Hospices welcome HMRC U-turn in relation to continuing care contracts

HMRC has given into pressure from the hospice sector and has agreed that continuing care funding can be treated as outside the scope of VAT. This is a significant break-through and great news for hospices.
From April 2015, palliative care charities have been treated as a ‘Section 33 body’ for VAT purposes, which means they’re able to recover VAT incurred in relation to their non-business activities. 
However, HMRC has consistently argued that continuing care funding is payment for an exempt business supply, on the basis that care has been provided on a named patient basis – therefore VAT is payable. This not only means a VAT cost for hospices in receipt of continuing care funding, but also adds a layer of complexity and extra administration – they’re required to undertake a business/non-business apportionment, partial exemption calculations and, where appropriate, capital goods scheme calculations.
But now, we understand that HMRC has agreed that continuing care funding can be treated as non-business income, meaning VAT can be recovered on directly related costs. 
HMRC is in the process of updating its public notice and should publish its views formally soon. This should also clarify the VAT treatment of other patient specific services, which are currently treated as exempt.
Hospices which have suffered a restriction in VAT recovery since 2015 should now be able to make claims from HMRC. This change also provides an opportunity to revisit VAT recovery in relation to any capital expenditure, such as extensions and renovations.
For further information, or support with a claim or a review of recent VAT recovery, please contact our VAT specialist, Terri Bruce, or your usual Moore Stephens adviser.

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