High Level of Service

Contracted Out Services (COS) Guidance

by Berthold Bauer on October 12, 2015

The VAT government and public bodies manual (VATGPB) is currently in the process of being transferred from the HMRC website to GOV.UK and while this is happening it is not possible to publish any further amendments. In the interim you may treat this document as the current guidance for these Headings.

In this document you will also see that we have made some changes to the first tranche of guidance published in March 2015 (pages 14-17) to take into account comments made to us after the guidance was published.

Once the guidance in this document has been published in the VATGPB manual on GOV.UK this draft document will become obsolete.

VATGPB10010 COS Heading 14 – Computer services supplied to the specification of the recipient

 This heading applies to services supplied to a government department or NHS body in its procurement of an IT system to its own specifications or wider government/ NHS specifications.

The origins of this heading lie in the outsourcing of entire IT systems by central government to the private sector. For this reason, the heading does not cover in isolation the procurement of software or web design.

Because of the fast pace of technology, this heading is not intended to be restricted to past practices; but instead to include modern methods of supplying an entire IT system. What is important is that the department or NHS trust is procuring an IT system designed to its specifications (or to wider government or NHS specifications). Whether ownership of the hardware is or is not in the public sector, whether there is one supplier or several suppliers, whether the servers are or are not remote, does not affect this basic position.

Provided that the supply received is an IT system designed to the users specifications, this heading applies even though some components of the package would – if supplied in isolation – be excluded from the heading. The only exception is telephony, which is always excluded.


  • The provision by one or more suppliers of a fully managed and serviced computer infrastructure either using the recipients’ own hardware or hardware provided by the supplier as part of the infrastructure
  • Software support which forms part of a fully managed and serviced computer infrastructure
  • The development, implementation and support of bespoke software
  • Hosting Computing Services, Archiving Communication Services, Data Communications Services, Desktop Communications Services, for example Picture Archiving Services (PACS), Ethernet cable/Data lines and Cloud computing


  • The supply and support of off-the-shelf software
  • Licence fees except where integral to the provision of bespoke software or a fully managed and serviced computer infrastructure
  • The hire, installation or purchase of hardware alone
  • Line rental as a separate supply unless as part of a fully managed and serviced computer infrastructure
  • Telephony, which includes Voice Over Internet Protocol (VOIP)
  • Hire of computer consultants to add expertise to in-house IT teams
  • Web design where purchased as a stand-alone supply – this may be eligible for recovery under Heading 49

Definitions and interpretative notes 

  1. ‘Fully managed and serviced computer infrastructure’

‘Fully’ is not to be read restrictively or taken to mean singular. A single IT initiative may be formed with reference to many ‘mini’ IT initiatives that make up the whole. Focus instead on the term “managed and serviced infrastructure”.

‘Stand-alone’ contracts should be judged on their own merits. Variations to existing IT initiatives may be considered to be part of an overall IT initiative.

The ‘fully managed and serviced’ test will be satisfied where the recipient receives a package of services which are supplied and controlled by the supplier and where the risk of running the system and operating the service largely rests with the supplier.

  1. ‘Bespoke software’

Bespoke software includes the creation of a new software package. This includes research and development, design and consultancy services. It may also include aftercare services such as updates and helpdesk facilities. It also includes the substantial modification of a pre-existing package of software to meet the needs of the recipient.

Non-qualifying ‘off the shelf’ software is taken to mean stock software such as “Microsoft Office” packages, Sage accounting software, etc. These generally require minor modification during implementation.

With any pre-existing software package, the key to qualification for VAT refund will be to consider whether the software package has been substantially modified.

Additional Information

Composite supplies and multiple suppliers

 VAT refunds under this heading are permitted where the recipient contracts with more than one supplier, provided the services across the relevant supplier contracts dovetail together to provide a fully managed and serviced IT infrastructure. An example of this would be smaller contracts which when bundled together build up to one overall tower of fully managed and serviced IT infrastructure, this would also include any costs in relation to the build and support of the bespoke software which dovetails into the contract.

VAT on qualifying services received as part of wider supply that includes non-qualifying services or goods for a single all-inclusive charge, is not eligible for refund unless the qualifying services are supplied under a separately ordered, negotiated and contracted agreement. The exception to this is where a government department or NHS body receives a fully managed IT infrastructure service which includes telephony; in these situations HM Treasury require the VAT incurred on the contract to be apportioned between telephony and IT services. The VAT which relates to the IT services can be recovered under Heading 14 whilst any VAT incurred on telephony services cannot be recovered.

A VAT refund is permitted where goods are supplied as an integral part of qualifying services, are included in the contract for the qualifying services, and are ancillary to the qualifying services supplied.

VATGPB10230 Heading 25 – Hire of reprographic equipment including repair and maintenance.

Under this Heading, ‘reprographic’ takes its everyday meaning and is the process of reproducing, reprinting, or copying graphic material especially by mechanical, photographic, or electronic means.

