HMRC has released two important pieces of news this week regarding the contentious issue of VAT recovery under COS heading 14 – Computer Services.
Heading 14 guidance to change
Following Liaison’s complaint regarding the unannounced change in HMRC ‘s policy on VAT recovery under COS heading 14, HMRC has finally admitted that the guidance is ‘not fit for purpose’ and will be changed. We directed HMRC to the clear inconsistencies and lack of clarity in the guidance and they are now undertaking a full review. It is not anticipated that the revised guidance will be issued any time soon and we are seeking urgent clarification from HMRC on how NHS bodies should approach VAT recovery on computer services in the interim. HMRC has confirmed that they are discussing how they will deal with heading 14 assessments that have been issued since June 2017 and their policy on enquires that are in progress. As soon as we have more information from HMRC, a further mailshot will be issued.
ScriptSwitch software, HMRC reverse decision on VAT recovery
As a direct result of representations made by Liaison, HMRC has now reversed its decision on this long-running issue. In a letter issued to all NHS bodies, HMRC has now ruled that VAT can be reclaimed on the supply of ScriptSwitch software. The reason given is that they now accept that this is a software package designed to the specification of the recipient and has no application outside the NHS.
If you have received an assessment for VAT reclaimed on ScriptSwitch, HMRC advise that you should notify them via email: email@example.com. HMRC will then arrange for a refund to be made.
If you have submitted a ruling request relating to ScriptSwitch and HMRC ruled that it was not recoverable, you can now quantify the under claimed VAT going back to 1 April of the tax year you submitted your ruling request. If you stopped recovering VAT on ScriptSwitch following the issue of HMRC’s letter in late 2017 in which they suspended their enforcement action, you can amend your next VAT return to reflect the amounts now recoverable from the date of suspension. If you have not made any recovery of VAT on ScriptSwitch software or engaged HMRC regarding the VAT treatment, HMRC advise that you can adjust your VAT recovery from 1 April 2017.
However, if you incurred unclaimed VAT prior to 1 April 2017 you should still consider submitting a claim to HMRC. In their guidance, HMRC confirms that where there has been uncertainty within the NHS as to whether COS VAT can be recovered and this is not resolved by HMRC until after the time limits for claiming have expired – in these circumstances the four-year cap on claims applies.
Liaison has significant expertise in dealing with backdated claims and can present the case for recovery to HMRC. From our experience, it is likely that HMRC will resist claims prior to 1st April 2017 where the claims are not accompanied with supporting information. There is no reference to the four-year cap in the NHS update and the letter states that where no recovery has been made and no engagement with HMRC has taken place, retrospective adjustments should be made from the 1 April 2017.
Should you have any queries concerning this issue, please contact your Liaison VAT advisor.