HMRC is set to announce a new VAT refund opportunity for hospices.
This has come about as a major reversal of HMRC’s existing policy on the VAT treatment of Continuing Care funding received by hospices and other palliative care charities.
The anticipated change will come after significant lobbying and pressure from those within the sector. It should result in significant VAT savings, both current and also retrospectively. This in relation to periods where HMRC’s current policy has been followed.
Hospices have enjoyed a significantly enhanced VAT recovery position since the introduction of changes on 1 April 2015. This effectively granted palliative care charities special status to recover VAT on their non-business activities. However, a point of contention has always been HMRC’s insistence that the provision of care to a named patient under a Continuing Care funding arrangement was an exempt supply for VAT purposes.
Consequently, there was a requirement for hospices to carry out often complex calculations to work out the exact amount of recoverable VAT. In turn, there were restrictions on the recoverable VAT for both capital expenditure and ongoing running costs.
Impact of likely new change
However, we now understand that HMRC have conceded this point. They will shortly be revising their published guidance to confirm that Continuing Care funding should be treated as non-business income. This will open the door to increased recovery.
What to look out for
When you make a claim for the hospice’s non-business input tax, have you been disallowing an element of that input tax in relation to the funding received for named patients under the Continuing Care funding? If you have, the opportunity should present itself to reclaim the input tax you had previously not claimed, as well as claiming all the non-business input tax going forwards.
What to do now
We are expecting the policy change to have retrospective effect. This would open up the ability to revisit the recovery of VAT on general overheads, and also potentially on any significant capital expenditure undertaken within the past ten years. If you are likely to be affected by the policy change, we strongly recommend you review your position. You may need to submit a claim to HMRC where appropriate.
We can assist you to review your current position and establish whether a claim is possible. If you would like our assistance with this matter please get in touch.