Why bundling should be in your toolkit to maximise NHS VAT savings

One of the issues which arose was the challenge surrounding the bundling up or down of procurement of products to maximise VAT savings.

Why bundle?

The practice of bundling, or unbundling, procurement of products within the NHS to maximise VAT savings is a complex issue that not only revolves around VAT rules, but also procurement processes and cost management strategies.

The bundling of products refers to the practice of combining various products or services into a single package for procurement purposes. This can have VAT implications because, when products are bundled, the VAT rate applied to the entire package may be different from that of individual products.

If the bundled items become a qualifying service eligible for VAT recovery, then this represents an opportunity for the NHS to recover the VAT. This is already common practice at some NHS bodies. Provided the qualifying conditions are met, then effectively this allows the NHS to recover the VAT on goods which are either incidental or integral to the service.

Conversely, unbundling involves separating individual products or services to ensure they are procured as discrete items. This practice may help optimise VAT savings if certain items that were in the bundle qualify for VAT recovery in their own right. This means that it may be possible to recover VAT on services that otherwise would be subject to VAT, if purchased as part of a bundled package.

The benefits of bundling

As this presents, one of the reasons for bundling or unbundling products or services is to maximise VAT recovery. NHS organisations should look for ways to ensure they do not overpay VAT or miss opportunities to recover VAT they are eligible to claim back (especially if VAT applies to certain goods or services), and therefore bundling/unbundling products can allow for this.

However, this procurement practice can create significant administrative complexity, especially when it comes to ensuring compliance with VAT rules. There are risks that incorrect VAT treatment may be applied, leading to errors in tax filings, which could result in penalties or the need to repay VAT to HMRC.

Opting to bundle or unbundle procurement in the NHS to maximise VAT savings is a delicate balance. While these practices can help manage costs and ensure proper VAT treatment, they can also lead to complex compliance issues and increased administrative burdens. NHS organisations must carefully navigate these practices to ensure they are compliant with VAT regulations.

An effective and efficiently run procurement department would use their toolbox of VAT solutions to ensure that no opportunities are missed by the NHS. And whilst bundling/unbundling should be looked at in comparison to the savings opportunity, it could be considered as another tool to consider.

Having experts on your side

This discussion led me to the opportunity to detail the benefits of having VAT experts on your side. At Liaison Financial, we have two longstanding services which ensure that NHS VAT teams have a partner standing with them who can ensure that their VAT practices are correct and compliant, and that VAT savings are maximised.

Our team delivers a VATflow service to over 130 NHS clients, reviewing VAT on a monthly basis to avoid the compounding of errors and highlighting VAT opportunities at the earliest stage possible, whilst our VATplus service (an annual re-review assurance service) is provided to a further 40 NHS organisations that use an alternative VAT provider.

On average, when completing a VATplus review, our teams recover on average an additional £320,000 of VAT. So, it’s certainly worth investigating to gain the benefits of working with VAT experts who can help maximise both efficiency and savings, and I was delighted to be able to share in the discussion to support finance and procurement teams along their journeys of improvement.