.
Laundry services.
Library services.
Maintenance and care of livestock and fauna in connection with the Royal Parks.
Maintenance and non-structural repair of buildings.
Maintenance and repair of civil engineering works.
Maintenance repair and cleaning of plant, equipment vehicles and vessels.
Maintenance and repair of statues and monuments and works of Art
Medical and social surveys
Messenger, maintenance, portering and reception services
Nursing services.
Office removals.
Operation and maintenance of static test facilities, engineering and support services and test
range industrial support and security/safety services including those acquired for the
purposes of research and development.
44.
Operation and maintenance of stores depots.
45.
Operation of hospitals, health care establishments and health care facilities and the provision
of any related services.
46.
Operation of prisons and detention centres, including medical services.
47.
Passenger transport services.
48.
Pest control services.
49.
Photographic reprographic graphic and design services.
50.
Preparation and despatch of forms.
51.
Press cutting services.
52.
Professional services, including those of any manager, adviser, expert, specialist or
consultant.
53.
Provision and management of accommodation, including leased accommodation, for office
use or as part of any other listed service.
54.
Publicity services.
55.
Purchasing and procurement services.
56.
Radio services.
57.
Recruitment of staff and other related services.
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.
60.
Security services.
61.
Services of printing, copying, reproducing or mailing any documents or publications
including typesetting services.
62.
Share Registry Survey.
63.
Storage distribution and goods disposal service.
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.
66.
Transport research of the kind normally carried out for the Department of Environment ,
transport and the Regions.
67.
Travel services excluding hotel accommodation and fares.
2
VAT GUIDE NHS APPENDIX F
JK\KEEP\106760013
68.
69.
70.
71.
72.
73.
74.
75.
Travel and transport surveys, including traffic census counts
Typing, secretarial and clerical services.
Waste disposal services.
Welfare services.
Career guidance, mentoring and counselling to help unemployed people into work as part of
the new deal.
Services relating to Action Teams for Jobs and Employment Zones.
Original Research undertaken in order to gain knowledge and understanding.
Inspection of woodland sites for approval of felling licence applications and or timber
imports/imports using timber packing to prevent entry of foreign tree pests and diseases.
3
VAT GUIDE NHS APPENDIX F
JK\KEEP\106760013
APPENDIX G
* Please also see exception list below
1.
Subject
Description
Recovery
Alarms
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
2.
Asbestos
3.
Ceilings
4.
Construction
5.
Decorating
6.
Doors*
No
Yes
Yes
Yes
Yes
COS
heading
35
35
35
35
35
35
No
No
No
No
No
No
No
No
No
No
No
Yes
35
No
Yes
No
35
No
No
No
No
No
No
Subject
7.
Electrical*
8.
Fire Escapes
9.
Flooring
10. Grounds
11. Incinerators
12. Insulation*
13. 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, eg. 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 (ie 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
No
No
No
No
No
No
No
Yes
No
No
Yes
35
Yes
35
35
No
No
Yes
Yes
Yes
No
Yes
No
No
No
No
No
No
Yes
35
35
35
37
35
Subject
14. Lift
15. Mechanical*
16. Miscellaneous
17. Ramps
Description
Recovery
COS
heading
Installing/building new kitchen units, cupboards No
etc.
Installing/building new work tops.
No
Repair of lift
Yes
37
Replacement of lift
No
Installing a new lift
No
Mechanical works would include items such as pipework, 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 pipework.
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
Yes
37
radiators, pipes and taps to regulate temperate of
hot water for patient safety/energy conservation
purposes
Repair existing pipes/radiators
Yes
37
Installation of new/addition piles/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 system No
Installation of new central heating system
No
Testing and Commissioning
No
Minor works of a repair and maintenance nature Yes
35
Disturbance works, where those works only
No
need to be undertaken as a result of alterations
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
No
replacement of stairs/steps by ramps
Subject
18. Roads
19. Roofs
20. Sanitary ware*
21. Signs
22. Walls
23. Windows*
Description
Recovery
Breaking up and removal of covers to existing
manholes and their reprovision in the same
place at a higher level
Resurfacing existing 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 ie replacing flat roof by
pitch
Roofing over previous open space
Installation of canopy
Repair of existing damaged wash basins and
sanitary ware.
