VAT treatment of Continuing Care funding

By the time that the section 33 VAT refund scheme for hospices was introduced most of the issues surrounding its operation had been resolved through discussion between HMRC and Hospice UK, with strategic support from CTG.  This has meant that the scheme has been relatively easy for hospices to use and it has proven to be a great success.

If you have not come across the scheme more information can be found here.

On the 1st April 2015 implementation date there remained however, a few outstanding issues. These included the treatment of Consultants provided to and by NHS hospitals, the operation of the Capital Goods Scheme (CGS) in certain scenarios and the treatment of Continuing Care funding.

It has been the VAT treatment of Continuing Care funding that has caused the most problems. The issue has been that because, in most cases, it is provided on a named patient basis, HMRC have not accepted it can be treated as outside the scope of VAT like other NHS funding. Instead they have regarded it as consideration for an exempt supply. This has meant that hospices receiving such funding make exempt supplies by way of business.

Since VAT is not recoverable on exempt business supplies under the refund scheme, this has meant hospices receiving Continuing Care funding have had to calculate a VAT recovery restriction. Although in most cases the amount of patient care provided under Continuing Care arrangements has been insufficient to require a large restriction, there have been regional variations. The direction of travel for hospice support is also towards named patient funding.

A bigger problem for hospices has been the added complexity that has arisen from treating part of their care as exempt business. It has meant for example that they cannot treat all care costs as exclusively non business but must treat them as residual.

Hospice UK has been arguing that care provided under Continuing Care funding should be regarded as non business since before the scheme went live. We have advanced numerous arguments and provided HMRC with a Senior Counsel’s Opinion in support. Every time a new piece of guidance has been published or case decided that can be used to support our view, we have made further representations.

It is therefore great news that HMRC have told us that now accept named patient Continuing Care funding is outside the scope. The public notice will be amended in due course.

There is still work to do as we do not yet completely understand their reasoning and whether this policy change will impact on other patient specific funding streams currently treated as exempt. If you have any examples of such streams you wish us to include in the discussions then let me know . My email is [email protected].

Peter Ladanyi the VAT adviser to Hospice UK


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