As part of the national effort to work together to combat coronavirus, many universities are offering their expertise and resources to help the NHS.
While new arrangements are put in place, it’s important to not forget about potential tax pitfalls. Mindful of this, the British Universities Finance Directors’ Group (BUFDG) has published a paper identifying several important VAT issues emerging from NHS/university collaborations.
The paper asks HMRC to consider a range of temporary concessions to alleviate negative VAT consequences. This, BUFDG says, is particularly important at a time when all the purchasing power of the NHS needs to be coronavirus focused and when universities are experiencing a major drop in income.
Many of the recommendations focus on contracted-out services (COS), the refund scheme enabling NHS Trusts to recover VAT incurred on services, used for its non-business activity of providing free healthcare. BUFDG has requested HMRC widens definitions of some of these services to include:
- Secondment of university staff to the NHS – BUFDG has asked that VAT be recovered on all seconded staff and post grad students. The current COS rules only allow VAT recovery on nursing services.
- Use of student accommodation by NHS staff and use of non-residential buildings by the NHS or third parties – for properties subject to the option to tax, BUFDG has asked HMRC to temporarily treat these as COS supplies so VAT can be recovered.
- Use of laboratory facilities by the NHS or third parties - BUFDG has asked HMRC to extend the existing COS relief for laboratory testing carried out for the NHS by universities to be extended to the use of university laboratory facilities by others working on coronavirus projects.
Other recommendations ask for a relaxation of the rules related to charitable VAT reliefs for supplies or loans of goods and equipment. For example, where the NHS uses university equipment, such as loaned or commandeered equipment, for a charge, BUFDG asks for this to be treated as zero-rated, without the need for the NHS to provide the university with a certificate to confirm eligibility or, it appears, the funding source.
Where supplied free, BUFDG asks that no associated VAT liability should arise, and that the university is able to reclaim an amount of input tax equivalent to VAT on 50 per cent of the supply where it is not possible to easily identity costs. HMRC recently introduced a concession for the zero rating of personal protective equipment (PPE) which could be widened to cover all coronavirus related goods.
BUFDG says its paper has been sent to HMRC and the Department for Education. While these proposals are ambitious, HMRC has so far been receptive to similar requests for VAT concessions.
HMRC’s current approach to granting coronavirus VAT easements has been to make specific concessions or search for interpretations of the existing VAT rules to support such reliefs. But given the array of measures evidently needed, the government may be better advised to make a commitment to simply refund coronavirus related VAT costs in the health and education sectors as a rebate scheme instead of installing a range of reliefs and concessions.