Fitting new wash basins 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
Repairing existing window frames and glass
with similar items
Yes
COS
heading
35
Yes
Yes
No
35
35
Yes
No
35
Yes
35
Yes
Yes
No
35
35
No
No
Yes
35
No
No
No
Yes
No
Yes
37
Yes
Yes
No
35
35
37
No
No
Yes
No
Yes
No
35
35
No
Yes
35
Subject
24. Woodwork
Description
Recovery
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
No
COS
heading
No
No
No
Yes
Yes
No
37
35
Below are the exceptions to normal COS rules where we accept the concept of repair
by replacement for these works only.
6.
7.
Subject
Description
Recovery
Doors
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 wash basins
and sanitary ware if in the same location, ie
toilet cistern with toilet cistern, sink with sink,
bath with 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
Yes
COS
heading
35
Yes
Yes
35
35
Yes
Yes
35
35
Yes
35
Yes
35
Yes
Yes
35
37
Electrical
12. Insulation
13. Kitchen
15. Mechanical/
Pipe work
20. Sanitary ware
23. Windows
25. X-rays
Index
SECTION
PARA
Acquisition of Goods from other Member States :
4
4.2.4
Administration Service
5
5.2.31
Advertising
5
5.2.22
A
and supplies to Charities
NOTE 7
Agent and Principal relationship
Ambulance Services ( Liability)
S/R
Exempt
7
7.6
5
5.2.6
and attendance at Race Meetings
NOTE 3
Amenity Beds
5
5.3 (I g )
Appliances & Artificial Limbs
5
5.2.25
Apportionment of VAT on Purchases:
5
5.1.4
Attendance of Officers at Court ( Liability)
5
5.2.5
Blood and Blood Products
5
5.2.21
Boiler House Schemes
6
6.2.16
Business/non-Business Activities
and apportionment of input Tax
Business Activities within the NHS
5
APP B
5
5.2
C
Capital Goods Scheme (intro)
3
3.2.6
General description
7
7.2.1
Cars : Definition
5
NOTE 2
Catering
Intro and liabilities
5
5.2.1
General and
7
7.5
Vending machines
5
5.2.3
Supplies to NHS Patients in hospital
5
5.3 (a)
Charitable Funds
8
8.4
Client Moneys
8
8.5
Clinical Trials
5
NOTE 9
Coin Operated Machines
2
2.4.2 (d)
Continuous supply of services
2
2.4.2 (b)
B
Basic Rule see Place of Supply of Services
Index
SECTION
PARA
Contracted out services
1
1.1
and relationship to business activities
5
5.1.2
Background
6
6.1.1
Eligible services for recovery
6
6.2
APP F
Legislation
APP E
Conferences
5
5.2.23
D
Deposits
2
2.4.2 (a)
Discount
2
2.5.3
Disposal Of Assets
8
8.3
Divisional Registration
5
5.1.3
(see also sales between NHS Trusts)
8
8.1.3
Dietary Supplements
5
5.2.29
E
EC Sales List
4
4.2.5
Exports Outside the EC
4
4.4
Exchange Units
6
6.2.13
Fuel and Power
5
5.2.28
Residential (supply at the reduced rate)
7
7.3
G
Government Departments and VAT
1
1.3
Sale of Equipment to
5
5.2.6
Liability of supplies made to
8
8.1.3
5
5.3 (c)
Eligible Services (see Contracted out services)
F
Freehold ; see property
G.P. Fund holder
Goods
Dispensed in NHS Hospitals to NHS Patients
Index
SECTION
PARA
H
Hairdressing to NHS Patients
5
5.3 (b)
I
Imports from outside the EU
4
4.5
Imports from wthin the EU
4
4.2.4
Incontinence Products
7
7.7
Information Services
5
5.2.17
Input Tax Intro
1
1.5
Apportion VAT on purchases
5
5.1.4
General
3
3.1
business purchases
3
3.1
Evidence for claim
3
3.2.3
and Exempt supplies and P/E
3
3.2.5
APP B
APP C
Invoices See Tax invoices.
