In this article, Scott Harwood, VAT specialist, looks at HMRC’s quiet campaign [activity] against independent healthcare providers under the NHS Increasing Capacity Framework Agreement. What is HMRC looking for and what could be the risks to the healthcare sector?
What is the NHS Increasing Capacity Framework (ICF) Agreement?
At the start of the covid-19 pandemic NHS England (NHSE) approached private suppliers with a view to increasing hospital and healthcare capacity to cope with the higher volume of patients. With a huge £10 billion budget, the ICF was set-up by NHSE to provide commissioners and NHS trusts with a quick and easy route to contract and sub-contract acute elective services.
Over time there has been in the region of 80 providers on the framework providing a range of hospital and related services. Services have included the making available of hospital facilities, insourcing, equipment leasing, surge capacity, and undertaking backlog elective treatments.
The ICF was a quick and easy way for the government to procure a high volume of medical services during pandemic while remaining compliant with the public procurement regulations.
Tell me more about HMRC’s campaign
We understand HMRC began writing to independent framework providers at the end of 2021. Their original letters were lengthy and onerous. Requests were made seeking contractual information, details on what services have been provided under the ICF and revenue streams. There was also an invitation to volunteer information about any other supplies made outside the framework.
To most, the requests were unclear as to why HMRC were asking such questions. HMRC have remained insistent on receiving replies from providers including sending follow-up demands plus setting deadlines.
These initial letters gently alluded to a VAT issue but were silent on what exactly that might be. Most providers have now replied without issue and are very much hoping that’s the end of it.
What do we think HMRC are looking for?
Clearly the values involved in the ICF are considerable. Whilst most providers have treated their supplies as VAT exempt healthcare, clearly HMRC believe this might not be the case.
It is anticipated HMRC have already raised some tax assessments and could be building a case to see if they can challenge some of the other agreements; potentially creating a huge tax windfall for them. This could lead to litigation and costly distraction for many providers.
So in summary, the time and effort HMRC are putting into this campaign is to identify previously unrecognised tax revenues. Potentially, this could be many millions of pounds at the expense of NHS providers.
How can these supplies be subject to VAT?
There is a redline for when the medical and hospital VAT exemption can apply. This usually hangs-off whether the medical purpose test is met, and which legal entity is responsible for treating individual patients.
For example, the making available of hospital facilities can be subject to VAT even if provided with some medical support. So too can the insourcing of medical teams which are seen as a supply of staffing resource as opposed to a medical services contract. Under surge capacity, it could also be seen a hospital is making their facilities and staff available to the NHS where delivery comes under their control. Such supplies may be regarded as healthcare to many but can fall short of the narrower VAT interpretation.
Weren’t independent providers effectively mandated to help the NHS, this seems very unfair?
Independent medical facilities were under huge pressure to assist with the national campaign to help with the covid pandemic. It seems in HMRC’s view, the national emergency and trying to do the right thing, do not negate any tax liabilities; even if supplies made may only just fall onto the wrong side of the VAT regulations.
HMRC may be putting time and resource into this area due political pressure to plug UK plc’s financial black hole. These were large public contracts with a relatively low number of organisations involved. In simple terms, it is quicker and easier to assess large contractors rather than hunt down a plethora of small businesses and individuals.
Should HMRC be focussing their efforts on other sectors and other potential infringements? We leave the question on the direction of HMRC’s moral compass to the reader’s discretion.
If you have any related issues that you would like to discuss, please contact Scott Harwood.