Large NHS organisations typically pay multi-million pound sums in VAT each year. So it’s a big help to budgets that the health service is allowed to recover VAT for some types of purchase. What’s rather less helpful is that the rules about what payments can be reclaimed are both complicated and confusing.
The starting point is that the NHS can’t claim VAT refunds for goods, only services. But there are exceptions to the ‘not-on-goods’ principle. And not on all services count. The specifics have been built up over the years, with ever-evolving layers of HMRC guidance supporting a framework called the COS (Contracted out Services) rules. The result is an elaborate web of detail fascinating to tax experts but frustrating to finance teams.
Start to untangle the web, however, and you find a host of surprising facts you can use to advantage in maximising VAT recovery. Here are 10 of our favourite:
1. Not all VIPs are equal
Inviting a VIP to open a new wing or give a motivational speech? You can only claim a VAT refund for the cost of their services if the VIP is someone HMRC counts as an important person rather than just a celebrity. Jeremy Hunt, Andy Murray or the Archbishop of Canterbury? Yes. David Beckham or Simon Cowell? No.
2. Glued-down floor coverings beat fitted carpets
Repair an existing bonded floor covering by re-screeding and then gluing down new carpet tiles, and you can recover the VAT. Throw out an old fitted carpet and buy a new one – no VAT recovery.
3. There’s a difference between advice and action
The VAT on consultancy fees is recoverable where consultants advise but don’t act. So you can, for example, reclaim VAT on architects and structural engineers, but not on project managers.
4. It’s not all bad news when windows can’t be repaired
A special exemption means you can recover the VAT on replacing rotten wooden windows with uPVC or another modern material, even though the usual rules say you can’t reclaim VAT on new goods or on repairs that make an improvement.
5. Fire doors are encouraged – sometimes
It’s fine to reclaim VAT when you’re replacing existing doors with fire doors. But not if you put new fire doors in new partitions.
6. Free delivery can cost you more
If an order includes free delivery, you could be paying more than you need. Though you can’t recover the VAT on goods, you can on delivery costs contracted for separately – because delivery is a service.
7. If you want new signage, try a merger
Because signs are seen as goods, you can usually only reclaim the VAT on repairs and not on replacements. But if you need new signs because of a name change as a result of a merger, then VAT recovery is allowed.
8. The way you contract computer services matters
Bespoke software and systems are eligible for VAT recovery, so it’s often possible to reclaim VAT on elements of a computer services contract. But only if you order and contract the eligible services separately.
9. Headed paper counts as a service
Even though paper is a supply of goods, you can reclaim VAT on the full cost of headed paper. That’s because the printing of the letterhead is a service. HMRC accept you can’t receive the service without the paper.
10. Asking a recruitment agency to place a job ad can cut advertising costs
Pay a recruitment company a fee that includes placing an advert, and you can reclaim the VAT on their services to include the advert. Place an advert directly, and you can’t.
So, what next? Share VAT knowledge across the organisation: these facts show that VAT recovery isn’t a job for the finance team alone. The more you build VAT considerations into spending decisions, the more opportunities you’ll have to reclaim VAT and boost budgets.