This Heading allows recovery on the hire, rental or lease of reprographic equipment but only where the agreement or contract provides for repairs and maintenance and where the provider retains ownership and responsibility for the equipment.


  • Hire, rental or lease of reprographic equipment where the charge is calculated on a ‘copy ‘or ‘click’ charge’ basis and the provider retains ownership of the equipment, this also includes consumables provided as part of the ‘click’ or ‘copy’ charge
  • Multifunctional Devices (MFDs) which serve as printers, photocopiers and faxes


  • Hire, rental or lease of reprographic equipment where the agreement or contract does not include repair and maintenance
  • Hire of Fax machines, as these are not primarily reprographic equipment
  • Consumables supplied separately, for example, toner, fixing agents and copier

VATGPB10250 COS Heading 26 – Hire of vehicles, including repair and maintenance

This Heading allows recovery where a government department or NHS body enters into a contract for the supply of a vehicle/vehicles and the repair and maintenance of these vehicles by the supplier is specified in the contract. HM Treasury view this as covering long- term car hire for a period of more than 30 consecutive days.


  • Contracts for the hire of pool cars, company cars or other vehicles where the contract includes repair and maintenance by the supplier


  • Hire of vehicles alone where the contract does not include repair and maintenance, however the VAT on the separate supply of repair and maintenance will be recoverable under Heading 37

Additional information

  • Where you have a contract which includes both the hire of vehicles for less than 30 days and hire for 30 days or more, you can only recover the VAT in relation to the 30 days or more hire

VATGPB10350 COS Heading 31 – Laboratory services

This Heading allows recovery where an NHS body or government department has contracted out its laboratory services. Laboratory services are defined as services of conducting scientific experiments, tests and investigations whether in a laboratory building or via a technological process.


  • Drug testing
  • Forensic testing
  • Managed laboratory services


  • Stand-alone supplies of laboratory consumables for example, reagents, chemicals and test tubes which are supplies of goods
  • Separate lease/hire of laboratory equipment

Additional information

  • The supply of laboratory pathology services that directly relate to the provision of healthcare for individual patients is exempt from VAT and thus there is no VAT to recover. This applies to all businesses that are state-regulated and supply laboratory pathology testing services, whether they supply the services to the NHS or to independent

VATGPB10430 COS Heading 35 – Maintenance, non-structural repair and cleaning of buildings

The key to this heading is that it does not cover structural work such as the alteration of a building or the construction of an extension. The building can either be held under a freehold or a leasehold interest, but the heading does not include the service charges which are included in the lease as these are normally regarded as additional rent, and therefore further consideration for the occupation of the building.

Although in principle a ‘line by line’ calculation for each item of work is acceptable, some easements have been agreed for government departments and NHS bodies – see below:

Recovery of VAT on a line by line basis

Go through Bill of Quantity/Tender documents etc. and decide what is fully-recoverable, non- recoverable and Pot (mixed – unable to separate).

With Preliminaries – if you have a detailed breakdown and can separately identify qualifying items (professional services, security etc.), these can be added to the fully-recoverable figure, with the rest in non-recoverable, or the whole figure can be added to Pot (mixed). This is an either/or, what you cannot do is strip out fully recoverable and add rest to Pot.If a piece of work can be easily differentiated between fully/non recoverable e.g. “Supply & fit 20 doors (16 replacement/4 new)”, 80% of price can be added to fully-recoverable and 20% to non-recoverable.  If the description just says “Supply & fit 20 doors”, this would be added to the Pot.

When this is completed, the formula to find out the provisional percentage recovery on all interim payment invoices is:

               Fully-recoverable               = % Fully-recoverable + non-recoverable


Headings such as Provisionals, Overheads & Profit, Contractors margin etc. should be placed in the Pot; Contingencies should be ignored until the end of the project, when it will become clear if any have been spent. Capital projects should be reviewed annually or at the end of the project whichever is sooner. Where work is carried out to meet H&S or fire regulations, this does not mean you can just claim back everything. The work must still be listed on repairs and maintenance list to qualify for recovery.

Easements for government departments

In the case of government departments, it is acceptable to refer to government accounting principles to determine whether work is or is not structural. Work funded from running costs (revenue spending) is accepted as non-structural and therefore within the scope of this heading, whereas work funded from capital expenditure is not.

Easements for NHS bodies

  • Construction projects below £5000

HMRC have agreed with the Department of Health that construction works costing under £5000 (excluding VAT) may be treated, as repairs and maintenance and the VAT element are refundable under the Contracted-Out provisions. The Department of Health Circular EL (90) P64 defines such work as “individual works schemes for the initial provision, extension improvement or adaptation (including upgrading), renewal, replacement or demolition of buildings, building elements (e.g. roofs), external works, engineering services or plant”. Each project, however, must be complete and self-contained. A large project cannot be split into individual elements to bring the cost down, per element, to below £5000. It will only apply where the project is undertaken in its own right and not as part of a larger project.

