Integrated Health and Care Hubs planned for Wales – Why the VAT impact needs planning
News that £68m of investment would be made in the development of 19 health and care centres across Wales caught my eye in April.Plans for 11 new Hubs and GP Centres, as well as money to refurbish existing centres will certainly be the sort of expenditure that will attract VAT on those projects – so will that VAT be recoverable and indeed who will be incurring that VAT?
This raises the question of who will be incurring the cost as the announcement had reference to “Councils, housing associations and the voluntary sector being involved in the hubs, along with NHS services.”
VAT recovery rules differ between these bodies:
Councils have a special VAT relief which allows them to recovery VAT on costs even though they support non-business activities (statutory functions such as the provision of welfare services).
This contrasts directly with the VAT recovery rules for housings associations and the voluntary sector where they too may be providing welfare services but will not be able to recover VAT incurred on the costs of doing so.
Then finally the VAT rules applying to the NHS differ again. An NHS Trust can only recover VAT on a specific list of services which it will buy in – this list does not include the construction of new healthcare building OTHER than under a PFI (Private Finance Initiative) style of arrangement where the developer is seen to be providing serviced facilities to an NHS Trust and not merely construction services of a new unit.
The NHS can recover VAT on the costs of repairing and maintaining its buildings, but it needs to be clear that this VAT is incurred on services supplied directly to the Trust not simply that the Trust is making a contribution of funds to improve an asset owned by a third party.
GP Practices fall under the normal business VAT rules which means that like housing associations and the voluntary sector they cannot recover much VAT on the costs they incur. There are added complexities within GP practices though where the ownership of the practice building may rest in a property owning partnership separate from the GP Practice.
Hence the question of “who” will be undertaking “what” sort of building or refurbishing services on “whose” actual property asset, becomes very important from the VAT perspective to establish early in the planning process.
The drive for collaborative working across these sectors is one that we come across regularly and often creates unintended VAT costs due to assumptions being made that all entities are treated the same for VAT purposes. As noted above, this is clearly not the case.
Also care needs to be taken on simply passing funds from one party to another. VAT is driven by the question “Has there been a supply of goods or services made by way of business?”.
If, in its simplest construct, one body does something to the benefit of another party and receives a consideration from them for that – then we could be talking about VAT needing to be addressed. It’s why barter transactions of any type – or land swaps for example – get caught up. It’s also why so many Charities are finding that their contracts for services provided to local councils are regarded by HMRC as business activities rather than them getting grant (non-business) funding from them.