The effect of COVID-19 on VAT in the NHS

Liaison Financial

More than three months after the initial outbreak of COVID-19 in the UK, what effect has the pandemic had on VAT within the NHS?

HMRC Deadline Extension

In April, HMRC announced a series of measures aimed at easing the burden of submitting VAT returns during the coronavirus pandemic, including:

• An extension to the adjustment period for submitting COS VAT claims, meaning that any adjustment to COS recovery for the financial year 2019/20 can now be made up to and including the December 2020 VAT return, which must be submitted to HMRC no later than 7 February 2021. This is a one-off easement from the normal requirement to include adjustments on the June 2020 VAT return.

• The ability to estimate VAT returns on business input and output tax if an organisation cannot generate a report, which includes both business activities and personal exemption. However, this requires approval in advance from HMRC before supplying the estimates.

Kenny Lee, Head of Tax Services at Liaison Financial, says: “All NHS bodies are likely to benefit from the additional 6-month period to reclaim VAT on invoices with a tax point between 1 April 2019 and 31 March 2020. It is likely that there will be more invoices outstanding for payment than normal by the end of July 2020, so the 6-month extension will allow additional time for this VAT to be reclaimed. For NHS bodies that make a year-end accrual for unpaid VAT invoices, this adjustment moves from June to December 2020.

“For any NHS bodies with no capacity or expertise to complete VAT returns, applying to HMRC for permission to provide estimates should be considered. We would however urge a degree of caution before considering estimating VAT return figures and recommend that you contact your Liaison Financial VAT advisor before taking any action. Use of estimated figures may ease immediate resourcing issues but can lead to potential VAT accounting errors in the future.”

To read more on HMRC’s measures to support organisations during COVID-19, click here.

Zero-Rated Purchases

The Government also announced that supplies of personal protective equipment (PPE) would be zero-rated for VAT from 1 May 2020 in response to COVID-19, with the intention of saving costs for the NHS.

The measure affects all purchases of PPE products recommended for use by Public Health England to the NHS, care homes and individuals, including:

• disposable gloves
• disposable plastic aprons
• disposable fluid-resistant coveralls or gowns
• surgical masks – including fluid-resistant type IIR surgical masks
• filtering facepiece respirators
• eye and face protection – including single or reusable full-face visors or goggles

This is a temporary relief from VAT and is planned to end on 31 July 2020.

NHS organisations should ensure that any invoices received from 1 May 2020 for supplies of PPE equipment are correctly treated for VAT. If you have paid up-front for PPE items during the last 14 days of April 2020, but receive a VAT invoice in May, there may still be scope for the supplier to zero rate their supply.

To find out more about zero-rating for PPE, please click here.

Charitable donations

Under VAT Notice 701/6, NHS trusts and health boards can achieve tax savings through the use of charitable funds to buy specific equipment for medical research, training, diagnosis or treatment, ranging from simple items such as bandages and tongue depressors, to ambulances and complex machinery.

Whilst this measure has been in place for some time, it provides an opportunity for finance teams to increase their tax efficiency during the pandemic by ensuring that they carefully select the funding pot they pay for needed items from, in order to maximise their potential expenditure.

Kenny says: “Whilst tackling COVID-19, there is a greater need for PPE and purchasing this from normal revenue allows for a zero-rate of VAT to be paid during the three-month reprieve. Meanwhile, if other qualifying goods or services are required to benefit patients, obtaining these using charitable funding will also achieve zero-rating and make the funding go further in a time when resources are stretched.”

Liaison Financial has a range of resources available to support and inform NHS finance teams on tax and VAT, including a training portal, regular webinars and annual conferences. To find out more, please speak to your VAT Advisor, or visit our website for details.