30-03-2007

The Department of Health has at long last published its Memorandum of Understanding (MOU) in respect of the issues raised by the University of Glasgow VAT Tribunal case. The full document can be accessed by clicking here.

The issue in this case was whether the charges made by the University to NHS bodies for the services of clinical academic staff were taxable supplies of staff or exempt supplies of medical services. The Tribunal found that the supplies were taxable supplies of staff.

HM Revenue & Customs subsequently confirmed that NHS bodies were not able to recover any VAT charged on such supplies of staff.

Following this ruling, NHS bodies expressed their concern about the impact of unexpected and unbudgeted-for VAT costs and this led to the creation of a working party to examine the issue and find a solution.

The MOU states that where the staff concerned are engaged in both teaching and/or research and the delivery of patient care then any recharges for their services from universities to NHS bodies should be outside the scope of VAT, provided that “joint working arrangements” exist.

The MOU confirms that the term “joint working arrangements” is not limited to cases where joint contracts of employment are in place. Its meaning is much wider and covers a range of situations where cooperation exists between the NHS body and the university in managing various aspects of the individual’s employment.

HMRC has also confirmed verbally that as long as the conditions of the MOU are met there should be no retrospective VAT charges by universities to NHS bodies. If any NHS bodies have received VAT charges from universities then we recommend that these are urgently reviewed and challenged.

At the moment this MOU is applicable in England only, but the Scottish and Welsh administrations are also aware of it and may choose to adopt it.

If you have any queries on this matter please contact your VAT Advisor or our NHS Helpline on 0800 700 652.