Capital Building Projects

 By Capital building projects, we mean those projects that involve building and construction works which will normally take weeks/months or even years to complete. These projects will often include costs for works that are either eligible or ineligible for VAT recovery. Capital building projects are dealt with under the COS rules; however, VAT is only recoverable on the repair & maintenance costs not replacement.  On projects where there are alterations, extension, modification there would be little scope for recovery as this ceases to be repair and maintenance.On new builds, only professional services may be recovered where the supply is outside of the main contract and is to the NHS body direct.

For example, where you are having an extension built, and you are knocking through from an existing building, there would be little scope to recover VAT on making good damaged walls/plaster as this would be considered disturbance works. However, if you were taking advantage of repairing e.g. wires, plumbing on the existing building at the same time, this would be recoverable.

How to calculate VAT recovery

 NHS bodies can determine the correct VAT recovery on capital building projects in two ways. They can either go through the relevant documents in their possession such as bills of quantity/ schedules of work etc. on a ‘line by line basis’ determining which works are eligible for VAT recovery and then recover these costs subject to the normal VAT rules or NHS bodies can use the ‘banding scheme’ which involves simply determining what type of project is being undertaken and recovering that % applicable to the project invoices/ interim certificates see below.

Recovery of VAT using the ‘banding scheme’

 To reduce the burden of the tax further, NHS bodies have the option to determine simply the element of VAT recoverable on contracted out services on those capital-building projects of a total cost of up to £15,000,000. Having decided the type of project involved from the following list, the recovery rate shown is applied to the invoiced VAT incurred on the project for inclusion on the monthly VAT 100 and accompanying VAT21.


Type of Project



Proportion of VAT recoverable

New build

Complete new construction from scratch or making use of the foundations of an existing building, where the whole of the former building has been demolished to ground level. 



ExtensionsWhere a building is enlarged or extended and that enlargement or extension creates new space. 



Major Alterations

Works to an existing building where major work has taken place to the fabric of the original building including the replacing of much of the internal/external configuration. 



Minor AlterationsWork to an existing building where the alterations are incidental to and have occurred because of repair/maintenance work. 




/Repair and maintenance

This is general upkeep to and refurbishment of existing buildings where the works do not result in any alteration or additions. 




These bandings apply only to actual construction works. Subject to the normal rules, NHS bodies may continue to recover VAT incurred on supplies received directly of professional services (e.g. architects).

Additional information

  • Examples of what is included or excluded under Heading 35 can be found at VATGPB10435 (See Annex A below)

VATGPB10470 COS Heading 37 – Maintenance, repair and cleaning of equipment, plant, vehicles and vessels

This heading allows government departments and NHS bodies to recover VAT on:

  • Repair, maintenance and cleaning of equipment, plant, vehicles and vessels that they own, and/or
  • Repair, maintenance and cleaning of equipment, plant, vehicles and vessels that are leased. This is providing that the repair and maintenance work is supplied under a separate contract or agreement from the lease but it does not have to be made by a different supplier. Where the lease and maintenance are provided by the same supplier, the contracts/agreements must not be interdependent on each other and must be separately.

Additional information

  • For the purposes of COS recovery, the term vessels includes ships and aircrafts and the term equipment includes computer equipment
  • VAT incurred on the leasing or hire of equipment, plant, vehicles and vessels is not eligible for recovery. The only exceptions to this are Headings 25 ‘Hire of reprographic equipment including repair and maintenance’ and Heading 26 ‘Hire of vehicles, including repair and maintenance’. In both these cases, the VAT is only recoverable on contracts that provide for the supply of the equipment/vehicles together with full repair and maintenance services
  • Examples of what is included or excluded under Heading 37 can be found at VATGPB10435 (See Annex A below).

VATGPB10550 COS Heading 41 – Nursing services

 This Heading is intended to allow recovery on nursing services in its widest sense and there is no stipulation that the nursing staff have to be providing medical care. The Royal College of Nursing define nursing as “the use of clinical judgement in the provision of care to enable people to improve, maintain, or recover health, to cope with health problems, and to achieve the best possible quality of life, whatever their disease or disability, until death”.


  • Situations where you are charged VAT on the provision of nursing services or agency nursing staff, this would include:
    • All grades of registered bank nurses, working on wards across the NHS
    • Healthcare Assistants
    • Midwives and midwifery assistants
    • Phlebotomists
    • Theatre Scrub nurses
  • Nurses employed by the 111 service
  • Operating Departmental Practitioners (ODPs) where due to the changes in the nature of their role they now provide a nursing service. Previously ODPs were excluded from Heading 41 as they were not providing a nursing


  • Other types of medical professionals such as doctors, locums
  • Other healthcare professionals such as ambulance paramedics

Additional information

  • You should not assume that there is a VAT element included in the charge made to you for nursing services, as the supply may be exempt from VAT. You should check the suppliers invoice to check whether VAT has been

VATGPB10610 COS Heading 44 -Operation and maintenance of stores depots

 This Heading allows recovery where you employ an external contractor to operate and maintain your stores depot.


  • Monitoring stock levels
  • Dealing with requisition requests
  • Where you contracted out the running of your stocks of items and equipment required in the day-to-day operation of your non-business activities


  • The supply of the goods being stored

Additional information

  • Where you have a single contract for the operation and maintenance of your stores depot and for the supply of the goods, VAT can only be recovered on the service element of the contract where this is shown as a separate charge on the

VATGPB10630 COS Heading 45 – Operation of hospitals, health care establishments and health care facilities and the provision of related services

 This heading concerns the operation of healthcare premises that have face-to-face dealings with patients. The contractor does not have to provide, and is unlikely to be providing, healthcare. Thus, the focus of the heading is on the situation where the contractor provides a fully functioning building or facility within which medical and nursing professionals can treat and care for their patients. For example, the contractor may provide full facilities management support, IT support, catering, cleaning and security using its own employees (or the services of companies it sub-contracts work to). An agreement that consists of an ordinary premises lease with standard communal services only will not be covered by this Heading.

The origins of this heading lay in the type of PFI arrangement that was prevalent in the 1980s and 1990s. Over time, this type of arrangement has changed, either in terms of the level of services provided or the facility in which they are provided, but the principle remains unchanged – the contractor provides a sufficient level of services and support within the building or facility for the NHS (or other healthcare provider) to treat its patients. It covers PFI, PF2, Scottish Hub Procurement Arrangements, LIFT and non-PFI situations.

A hospital, health care establishment and health care facility is the building or facility which enables the medical and nursing professionals to treat and care for their patients and includes:

  • An entire hospital complex of buildings
  • Part of a hospital complex of buildings
  • A discrete part of a hospital, such as a ward, a theatre suite, a radiology department, a renal dialysis suite, a diagnostic suite or an MRI unit
  • An off-site facility that provides services which would normally be carried out in a hospital or health care establishment, for example an off-site facility for renal dialysis or diagnostic purposes
  • Non-residential mental health facilities which are part of the healthcare offered by the NHS body


  • The ancillary provision of equipment together with the service of operating and maintaining that equipment, for example heating, cooling and ventilation equipment; fire protection equipment; specialised lighting; nurse call systems; and medical gas supply piping
  • Utilities when provided as a part of the whole package under the same contract and paid for within the single unitary charge – the utilities may be invoiced separately to the rest of the charges
  • Hyperbaric chambers/mobile theatres, as long as these are supplied on a fully managed and serviced basis


  • The hire of equipment alone
  • The separate supply of utilities

VATGPB10710 COS Heading 49 – Photographic, reprographic, graphic and design services

This Heading allows recovery on contracted out photographic, reprographic, graphic and design services.


  • Hire of a photographer
  • Design & printing of annual reports
  • Bulk copying services
  • Design and redesign of a website


  • Purchase of photocopiers
  • Printing of business cards and headed stationary – these may be recoverable under Heading 61
  • Printing of office signage

VATGPB10770 COS Heading 52 – Professional advice or opinion on departmental efficiency or policy issues, legal advice or opinion and internal audit

This heading is currently under review with HM Treasury. Government departments and NHS bodies should continue to use the guidance detailed below until further details are provided by HMRC.

Government departments

 The wording of this heading was amended in 2008. It used to read “Professional services, including those of any manager, adviser, expert, specialist or consultant”, but the change clarified that the scope of recovery under the heading is confined to provision of advice or information on departmental efficiency, policy development, legal advice or opinion and internal audit.


  • Internal audit reports
  • Legal opinions from solicitors
  • Hire of consultants to provide advice on efficiency issues or comment on the viability of new departmental initiatives


  • The hire of a consultant to work as part of the Department
  • Research – this is covered by Headings 20, 58, 59, 66 or 74
  • The service of actually putting something into effect, as opposed to merely advising on a matter. For example, the services of a professional who is brought in to advise on AND then implement a new
  • Staff secondments – because this involved contracting in staff to work alongside
  • Specialist staff hired to provide “holiday/ maternity cover” for key staff
  • Hire of accountants to carry out tax health checks

Additional Information

  • HM Treasury wrote to Government Departments on the 14 April 2014 about Shared Service Arrangements and refunds under this heading for Non-Criminal Legal Services. In so far as the Treasury directs HMRC in individual cases, VAT can also be recovered on other non-criminal legal services. There have so far been no such

NHS bodies

 VAT is recoverable on the professional services of managers, advisers, experts, specialists and consultants in providing advice or information on how to put something into effect. The eligible services are therefore of an advising nature, rather than of implementing a change, taking action following a recommendation, etc. In relation to building works and construction, the professional fees of architects and structural engineers are included, as is consultancy advice on planning site layouts and the services of solicitors, valuers and surveyors. VAT is eligible for a refund irrespective of whether the fees relate to repairs and maintenance or new construction or improvements or refurbishment etc.

