A year on from the release of the interim Lease Car guidance, HMRC have sent out a letter in the last few days to clarify a few points about the application of the simplification measure available in relation to salary sacrifice arrangements for the NHS.
By way of a reminder, the simplification allows a Trust to account for no output tax on the income collected from staff under a salary sacrifice arrangement where a 50% restriction is applied to the input tax (VAT incurred on the purchase).
Below is a summary of the key points which have been clarified in the guidance:
• It’s very unlikely HMRC will charge anyone any penalties (unless there is significant evidence to suggest this was not a ‘Mistake Taking reasonable care’)
• Trust’s must make corrections retrospectively where necessary (as previously confirmed); but the mention of application back to January 2012 was not intended to override the 4 year cap as we previously confirmed – but simply reference to the Astra Zeneca decision.
• Where the conditions for multiple supplies are met, the 50% restriction on input tax recovery is only applied to the finance element. The maintenance element is fully recoverable.
• Where an NHS Trust purchases lease cars from another NHS Trust in the same VAT division (i.e. English Trust from an English Trust), as long as the purchasing Trust has restricted VAT recovery on their purchase from the supplier, there is no need for the secondary Trust (purchasing from the other NHS body) to account for output tax.
• Where the Trust decides not to utilise the simplification, the interim guidance released in September 2016 confirmed that input VAT could be recovered under COS26. The new guidance released 19th September confirms that actually recovery should be applied as ‘Input Tax’ as a trading activity.
• The simplification can only be used in relation to the first car under Salary Sacrifice (even if the second car is used for NHS statutory activities).
If you have any queries about the new guidance, require assistance in actioning the retrospective corrections necessary or simply require assurance that you are applying the rules correctly – please contact your main Consultant or the NHS VAT Team helpline on 01732 868 266.