VAT Notes July 2012

Doctors surgeries and practices – brief VAT summary

There are many VAT issues for General Practices (GPs).

There are also fundamental VAT issues that will affect GPs with the commencement of Clinical Commissioning Groups (CCG) with effect from 1 April 2013.

This note is a summary of some of the VAT issues that currently affect GPs and of the VAT issues in relation to the end of Primary Care Trusts (PCTs).

Current VAT Issues

The current GP faces various VAT liabilities and exemptions from VAT. There are also complications with regards to the reclaiming of VAT and reimbursement for costs.

Most medical services are exempt from VAT. However, for certain services these are subject to VAT at the standard rate. Other services are outside the scope of VAT (for instance certain non-business supplies), and for some VAT must be accounted for when a charge is made.

Where services are subject to VAT then VAT can be reclaimed.

As a GP will be partly exempt for VAT then a certain element of VAT incurred on additional overhead costs may be reclaimable.

NHS payments will often require to be apportioned between exempt medical services and other services provided to patients, or third parties where VAT must be accounted for by the GP.

There are also complicated VAT issues surrounding LIFT contracts and any arrangements in relation to doctor surgery premises, in respect of new building projects, and on-going lease payments.

The VAT liabilities should not change for CCG’s in respect of medical care to patients, but there is a concern that some charges made or income received that is currently exempt from VAT will become subject to VAT in the future. Please see below for more details.

Clinical Commissioning Groups

At this stage it is known that all newly authorised CCGs will be required to be registered for VAT. There is a specific HMRC address where the request for VAT registration will be required to be sent.

It is expected that any current GP surgeries that are registered for VAT will be required to deregister from VAT at the same time as the registration will be required for the CCG.

As there will be a requirement for a new CCG VAT registration it understood at this stage that there can be no ‘carry over’ of any VAT arrangements or possibly VAT reclaims currently in place.

There may also be certain issues with regards to current property transferring over to NHS Property Services Ltd from PCTs. It is expected that these property transfers will be treated as a non-business supplies regardless of whether there is an effective option to tax in place.

Where there are any new building projects underway or the process has started with regards to creating a new development VAT advice should be sought now, as there may be a requirement to seek specific rulings from HMRC concerning the VAT status of these projects.

We understand HMRC are considering that a CCG may not be required to make VAT partial exemption calculations for the monthly VAT returns but can make the adjustment with the usual year end adjustment. This will need to be considered as it may be easier to continue to make the monthly adjustments applying a correct VAT percentage (‘fair and reasonable’ in some cases) then to work the whole year through on the final adjustment.

Because of the fundamental changes ahead and the possibility of a complete ‘cut off’ at the point of the required deregistration for the GP and the new CCG VAT registration it is recommended that a VAT review is undertaken now to avoid any possible loss of VAT claims going forward.

One particular area of concern lies in the current VAT legislation and HMRC’s view on this. In particular, charges made for GP work for the medical benefit of a patient (but not any third party) are broadly exempt from VAT, but when there becomes charges made for the GP’s general population based commissioning activities under CCGs this could make more activities become subject to VAT. Interested parties are currently seeking clarification on this from HMRC.

There is much more work in respect of discussions to be had with HMRC. However, as CCGs are already being set up and required to be registered for VAT, it is vital to ensure the current VAT position is efficient and will be going forward with CCGS. Any VAT reclaims that may be available, following a VAT partial exemption review, or a review of the VAT liability of services currently provided, should be undertaken now as this opportunity for recovery of VAT will potentially be lost at the point of VAT registration of the CCG or at the latest by April 2013.

New Clinical Commissioning agreements should be considered as there may be payments defined within these agreements that may be on the borderline of being exempt from VAT, outside the scope of VAT, or subject to VAT at the standard rate. There is an opportunity for opening discussions with HMRC as to the VAT liability for these payments that may not be identical to current payments received by GPs. An example here will be in relation to Clinical Group Meetings.

Should you wish to discuss this article further please do not hesitate to contact your usual Beavis Morgan partner.