On 29 July 2015, HMRC confirmed in a letter to all NHS Trusts that the normal ‘tax point’ rules should be applied from 1 April 2016 at the latest. This extension was provided to recognise the challenges Trusts may face in changing accounting systems and processes where previously VAT accounting was based on payment dates. Normally, the tax point of a supply is the invoice date.
SBS, a mainstream back-office provider for the NHS, have today communicated that for the current financial year it intends to make an accrual for VAT on invoices with a date pre- 31 March 2016 for inclusion on the June VAT return at the latest. They have also confirmed that they have written to HMRC to attempt to agree a proposal for the VAT accounting going forward. The proposal effectively means that for each COS VAT year end (in July/August, submission of June VAT return), SBS will perform an accrual to capture any COS VAT that has not been recovered but where the tax point/ invoices date falls within the COS year. This means that following the submission of the June VAT return, any invoices with a tax point or date of pre-1 April will be ‘out of time’, and no VAT recovery will be permitted.
As part of their proposal, SBS have advised they will monitor the impact for bad debt relief (i.e. where an invoice remains unpaid 6 months after the invoice date, input tax must be repaid to HMRC). We eagerly await an update as to whether HMRC are happy to accept the proposal.