Hospice VAT Update
HMRC Refuse to Accept Continuing Care Contract Work is Non Business
HMRC have decided that Continuing Care agreement funding is payment for a VAT exempt business supply. This unexpected news will both complicate and reduce hospice VAT refund claims.
The VAT refund applies only to non business activities. An important factor in deciding whether an activity is business or non business for VAT purpose is whether it involves making supplies. This in turn will depend upon whether money paid to a hospice can be regarded as ‘consideration’ for a supply.
As part of the original discussions on the refund scheme HMRC accepted that core NHS England funding could be regarded as an outside the scope grant rather than as payment for a supply made to the NHS. It was funding concerned with ‘general outcomes’ rather than specified treatments for particulate individuals. This position was also accepted for Wales and Scotland. It meant that the bulk of a hospices activities would be non business.
HMRC were also prepared to accept that where an individual entered into a contract with a hospice for it to supply medical services then although this would strictly be a business activity, when it was subsidised it could be treated as non business under the terms of a published ‘subsidised welfare’ concession. This means personal budget work can be non business.
The funding that had an uncertain VAT treatment was Continuing Care money. This is provided under Continuing Care agreements were hospices agree provide specific services to specific individuals. The terms are so specific that HMRC are not prepared to see the funding as outside the scope but instead they regard it as payment for a supply made to the funder. The problem is that the published terms of the subsidised welfare concession state it only applies where the supply is made directly to the individual rather than a third party health funding body.
We argued that it would be odd to have a situation where supplies to individuals are non business and general block funding non business but continuing care work, which can be seen to fall between these two funding models, must be seen as business. We made our initial submission on this subject at the time of the last Autumn statement and have been pushing for an HMRC answer ever since.
HMRC have now replied stating that regrettably they do not feel they can legally extend the terms of the concession and if they allowed it to apply where a supply is not made directly to the individual this is what they would be doing.
This means that hospices that undertake continuing care contract work cannot use the non business refund scheme to recover VAT that relates to it. HMRC view such work as involving the making of exempt supplies by way of business.
However all is not lost and we fight on. There are a number of options including a test case. Hospice UK will be in touch with its members soon and I remain confident that we will eventually succeed in obtaining a refund for continuing care work. If you receive substantial continuing care funding and I have not already spoken to you then please get in touch.
HMRC Change Policy on Relevant Residential Purpose
HMRC have agreed to change their policy on when a new hospice building has a relevant residential purpose. Their previous policy was that zero rating under this relief could only apply to the extent that a hospice had inpatient facilities. This meant that hospices that operated both in and out patient facilities from a new building could only get part of the work relieved under the relevant residential purpose rules. Such hospices were forced to rely upon the separate zero rate relief that applies to buildings used for a non business charitable purpose. The problem with this relief is that it is vulnerable if hospices engage in business activities to more than a minimal extent.
The new policy is that there will be a relevant residential purpose for the entirety of a new hospice building if there is as much as one patient bed. No apportionment will be needed if there is also out patient provision. HMRC will be updating their notice in due course.
This new policy helps ensure that the zero rate will apply to new hospice buildings even if there is some business activity. It is not academic following the introduction of the VAT refund as it also protects hospices against the provisions which charge VAT if a building on which zero rating was granted becomes no longer eligible for relief. The only ones still vulnerable here will be outpatient or hospice at home only hospices that obtained zero rating under the relevant charitable purpose relief and that are moving towards changing for their services. If you are on this position get in touch.
Although the new VAT refund allows hospices to recover VAT on construction work that is not zero rated, it only applies to VAT correctly charged. If you incur VAT on a service that should have been zero rated HMRC may refuse recovery.
VAT on Investment Management Fees
HMRC have lost the University of Cambridge appeal concerning VAT recovery on Investment management fees. They may appeal but have realistically only a small chance of success. If you don not already recover VAT on such fees then consider making a claim.
See : http://vat-help.co.uk/hmrc-lose-investment-management-costs-appeal/
VAT on Mixed Fundraising Events
The new VAT refund applies to all non business activities undertaken by a palliative care charity. This will include non palliative care services provided for no charge and fundraising activities undertaken for no charge. It will not include fund-raising activities where a charge is made. These events will generally fall within the VAT fund-raising exemption and be VAT exempt supplies. The exempt input VAT incurred on such will not be recoverable unless it it is de minimis.
Some have tried to argue that where an event that involves exempt charges also generates income that is outside the scope, that VAT on organising it should be partly recoverable as its partly non business. HMRC have rejected this argument in discussion and confirmed that the VAT incurred will all relate to the making of the exempt supply. This means that your fundraising teams now have a choice. If they make a charge then, subject to the de mimimi rules, VAT incurred on an event will be irrecoverable whereas if they make no charge it will be recoverable in full. In my recent experience the registration fees charged on say a night walk are likely to exceed the VAT incurred on costs, but its worth looking at your future fundrasing events on an event by event basis.
In conjunction with friends working for Price Bailey in Cambridge I can offer a 2 hour course on tax aimed at hospice fundraisers covering such subjects as gift aid, trading companies and VAT efficiency. If you would like more information get in touch.
I have prepared a guide to the new refund scheme which I update as I get further information from HMRC. This guide can be found at:
http://vat-help.co.uk/hospiceguide/
Hospices that undertake any business activities in the charity should review their business/non business apportionment. I will be happy to help. See my website for more information. See http://vat-help.co.uk/hospice-vat/