Changes to VAT rules could cost NHS millions

Changes to VAT rules could cost NHS millions

Tax experts have condemned a major change to the VAT system which stops NHS trusts reclaiming millions of pounds in overpaid tax.

Customs & Excise has clamped down again on NHS bodies by limiting VAT recovery on contracted-out services to just the current financial year.

Customs claims the move is simply a ‘restatement’ of existing rules.

Previously, trusts have been allowed by Customs to claim back VAT as far as records showed, but rules introduced in July restricted claims to three years.

At the time, hospital accountants warned that patient care would suffer if the new rule went ahead. The latest ruling is expected to add to the trusts’ plight.

Most trusts conducted VAT reviews every two-to-three years, lodging claims between # 200,000 and # 2m. But a letter from Customs last week placed an immediate ban on claims beyond the 1996-7 tax year, cutting off, without consultation, a crucial source of revenue for the country’s 1,300 NHS trusts.

Coopers & Lybrand VAT head Mike Fountain said: ‘We are appalled at the haste with which Customs has introduced this new policy.

‘This is one of a series of initiatives by Treasury ministers directed at extracting money from anyone, no matter how vulnerable, to fund vote-winning tax cuts.’

Ernst & Young’s national VAT partner, Peter Jenkins, said: ‘This is extremely misleading and disingenuous. In practice, very large VAT refunds have been paid automatically where an acceptable claim has been submitted.’

Customs defended its actions. A spokesman said: ‘Reorganisation meant that new NHS trusts were registered for VAT purposes from January 1995 and there was a clear break with the previous funding arrangements.’

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