HMRC has recently been presenting a confused picture of the VAT treatment of hospices, despite the very welcome reform of 2015 which allowed hospices extra VAT recovery via S33C/D of the VAT Act.
Building a new hospice
One issue raised in a revision to HMRC’s Notice 708 (‘Construction’) was whether a new (including converted) building for hospice use could be relieved of the usual standard rated VAT on purchase or construction. One of the certificates it shows gives the impression that this is the case for any ‘hospice’ (without caveat, and thus potentially including day hospices), but another certificate in regard to what amounts to the same relief says that it only applies where the hospice has at least some in-patient (beds) facilities. But HMRC’s manuals (which are separate to their Notice) say that the relief applies to hospices ‘to the extent’ that they are used residentially. So, three contradictory versions of how the relief applies. This is hardly helpful.
However, the relief referred to is specifically that for ‘relevant residential’ purpose relief, and it remains usual for hospices also to qualify under the terms of another very similar relief, namely for relevant charitable purposes. So, if a hospice is either relevant residential or relevant charitable, it probably achieves the same outcome for VAT relief on some construction jobs (though there are detailed differences).
Non-business classification for hospices
Accordingly, how we define a relevant charitable purpose is important, and in this context the Court of Appeal’s recent decision in Longridge on the Thames is somewhat unpalatable. The issue in this case was whether a service provided in return for consideration could be regarded as a ‘non-business’ activity. This is important to hospices since the definition of a relevant charitable activity is a non-business charitable activity.
Traditionally, hospices have been wholly non-business as the users did not pay fees for the services. However, recent NHS practice has involved issuing continuing care contracts for certain named beneficiaries. HMRC has ruled that these are business activities. They did so before the Court of Appeal’s decision. However, that decision now strengthens their hand (or, if we wish to be more charitable in outlook, it makes it more difficult for HMRC to take a more flexible view of continuing care contracts). So, we are now in a position in which this case makes it even more likely that hospices will struggle to say that all of their new building is being used ‘solely’ (as defined) for a relevant charitable purpose.
That means that the new policy on zero rating buildings on the understanding that it is used for ‘relevant residential purposes’ is even more critical. Fortunately, and despite the confusion, it is understood that HMRC will generally allow all of a new hospice to be treated as ‘relevant residential’ if it includes at least some residential capacity. But non-residential hospices are left exposed to the new difficulties in being treated as non-business charities.
Impact on VAT claims
Another key aspect for hospices is their treatment under the new VAT reclaim facility for hospices (and other palliative care charities). The extent of the claim is dependent on whether the hospice has continuing care contracts with the NHS.
We had hoped that HMRC could be forced to relent on the view that these are business supplies, thus allowing fuller recovery on the basis of non-business activity, but the Longridge decision stands squarely in the way of a solution. Perhaps an appeal to the Supreme Court will help, but as things stand, this is a road block in the way of a hospice being able to reclaim VAT and obtain certain other VAT reliefs. That said, we understand that the debate with HMRC continues, so we will provide an update if and when we have any definitive news.
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