J
K
L
Laboratory services
5
5.3 (i)
Liability of supplies made in the course of business 5
5.2
Laundry Services
5
5.2.2
General Liabilities (Business activities)
5
5.2.15
Election to Waive exemption
7
7.4
Lease hold
2
2.4.2 (e)
Shared building costs
5
5.2.24
M
Medical Equipment (lease & repair)
6
6.2.9
Land & Property
Index
SECTION
PARA
Medical Treatment provided under the NHS
5
5.3.1
Medical Treatment provided to private patients
5
5.2.6
5.2.13
Medical Notes
5
5.2.16
5
5.3.6
Medico-legal services
5
NOTE 8
Mortuary Services
5
5.2.10
N
NHS Divisional Registration
8
8.1
NHS Supplies
8
8.1.2
Needle Room charge
5
5.2.6
Non Business activities of the NHS
5
5.3
sale of non-business assets
8
8.3
Non business use of goods
2
2.4.2 (c)
Non business invoice
5
5.1.2
Northern Ireland
5
5.3.3
5
5.3.4
O
Occupational Therapy (Sales to Patients)
5
5.3.1 (f)
Output Tax
1
1.5
2
2.5
P
Payroll Services
5
5.2.11
Partial Exemption
3
3.2.5
7
7.1
Part Exchange
2
2.5.5
Place of Supply (General)
4
4.6
of Goods
2
2.3 (a)
Of services (see also reverse charge procedure )
2
2.3 (b)
Plant (Hire under eligible services)
6
6.2.7
Private Patients (see under Medical Care)
Index
SECTION
PARA
7
7.8
Professional Services (Liability)
5
5.2.4
Publications
5
5.2.16
R
Retail Schemes
2
2.5.6
Recovered Silver
5
5.2.7 A
Records for VAT
9
9.1 - 9.5
Buildings
6
6.2
Capital (>£ 5000 spend)
6
6.2.3
Exchange Units
6
6.2.13
Ground & Gardens
6
6.2.6
Patient Appliances
6
6.2.12
Plant & Equipment
6
6.2.8
Vehicles
6
6.2.11
Private Finance initiative
Property (See Land and Property)
Repair and Maintenance
Examples of eligible and non-eligible work
APP G
Research
5
5.2.21
Reverse charges
4
4.7
S
Sales between NHS Trusts
8
8.1.1
8
8.1.3
Sales to GP Fund holders
8
8.1.3
Single Market
4
Supplies to customers within the EU
4
4.2.2
Supplies to non-registered customers
4
4.2.3
Sixth Directive
1
1.1
Supply of Goods
2
2.1
Supply of Services
2
2.2
5
5.2.7
See also Place of supply and Time of supply.
Scrap Products
5.2.8
8
8.3
Index
SECTION
PARA
5
5.2.24
direct Supervision of
5
NOTE 4
secondment of Staff
5
5.2.19
Statutory Registration Fees
5
5.3.5
T
Taxable supplies
1
1.3
Tax Invoice
2
2.6
Tax Point
2
2.4.1
Tax Value
2
2.5.2
Telecommunications
5
5.2.26
Time of Supply
2
2.4
Training of Hospital Staff
5
5.3.2
Training Services
5
5.2.12
Shared Building costs
Staff
V
VAT
Basic definitions
1
VAT & Government departments
1
1.3
VAT Errors
9
9.3
VAT liability
1
1.4
VAT fractions
2
2.6.7
VAT incurred on the non business use of an asset
3
3.2.7
VAT refunds
9
9.1
VAT repayment claims ( Time limits)
9
9.4
VAT retention of records
9
9.5
Value Added Tax Act 1994 s41(3)
1
1.1
Value Added Tax Act 1994 s 41(2) & 41(5)
5
5.1.3
W
Water including sterile water
5
5.2.7
Waste Disposal
5
5.2.30
Welfare services (Provision of)
5
NOTE 5
Index
Z
Zero-Rating (Invoices)
SECTION
PARA
2
2.6.3