1. VAT on income including common income liabilities
NHS SBS VAT Consultancy Team
VAT Compliance. VAT Consultancy

2. Josh Reardon Della Hagger
Senior VAT Consultant
Josh Reardon
VAT Consultant
Della Hagger
Phone:
Phone:
VAT Compliance. VAT Consultancy

3. Today’s Agenda NHS – “Non-Business Activities” and rates of VAT
A recap of what VAT is and general rules relating to when VAT should be due.
What is VAT?
We will run through a number of likely VAT liabilities in respect of common NHS business activities.
Common Income Liabilities
A small quiz intended to test your understanding of what we have learnt on the webinar. Followed by an interactive Q&A session.
Mini quiz
HMRC are frequently investigating the VAT liabilities of NHS transactions. Here we will talk through common errors identified by HMRC during compliance visits.
Common Output Tax Errors
A look at the statutory activities of NHS bodies and the different rates of VAT in the UK.
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4. What is VAT?
VAT is a tax on consumer expenditure. It’s collected on business transactions, imports and acquisitions.
Most business transactions involve supplies of goods or services. VAT is payable if they’re supplies made:
in the UK or the Isle of Man
by a taxable person
in the course or furtherance of business
that are not specifically exempted or zero-rated
Supplies which are made in the UK or the Isle of Man and which are not exempt are called taxable supplies.
A taxable person is an individual, firm, company and so on who is, or is required to be, registered for VAT. A person who makes taxable supplies above certain value limits is required to be registered (currently £85,000).
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5. Value Added Tax Act 1994 – Section 1
The Scope of VAT
The Scope of VAT
Value added tax shall be charged, in accordance with the provisions of this Act— .
(a) on the supply of goods or services in the United Kingdom (including anything treated as such a supply),
(b) on the acquisition in the United Kingdom from other member States of any goods, and
(c) on the importation of goods from places outside the member States,
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6. “Outside the scope of VAT”
Supplies are outside the scope of UK VAT if any of the following apply:
made by someone who is not a taxable person
made outside the UK and the Isle of Man (see paragraph for special place of supply rules for certain international services)
not made in the course or furtherance of business
In the majority of cases the activities carried out by NHS bodies are statutory in nature and are treated as non-business for VAT purposes. For NHS bodies the non-business activity is the provision of NHS patient healthcare.
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7. Supply for Consideration
In 1978, the EC 6th VAT Directive introduced consideration as an essential ingredient for both supplies of goods and supplies of services. Under Article 2, The supply of goods or services effected for a consideration was to fall within the scope of VAT.
SUPPLY A B
CONSIDERATION
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8. What is “consideration”?
Consideration does not refer only to money, whilst often this is the case.
Consideration, in VAT terms, is used in a very wide sense covering anything which might possibly be done, given or made in exchange for something else.
For example, it might be something exchanged in a barter arrangement, such as in a part exchange or where a service is performed in return for another service, or it may simply be a condition imposed upon the making of the supply.
As long as there is a direct link between the supply made and the consideration given, and the consideration is capable of being expressed in money there is a supply for VAT purposes.
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9. Non- Business Activities of the NHS
Non-business activities are activities, which are carried out on a statutory basis (NHS Healthcare) and/or for no consideration. This also includes supplies within and between NHS bodies within the same Divisional VAT registration. There are 3 divisional registrations:
1. All NHS bodies within England
2. All NHS bodies within Scotland
3. All NHS bodies within Wales.
It should be remembered that although they provide healthcare, GP’s are not considered to be part of the NHS for VAT purposes. Therefore you should add VAT on any charges to them (if VAT is normally applicable on that supply).
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10. Rates of VAT VAT Compliance. VAT Consultancy
VAT is a tax on consumer spending and it is collected on taxable business transactions. If an individual, firm or company is VAT registered then they have to account for VAT on their business transactions.
There are three rates of VAT:
Zero Rate 0%
Reduced Rate 5%
Standard Rate
20%
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11. VAT Exempt
Some Supplies are exempt from VAT. These supplies include private healthcare, financial services, certain land and property transactions, and certain training and education services.
Schedule 9 of the Value Added Tax Act 1994 (‘VATA’) contains the legislation detailing the applicable VAT exemptions.
Exempt supplies should not be confused with Zero rated supplies. In the case of exempt supplies whilst no VAT is charged on the supply, unlike zero rated supplies no input tax may be recovered.
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12. General Rule: 1 General Rule: 2 General Rule: 3 General Rule: 4
Supplies to bodies within the NHS Divisional registration are outside the scope of VAT (non-business).
General Rule: 1
Supplies to all organisations outside the NHS Divisional registration are likely to be business and VAT due in line with nature of the supply.
General Rule: 2
Most supplies made outside the UK should typically be outside the scope of UK VAT.
General Rule: 3
VAT on costs in connection with taxable business supplies (standard, reduced and zero rates) can be recovered under the ‘normal’ VAT rules.
General Rule: 4
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13. (“Time of Supply”) S6 VATA 1994
The date on which VAT becomes due to HMRC is known as the tax point. The basic tax points are:
For goods – The date the goods are sent to the customer or the customer takes them away.