This category is not restricted to professional fees in connection with construction work. It also covers professional fees such as those in connection with computer consultancy work, including contract software development.

VATGPB10790 COS Heading 53 – Provision under a PFI agreement of accommodation, for office or other governmental use, together with management or other services in connection with that accommodation

This heading covers PFI arrangements under which government departments/NHS bodies are supplied with fully serviced and managed accommodation by a single PFI provider. The most distinct element will be that risk is transferred from the government departments/NHS body to the PFI provider. Consequently, the heading does not include leases granted by commercial landlords, even where they are landlord repairing and insuring leases.

Additional information

  • Recovery under this heading is only allowed on utilities when provided as part of the supply of PFI accommodation and where the cost is subsumed within the single unitary charge. This is seen as a necessary incidental cost of providing the
  • Utilities provided outside the PFI charge will not qualify for relief under this

VATGPB10810 COS Heading 54 – Publicity services

 This Heading allows recovery on publicity services.


  • Advertising campaigns other than recruitment adverts (which are covered by heading 57)
  • The use of a private publicity agency for dealing with the media
  • Press releases
  • Digital publicity services, for example illuminated portable posters and video walls


  • Commissioning promotional items such as mugs, T-shirts, stickers etc. This is a supply of goods for VAT purposes and as such falls outside the scope of the Direction
  • The direct placing of an advertisement, for example in a newspaper

VATGPB10830 COS Heading 55 – Purchasing and procurement services

This Heading allows recovery on purchasing and procurement services i.e. the procurement service charge.


  • Negotiating procurement contracts
  • Management and coordination of bulk orders
  • Cloud based procurement services
  • Government procurement services
  • Where you use a buying agent or private firm to carry out your purchasing, then any VAT incurred on the buying agents services would be eligible for recovery under this heading


  • The actual cost of the goods procured

VATGPB10850 COS Heading 56 – Radio services

 This Heading allows recovery on radio services.


  • Radio broadcasting
  • Radio bandwidth
  • Contracting out of services connected to the running of a hospital radio
  • Webcasting
  • Provision of radio communications network for NHS ambulance Trusts and handsets when supplied as part of the communications network


  • Purchase of radios or radio equipment alone
  • The supply of car radios or radio masts

VATGPB10870 COS Heading 57 – Recruitment and relocation of staff and other related services

This Heading allows recovery on recruitment and relocation of staff and other related services.


  • Security vetting checks undertaken on employees including Disclosure and Barring Service (DBS) checks
  • Staff relocation expenses where the department commissions the removal company
  • Staff recruitment advertising commissioned via a recruitment agency
  • Civil Service Resourcing
  • If you use an agency to arrange for the recruitment of staff, the VAT would be refundable under this heading. This would include services provided as part of a recruitment drive
  • You may incur VAT, which would be eligible for a refund under this category, if, for example, you were to open a new hospital or move to a new building and used a private company to deal with the relocation of the staff


  • VAT incurred on removal firms hired by staff
  • Placing recruitment adverts in a newspaper or on internet recruitment websites

Additional information

  • VAT incurred in respect of the recruitment of canteen staff, for example, would only be eligible for a refund under these provisions to the extent that it relates to the supply of catering for NHS in-patients as part of the provision of NHS Health

VATGPB10950 COS Heading 61 – Services of printing, copying, reproducing or mailing of any documents or publications, including typesetting services



  • Post opening services
  • Franking
  • Labelling services including printing of bespoke forms, labels, cards, reports, letterheads etc. (bespoke means from scratch designed specifically for the government department/NHS body)
  • Parcel X-raying services
  • Photocopying services supplied by outside firms
  • Services of mailing agencies
  • Printing services or reproduction of documents or publications for example, annual reports
  • Typesetting services
  • Micro filming and microfiche services


  • Post box hire
  • Shredding machines
  • Franking machines

Additional information

  • In the case of printing services, although the supply of the paper is a supply of goods, it is considered an intrinsic part of the service being provided (for example, it is impossible to receive the service of printed letterheads without the paper on which the letterhead is printed). Therefore, the VAT would be eligible for recovery on the total contract price, which will normally include that of typesetting, paper and the use of the printing or embossing
  • The initial supply of signs and names badges (also the complete replacement of) is not eligible for recovery, as they are seen as goods. Signs replaced because of government departments/NHS bodies merging would be recoverable, as would repairs to existing signs.

VATGPB11110 COS Heading 69 – Typing secretarial, telephonist and clerical services including agency staff

 This heading covers the outsourcing of typing, secretarial, telephonist and clerical service functions. It does not include the hire of typists, secretaries, administration staff and agency staff, for example to fill short-term vacancies or supplement existing staff levels during busy periods.

The words ‘including agency staff’ needs to be read in the context of the whole sentence, rather than in isolation. The agency staff referred to in the heading are those of the company supplying outsourced typing, secretarial, telephonist and clerical services.


  • Provision of typing services by a word processing bureau


  • Secondees
  • Employee expenses
  • Hire of telephones, telephone lines, switchboard equipment
  • The hire of agency staff – for example, to fill long-term or short-term vacancies

The following pages contain changes to the first tranche of guidance published in March 2015 (pages 14-17) to take into account comments made to us after the guidance was published.

VATGPB9720 – COS Headings introduction Introduction

Government departments and health authorities have been encouraged to contract out services to the private sector that would have traditionally been performed in-house. It is recognised that many of these services would be subject to VAT and where they were acquired for ’non-business’ purposes, the non-reclaimable VAT could act as a disincentive to contracting-out.

It was therefore decided to compensate government departments and health authorities by a direct refund mechanism, which is provided for in section 41(3) of the VAT Act 1994. Under this provision, the Treasury issues a Direction, commonly known as the ‘Contracting Out Direction’ which lists both the government departments and health authorities that are eligible to claim refunds of VAT, and the services on which VAT can be refunded.

Originally there were separate lists of eligible services for each department/NHS body, but in the 1990s this was consolidated into a single list for all departments/NHS bodies. You are therefore not prevented from reclaiming VAT on the purchase of one of these services merely because you had never undertaken the activity in-house. Additionally, VAT can be recovered on services supplied by another department under a shared services arrangements if the service is listed in the Contracting Out Direction.

A full list of the services on which VAT can be reclaimed under the Contracting Out Direction can be found in VATGPB9700.

When can I reclaim VAT?

 Because refunds of VAT under this measure are met from public expenditure rather than VAT revenues, COS VAT should normally be claimed within the financial year in which the supply in question has been received – subject to a 3 month adjustment period – the adjustment can be made no later than the June VAT return following the financial year end. By “the supply in question has been received”, we mean the tax point. While the tax point is normally the invoice date, this is not always the case. Continuous supplies may have a payment tax point.

In circumstances where you have received a supply on which no VAT has been charged by the supplier and they subsequently issue you with a VAT only invoice, you can recover the COS VAT in the period in which you received the invoice.

Are there any exceptions to the normal claim period for COS VAT?

 In the following circumstances, you can make a claim outside the financial year in which the supply was received:

  1. Where HMRC has instructed a government department or NHS body that it cannot claim COS VAT on a particular supply and this turns out to be incorrect – in these circumstances, the four-year cap.
  1. Where a government department or NHS body has asked whether a supply it has received is covered by a particular COS heading, and by the time HMRC confirms that COS VAT is recoverable the time limits for claiming have passed – in these circumstances the four-year cap
  2. Where there is uncertainty within the NHS (as a whole) or government departments (as a whole) whether, in relation to a particular service, COS VAT can be recovered and this is not resolved by HMRC until after the time limits for claiming have expired – in these circumstances the four year cap

Can I adjust a COS VAT claim I have already made?

 The requirement to claim COS VAT within the financial year in which the supply is received is restricted to the actual claim itself. If a claim is made at the correct time, any adjustment to that claim must be made within the normal time limits for adjusting input tax (please see Notice 700/45).

For example:

  • There may have been an error in the amount claimed (but an amount has to have been claimed).
  • The price paid for the service in question may have subsequently increased or decreased.
  • The claim itself may have been subject to a further calculation, such as a ‘business : non-business’ calculation, which itself is adjusted at a later date because of a higher or lower non-business

Single/Multiple supplies

 When considering whether a supply qualifies for recovery under one of the COS Headings, Government departments and NHS bodies should initially refer to guidance in the VAT Supply and Consideration manual to determine whether the supply they are receiving is a single or multiple supply. When this has been determined you should then consider whether the supply falls within one of the COS Headings and is eligible for recovery.

If the supply is a single supply then the predominant nature of the supply will determine whether it is eligible for recovery under COS.

Where you receive a multiple supply, recovery on each separate supply can be claimed under the appropriate COS Heading.

How do I interpret the Treasury’s Direction?

 We have provided some advice and examples, but they cannot be exhaustive. The purpose of the Direction should always be considered – namely to ensure that what would otherwise be irrecoverable VAT does not dissuade you from contracting out a service to the private or voluntary sector. If the service you are purchasing was never performed within the government department or the health authority, it is most unlikely to fall within the ambit of the Direction.

Section 41(3) of the VAT Act 1994 refunds VAT ‘if and to the extent that the Treasury so direct’. There may be occasions where the Direction is limited to a set of circumstances prevailing at a particular time. Where this has happened, we explain the position under the relevant heading. Some Headings are seldom used, or are bespoke to a particular department, and we do not provide explanations for these. Additionally, we ask you to continue to use the individual pieces of guidance to government departments and NHS bodies on heading 52 for a short while longer until the outcome of HM Treasury’s review of its Direction is known.

Recent developments

HM Treasury has agreed that COS refunds may be claimed for the following activities. Until a revised Direction is published, if you are uncertain which Heading to use please use Heading 2:

  1. Call centre and contact centre services
  2. Services provided through International Trade Advisers for UK Trade and Investment
  3. Services provided under Framework for Procuring External Support for Commissioners (FESC) other than:
    • Supplies of computer services and professional services that are excluded from the scope of Headings 14 and 52 above, unless the Treasury directs otherwise, and
    • Elsewhere, the supply of staff

How to use this guidance

 To find out what is eligible for recovery under a specific COS Heading, go to VATGPB9700. This will provide a list of the Headings; you can then select the appropriate VATGPB link that will take you to the guidance for that Heading.

As with all lists, this guidance could soon become out of date because of the pace of change. We ask you to share these changes with us, and other departments and NHS bodies, so that this guidance can be kept updated.

VATGPB10930 Heading 60 – Security services

 This heading allows recovery for the security services.


  • The provision of security guards and staff security surveillance equipment (CCTV, surveillance cameras), security patrols and the secure transport of equipment
  • Lone worker monitoring of staff


  • Purchase of security equipment only would not be eligible as this would be a supply of goods
  • Security vetting – this may be recoverable under Heading 57
  • Hire of security staff to supplement in-house security teams, for example to provide holiday cover
  • VAT incurred on the repair and maintenance of security equipment – this may be recoverable under Heading 37

VATGPB11210 Heading 74 – Original research undertaken in order to gain knowledge and understanding

 Whilst there is no general restriction under this Heading, the term ‘original research’ is interpreted as meaning research that:

  1. Involves surveys, field tests or new research design thinking, interviews or observation conducted specifically in relation to the subject of the research (as opposed to merely collating existing data); and
  2. Extends to secondary data analysis, interpretation (which may include options and/or recommendations) or a systemic review of evidence (rather than mere data gathering and recording)

Annex A

 VATGPB10435 Examples of items that are eligible for recovery under COS Headings 35 and 37

 Please note that this list is not exhaustive. If you are uncertain whether or not the works undertaken is eligible for VAT recovery please seek advice from HMRC.







Repairing existing fire/burglar alarmsYes35
Installation of fire/burglar alarmsNo
Extension to current systemsNo
Repair by partial replacement of parts within existing fire/burglar alarmYes35
The complete replacement of an existing systemNo
AsbestosRemoving asbestosYes35
Sealing in asbestosYes35




Repairing existing ceiling/suspended ceilingYes35
Replacing existing damaged tiles in same location (within existing grids structure)Yes35
Forming fire breaks in ceiling voidsNo
Construction/installation of new ceilings/suspended ceilings.No
Complete replacement of suspended ceiling structureNo
CleaningContract cleaningYes35






Building new cool roomNo
Construction of a new roomNo
Building new extensionNo
Major building improvementsNo
Installation of a new damp proof courseNo
Installation of a silicone based injection.No
Single supply of scaffoldingNo
Structural repairs not traditionally performed in- house, as the work requires highly specialised skills. 


Complete replacement of central heating and air conditioning systemsNo
ConversionsConverting an office space from small offices to open plan or vice versaNo



Repainting and decorating existing walls, windows etc to restore decorative orderYes35
Re-painting existing external structureYes35
First time decorationNo
Resealing against damp and draughtsYes35


Fitting fire doors in corridors to form a fire breakNo
Widening doors to allow wheelchair accessNo
Blocking up old/existing doorwaysNo




Installing new doors/door frames where none existed previouslyNo
Installation of automatic/electric doorsNo
First time fitting of fire doors in new buildings/ extensionsNo
Fitting fire doors in new partitions 


Repairing by replacing existing doors/fire doors/ door frames *Yes35
Replacing existing doors with fire doors *Yes35













Electrical works would include items such as installation of luminaries, general lighting, small power, nurse call systems, electrical connections to other systems. VAT recovery will be dependent upon the context of the specific job being undertaken, e.g. if purely refurbishment, more scope expected for VAT recovery. If major alteration/reconfiguration, limited scope for recovery.
Extension of wiring into new areasNo
Installation of new emergency lighting/fire signsNo
Installation/replacement of Building Management SystemNo
Installing new/additional wiring and/or socketsNo
Installing new/additional wiring and/or light fittingsNo
Installing new/addition cables/wiring for telephone/data linesNo
Complete removal and replacement of wiring back to distribution boardsNo
Repair by replacing existing wiring/cabling, individual sockets and light fittings, if in exactly the same location * 




Portable Appliance Testing (PAT)Yes37

Equipment / parts

Sterilisation of instruments and equipmentYes37
Spare parts which are provided as part of the eligible repair and maintenance servicesYes37
Maintenance of security equipmentYes37

Fire Escapes

Replacing fire escapesNo
Repairing fire escapesYes35
Building new fire escapesNo


Breaking up existing concrete floors and subsequent relaying at a slight different floor level. 







Repairing existing stuck down flooring by rescreeding and resurfacing bonded fitted flooring, including stuck down carpet, carpet tiles, floor tiles and vinyl. 




Replacing worn flooring with the same type of covering i.e. replacing carpet with carpet, linoleum with linoleum. etc 




Supplying first time flooringNo
Installing plywood base to level floorNo




Upgrading worn floor covering, for example replacing linoleum with carpet, or replacing carpet with wooden flooring 


Maintenance of grounds and gardens adjacent buildingsYes35
Grass cuttingYes35
Tree surgeryYes35


Landscaping/redesigning groundsNo
Repair of incineratorYes37
Installing new incineratorNo
Construction/extending height of chimneyNo



Replacement of incineratorNo
Increasing thickness of existing lagging on incineratorsNo
First time installing of insulationNo
Installing sound proofing panelsNo
Repair by replacing laggingYes35




Repair by resurfacing existing worktops and unitsYes35
Installing/building new kitchen units, cupboards etc.No
Installing/building new work topsNo
Repair by replacing existing kitchen units, cupboards etc within kitchens/tea points *Yes35


Repairs to existing liftsYes37
Replacement of liftNo
Installing a new liftNo





Mechanical works would include items such as pipe work, ductwork, heating units, chiller units, chilled water plant, air handling units, hot and cold water plant, compressed air systems, medical gases and soil and waste pipe work.
Repairs to faulty systems (including parts)Yes37
Replacement of systemNo
Installation of new systemNo
Alterations/additions and extensions to existing systemNo




Fixing values and/or meters to existing/new radiators, pipes and taps to regulate temperate of hot water for patient safety/energy conservation purposes 




Repair existing pipes/radiatorsYes37
Installation of new/addition pipes/radiatorsNo
Replacing water tanksNo
Building/installing new water tanksNo
First time installation of boilerNo
Replacement of boilerNo
Repair to boiler (including parts)Yes37
Complete replacement of central heating systemNo
Installation of new central heating systemNo
Testing and CommissioningNo
Repairing by replacing existing pipes/radiators in same location *Yes35








Minor works of a repair and maintenance natureYes35
Disturbance works, where those works only need to be undertaken as a result of alterations to a building or as a result of new building works. 


Fitting of fire hoses/extinguishersNo
Fitting of grilles, bars, locks, window film and security camerasNo
Installation of shelvesNo
Replacement of shelvesNo
Manufacturers warranties which are included in the purchase price of the goods, this is a single supply of goods 


Maintenance contracts entered into after the manufacturer’s warranty expiresYes37


Repair existing ramps/handrails for access for the disabledYes35
Replacing/altering of ramps/handrailsNo
Initial provision of ramps/handrails including replacement of stairs/steps by rampsNo





Breaking up and removal of covers to existing manholes and their re-provision in the same place at a higher level 




Resurfacing existing non-fee paying car parksYes35
Resurfacing existing footpathsYes35
Relaying down to foundation of existing footpathsNo
Road cleaningYes35
Building new car park/footpath where one did not previously exist.No








Maintenance of roofs including necessary access worksYes35
Resurfacing/replacing/re-slating existing roofYes35
Re-felting of flat roofsYes35
Altering existing pitch i.e. replacing flat roof by pitchNo
Roofing over previous open spaceNo
Installation of canopyNo





Sanitary ware

Repair of existing damaged washbasins and sanitary ware.Yes35
Fitting new washbasins and sanitary ware.No
Replacing existing systems in new locations or replacing bath by shower, toilet by wash basin etc 


Replacement of sanitary back and side panels, vanity units, shower cubicles.No
Replacement of existing damaged washbasins and sanitary ware in exactly the same place,

i.e. toilet cistern by toilet cistern, sink by sink, bath by bath. This would not include replacement of sluices and hoppers *









Repairs to existing signsYes37
Repair by replacement signsNo
New signs necessary only as a result of a Trust mergerYes37







Repairing existing partitionsYes35
Restoration of damaged plaster work/brick workYes35
Constructing new partitions/walls, altering partition layoutNo
First time fitting of partitions in new buildings/extensionsNo
Painting new walls/partitionsNo
Repairing damaged tilesYes35
Tiling new areasNo
Repairs to wall-claddingYes35
Provision of wall-cladding/wall panels/wall protection railsNo
Replacement wall-cladding/wall panels/wall protection railsNo




Window cleaningYes35
Repairing existing window frames and glass with similar itemsYes35
Bricking up windows or forming new window/window frames.No
Installation of fitted blinds, curtains and curtain tracksNo
Replacement of fitted blinds, curtains and curtain tracksNo




Installation of combination window/blind unitsNo
Repair to fitted blinds, curtains and curtain tracksYes37
Replacement of windows within same aperture




Repairs to dado /picture rail and skirting boardsYes35
Replacement of dado /picture rail and skirting boardsNo
X-raysReplacement of an X-ray tube or CT Tube *Yes37

* Exceptions to normal COS rules, where HMRC accept the concept of repair by replacement for the listed items only

Berthold BauerContracted Out Services (COS) Guidance

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