HM Revenue & Customs announce changes to Partial Exemption submissions by NHS Bodies from 1 April 2024 – Is your Trust compliant?

On Monday 9^th October 2023, HMRC issued a document titled, “Partial Exemption – NHS Statement of Practice” (SoP), which is applicable to all NHS bodies and in this article we outline the key points, main considerations and actions required in order to remain compliant.

Key points

• HMRC has reiterated that NHS bodies are required, by law, to carry out the Partial Exemption Annual Adjustment (also referred to as the Longer Period Adjustment or LPA) and that it is their responsibility to take all reasonable care in ensuring the accuracy of these calculations.
• HMRC will consider issuing a penalty where an error is made with respect to when and how the LPA is declared.
• HMRC have provided clarification as to the correct operation of provisional restriction for residual COS VAT and provisional recovery for non-COS / mixed-use VAT.
• Certain practices, which historically HMRC has not objected to, will no longer be accepted from 1^st April 2024, namely:
• NHS bodies only carrying out a provisional restriction in relation to (a) residual COS VAT, whilst (b) residual non-COS or mixed-use VAT being dealt with on an annual basis.
• NHS bodies using a newly approved combined method to complete the LPA for years prior to the start date of the method (where the adjustment had not yet been carried out and where an existing method was not already in use).
• HMRC combined / special method approval letters have not explicitly distinguished between residual COS and residual non-COS / mixed-use VAT which may have led to misinterpretation.

Main considerations

1. Do you have a copy of your Partial Exemption Special Method approval letter from HMRC?
2. Have you been applying a monthly restriction for COS VAT recovery and a monthly provisional claim for trading input VAT?
3. Are you up to date in completing historic LPA’s and was the most recent year’s LPA included on the correct VAT return?

If you have answered no to any of the above questions, then your organisation may not be compliant with HMRC and there is an increased risk of HMRC issuing penalties.

Actions required

• If you have yet to complete your most recent year’s LPA then we would advise contacting your primary VAT advisor immediately to ensure that this is addressed at the earliest opportunity.
• Ensure that you are applying a monthly restriction for residual COS VAT and including a provisional monthly recovery for non-COS / mixed-use VAT.

NB Where your Partial Exemption Special Method has several separate sectors, the relevant provisional recovery rate must be applied to each sector.

• Sign up to our webinar on 8^th November at 10am for further clarification – see below.

Webinar update

Mike Williams and Joe Watts will be providing a comprehensive summary, outline the next steps and answer any questions you may have on the NHS VAT webinar on Wednesday 8^th November at 10am.  Please e-mail info@bbvat.co.uk should you wish to attend.

Please be sure to e-mail in advance should you have any concerns or questions which you would like us to answer during the webinar.