NHS wins multi-million VAT battle after HMRC climbdown

THE NHS has finally won its 43 year battle with HM Revenue & Customs in regards to overpaid VAT, potentially bringing in millions of pounds for NHS trusts.

Audit, tax and consulting services firm RSM has received confirmation that HMRC has decided to no longer oppose outstanding appeals by NHS trusts relating to entitlement to VAT reclaims, with some of those claims dating back as far as 1973, the year VAT was introduced.

Overdue VAT repayments

The VAT reclaims relate to VAT overpaid by hospital boards and health authorities on what should have been VAT zero-rated ‘takeaway’ food and VAT recovery on purchases of drugs and prostheses for onward supply to private patients.

Before now, HMRC previously argued that it was unsure if modern day NHS trusts should be allowed a repayment of VAT originally accounted for by predecessor hospital boards and health authorities.

In March 2015, a first-tier VAT tribunal between North Lincolnshire and Goole Hospitals NHS Trust and HMRC, ruled that there must clearly be a transfer of rights and property to the successor NHS operators.

“If the successor body is in fact operating and does in fact own the hospital that will effectively prove that some such transfer of rights did occur,” stated the FTT.

“Whether the transfer of rights included a right to re-claim VAT will depend on the circumstances of a particular case. That too may be inferred by indirect of circumstantial evidence but can only be decided in light of the evidence in a particular case and the presumption of correctness will not prove what rights were transferred.”

‘Exhaustive and unnecessary battle’

HMRC’s stance on VAT is an issue which has irritated a number of sectors.

In April the ATT claimed that small business owners are being overcharged VAT due to flaws in HMRC’s guidance over its flat rate scheme.

Commenting on the taxman’s climbdown, RSM VAT director Scott Harwood said: “After an exhaustive and largely unnecessary battle with HMRC, this appears a great result for the NHS and will free up more cash for frontline services.

“While many people may feel this is simply government money going round in a circle, the key point is that it actually relates to their commercial activities and the NHS were originally denied VAT that they were correctly entitled to.

“We now expect HMRC to contact all the relevant trusts to verify and agree the quantum of each submitted claim.”

Accountancy Age is currently awaiting comment from HMRC.