For goods that are not sent or taken away – the date they are made available for use.
For services – the date when the service is performed i.e. the date when all the work except invoicing is completed.
The basic tax point is overridden by an actual tax point if the supplier:
Issues a VAT invoice or receives payment before the basic tax point. In this case, the actual tax point for the amount invoiced or received is the date that the invoice is issued or payment received, whichever happens first.
Issues a VAT invoice up to 14 days after the basic tax point. In this case the actual tax point is the date when the invoice is issued. However, if an actual tax point has already been created before the basic tax point, a tax point will have already been created for the amount invoices or received.
There may be specific exceptions for continuous supplies of services.
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14. Common Income Liabilities
Income Type
Typical VAT Liability
Advertising Income (not to a charity)
Standard Rated
Appliances supplied as part of the package of care
Exempt
Books, magazines, newspapers etc.
Zero Rated
Cold Take-Away Food Income
Catering Income – In a restaurant/café including hot take-away food
Catering Trolley Income
Computer/IT Services
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15. Common Income Liabilities
Income Type
Typical VAT Liability
Conference Fees – Medical Training (where provided by an eligible body)
Exempt
Conference Fees- All Other
Standard Rated
Contraceptive Products
Reduced Rated
Drug sales to charities
Zero Rated
Drug sales to non-charities
Drugs dispensed on an NHS prescription
Outside Scope
Drugs dispensed to patients for personal use on a private prescription
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16. Common Income Liabilities
Income Type
Typical VAT Liability
Estates Services
Standard Rated
External Catering Functions
Hire of rooms where option to tax has not been exercised
Exempt
Incineration services/waste disposal
Lab tests not relating to the health of an individual
Laundry
Mortuary Fees
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17. Common Income Liabilities
Income Type
Typical VAT Liability
Post Mortems requested under section 19 of the Coroners Act 1998
Outside Scope
Initial provision of medical records to solicitors etc.
Additional copies of medical records
Standard Rated
Occupational Health – Pre Employment
Occupational Health – Post employment and in-service health screening
Exempt
Postal Services
Royalty Charges
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18. Common Income Liabilities
Income Type
Typical VAT Liability
Salary recharges or secondments where staff come under recipients direction (specific exceptions apply)
Standard Rated
Sale of scan photographs
Sponsorship income – when freely given
Outside Scope
Training – educational/vocational training provided by an eligible body
Exempt
Vending machine income
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19. Common Errors VAT Compliance. VAT Consultancy
Output VAT on property rentals and associated utility/service charges
Supplies of property are normally exempt from VAT, subject to Option to Tax. In which case the supply would be standard rated.
A payment made by a tenant to the Trust may be:
Further payment for the main supply of accommodation and therefore exempt or if the option to tax has been exercised then standard rated,
for supplies other than accommodation (usually standard rated) or,
Disbursements and therefore outside the scope of VAT.
If the supplier is obliged under the terms of the lease to provide services similar to those above, the service charges follow the same VAT liability as the premium or rents payable under the lease or licence (normally exempt, unless they have opted to tax).
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20. Supplies of staff and secondments
It is common practice for NHS bodies’ staff to go on secondment or loan to charities, local authorities or other entities for a fixed period of time.
A secondment is identified where an NHS body staff member is provided to another entity for “consideration” and is:
Contractually employed by the employing entity; and
Not contractually employed by the organisation to whom they are seconded but come under the direction of that organisation.
As a general rule, such secondments should attract VAT at the standard rate.
However, there are a number of exceptions where secondments may not attract the standard rate of VAT.
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21. Supplies of staff and secondments
Examples of where secondments may not attract VAT at the standard rate:
Secondments between NHS bodies within the same VAT division.
Secondments between and by Government Departments which require specialist knowledge that cannot be obtained from the private sector.
A Memorandum of Understanding exists in response to the University of Glasgow v HM Revenue and Customs tribunal. Where staff with honorary contracts with a University and one or more NHS organisations are engaged in both teaching and/or research as well as the delivery of patient care, the supply may be outside the scope of VAT. These circumstances are very limited, so any such agreements should be reviewed in detail.
In some cases, supplies of teaching staff to other eligible bodies.
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22. Question Time! VAT Compliance. VAT Consultancy
We will now run a series of anonymous questions to check your understanding of today’s session followed by an open forum for questions and answers. Questions may be requested by using the chat facility of GoToWebinar.
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23. Thanks for listening! VAT Compliance. VAT Consultancy
Thanks for attending todays VAT webinar, an introduction to VAT in the NHS brought to you by NHS Shared Business Services VAT Consultancy team. You will receive a request for feedback on the completion of the webinar, any feedback provided is much appreciated and will be used to continuously improve future webinars.
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24. Disclaimer. VAT Compliance. VAT Consultancy
The views expressed by presenters are not necessarily those of NHS Shared Business Services.
The information in this webinar is solely for information purposes and is not to be relied upon by any person or entity as tax, accounting or other professional advice. The material here and the supplementary oral comments made by the presenters should be considered together. If you require any further information, or specific advice, please contact
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