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Calculating VAT for care homes – not as simple as it seems

By Tamara Habberley, Senior VAT Consultant, The VAT People

VAT is an incredibly complex aspect of business to calculate, leaving many businesses in differing sectors and of varying sizes tempted to sweep it under the rug. Care and nursing homes in particular often view the matter of VAT as irrelevant after a change in legislation exempted care home providers from VAT altogether.

However, to believe that this means care homes no longer have to worry about VAT in any way, shape or form would be untrue. Here, we explore VAT for care homes, looking at significant considerations operators need to make in order to ensure they are fully compliant with HM Revenue & Customs (HMRC) regulations.

Confirm payments regularly

Care homes cannot charge VAT on their income from the provision of care or recover VAT on associated costs. However, care home operators will be are aware that they are subject to paying VAT on the majority of goods and services that they consume. In many cases, we have seen care homes missing the opportunity to make VAT savings on costs that they can acquire VAT free.

It is therefore essential that checks are carried out regularly to ensure they are not being wrongly charged. It is also sensible to check that suppliers who charge VAT are actually VAT-registered to avoid paying amounts as VAT unnecessarily.

Furthermore, there have been instances in which care homes have been incorrectly charged VAT for the printing of certain items, such as brochures, pamphlets and books, despite the fact VAT rules state that 0% should be charged on these items by the printer. For this reason, care home operators should always request a credit note and refund of the VAT paid to the supplier when having items such as these printed if they have been charged standard rated VAT in error by the printer.

Discounts and savings

Understandably, care home providers, along with a host of businesses across all sectors, have a considerable lack of knowledge when it comes to VAT. Unfortunately, ignorance can mean that many organisations fail to take advantage of the few reliefs that are available to them. We always advise businesses to take time to improve their knowledge on this area, as it could allow them to save a great deal of money.

Staffing is one area where relief is available for care home operators. Nurses who are hired through an agency to provide nursing services on a temporary basis are non VAT-able, while the same rule applies for supervised staff in some special circumstances. It is important to have the knowhow to ensure that VAT is not being paid on the supply of such temporary staff as costs could be reduced by as much as 20%.

Care homes can also make valuable savings on catering by coming to an agreement with the business supplying food. The catering company acts as an agent for buying in provisions and managing the service. By adopting this approach, the only VAT-able portion charged to the care home would be the management fee, while the remaining food purchased in on the care home’s behalf would be zero-rated for VAT. This idea only works if the contracts and invoices in place support the arrangement so it is always worth seeking advice on this point.

VAT on building transactions

Savings can also be made on building transactions. A new-build property constructed for the purpose of being used as a care home can be constructed on a VAT-free basis, if the business is able to prove it is to be used for qualifying purposes. Further to this, when a nursing or care home business moves into a building that has been converted from a commercial building, dwelling or apartments into a care home, the conversion work will be subject to the reduced rate of 5% VAT.

The pressures of running a care or nursing home can be considerable, and administrative tasks such as VAT and other costs can be ignored in favour of addressing more pressing tasks. