Tax Category Tax: calculations, VAT, self-employment tips and more

NHS & VAT Rules

Overpayments and underpayments of Value Added Tax will always mean extra administrative work in preparing claims as well as delays in recovering funds.

According to VAT Liaison, understanding the National Health Service's VAT rules means identifying any overpayments or underpayments of VAT before submitting your VAT returns. NHS and VAT rules apply to all health institutions and professionals falling under the NHS.

VAT Errors 10,000 Rule

The VAT Errors 10,000 rule applies to NHS and all its affiliate bodies.

The rule demands that all NHS bodies notify HM Revenue and Customs whenever they incur VAT errors amounting to 10,000 or more on contracted-out services. No correction should be made before making the notification to HM Revenue and Customs.

Home Drug Delivery

Being able to supply clients and patients with health care at home can be both convenient and prudent for most health care providers.

The rule guiding this operation exempts all home health care delivery from paying any VAT. According to HM Revenue and Customs, health care at home or home drug delivery services remain zero rated.

Nursing Services Code 41

Previously, all nursing staff's VAT was considered recoverable by HMRC.

This has changed, as VAT recovery on all nursing services now falls under the contracted-out services; however, this rule applies to nurses in Grades D to I as well as those in Band 5 and above. According to HM Revenue and Customs, this restriction eliminates all the previous confusions regarding the recovery of VAT on contracted-out services by nursing staff.

Secondment of Staff

NHS bodies and their affiliates usually second and exchange staffs.

The rules regarding secondment of staff state that no VAT shall be charged on NHS recipient bodies within the same country or on seconded health personnel recognised by VAT rules, like doctors and nurses. VAT charges on the other staff are to be charged at the standard rate.

Home Oxygen Services

This rule enables health professionals to order and deliver oxygen directly to their patients. In this case, the patient's GP does not have to provide prescription to the health professional before delivery.

According to VAT Liaison, no prescription on oxygen means no zero rating; therefore, suppliers have to charge VAT on oxygen. This in effect has increased the cost of PCTs.

Lennartz Rule

VAT Liaison states that NHS institutions should take full advantage of the Lennartz accounting mechanism.

The Lennartz rule enables NHS bodies to fully recover VAT on particular construction projects, followed by repayment to HM Revenue and Customs over a period of time.

However, for any NHS bodies to qualify for such recovery, they would have to comply with HMRC guidelines and conditions. Going by the 2007 budget, the NHS bodies should make their repayment within 10 years, down from the previous 20-year payback period.