Tax bosses hit health trust with £6.1m bill for incorrect VAT claims

Josie Spencer chief executive of NCHC. Photo: NCHC

Josie Spencer chief executive of NCHC. Photo: NCHC - Credit: NCHC

A Norfolk health trust is locked in a £6.1m battle with the taxman after being hit with the seven-figure bill for incorrectly claiming VAT on contracts.

Norfolk Community Health Trust (NCHC) is refusing to accept that it did anything wrong, but the bill has more than doubled its 2018-19 deficit to £12.6m.

Norfolk Community Health and Care Trust (NCH&C) is refusing to accept that it did anything wrong, but the bill has more than doubled its 2018-19 deficit to £12.6m.

NCH&C provides community health and care services to children and adults across Norfolk.

The trust had aimed to finish the last financial year with a running debt of £1.9m but at its annual meeting on Thursday, it revealed that it had missed this by £10.7m.

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The target was missed because the trust was forced to put aside £6.1m to cover the cost of repaying incorrectly claimed VAT refunds on two contracts dating back four years.

It also lost £5.2m following a revaluation of its buildings and land assets.

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Emma Lunny, deputy director of finance and performance at NCH&C, said: "The NHS works under different VAT rules to companies. Under these rules, NCH&C is entitled to recover VAT on services that are contracted out to external organisations based on a number of different categories."

Ms Lunny said the HMRC review of the trust's VAT claims focussed on invoices from two of its suppliers for accounting services, payroll, catering, estate maintenance and management.

She said: "NHS VAT rules allow for recovery of VAT on each of the services within the contracts and the trust was advised by NHS VAT specialists that it could recover VAT on invoices from these two suppliers.

"HMRC's view was these services were provided as a single supply under a single contract therefore VAT on invoices for these services could not be reclaimed. NCH&C and its VAT specialists are working with HMRC and this is yet to be concluded.

"This increased cost has had no impact on the delivery of care and will be managed through the trust's accumulated cash reserves."

In its financial report for the year ending April 2019 the trust said it was robustly defending its position to recover the VAT on the contracts in question.

Excluding the asset devaluation and VAT bill provision the trust would have finished the financial year slightly ahead of its target of a £1.9m deficit finishing instead on £1.7m.

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