Historically VAT was always seen as the responsibility of the Finance Department and VAT reclaim was largely a reactive process – using invoices and orders to determine eligibility.

The recent amendments to the Contracted Out Services rules, and the subsequent restriction of recovery has meant a pro-active approach is required.

An example would be the nuance on recovery of a contract being viewed as a Single Supply or a Mixed Supply – does this preclude VAT reclaim on maintenance and support?

VAT must become a consideration for the budget holder or Procurement Department when placing orders

  • Can the order be structured in a more VAT efficient manner?
  • Have I correctly allowed for VAT reclaim – have I correctly allowed for the VAT burden?

Managed Service Contracts (MSC’s) & Managed Equipment Contracts (MES’s)

There is a myth (largely dispensed by suppliers) that MSC’s & MES’s are eligible in full for VAT recovery. Whilst Heading 45 ‘Operation of Hospitals…’ permits VAT recovery on this type of contract it is intended to apply to fully outsourced departments. A supply of equipment thinly wrapped in a service contract is unlikely to suffice.

We then have the unpleasant situation where a Contract is structured as a single supply of services, yet fails the eligibility tests (Note : tests being plural) for being managed – nor by virtue of it being a single supply can the normally eligible maintenance costs be reclaimed.

Avoidable Pitfalls • Common misuse of terminology

  • Supply is mixed not single (or composite)
  • Goods are seen as separable
  • Marketed by Supplier as “VAT Recoverable” – not tested or questioned by Trust
  • Lease thinly wrapped in maintenance not sufficient
  • The relevant heading is currently under discussion by HMRC and subject to change – risk that changes not communicated to key stakeholders
  • Some areas / supplies are specifically ‘blocked’ from VAT reclaim – Boiler-house schemes & CHP

We can work with your Procurement Department to ensure that VAT is forecasted correctly – and where appropriate contracts are truthfully structured to meet HMRC’s hallmark tests.


You can contact our Free VAT Helpline 24 hours a day using the online form or email

    Your First Name (required)

    Your Last Name (required)

    Your Email (required)

    Your Telephone Number (required)



    Let us know you are human captcha

    Berthold BauerProcurement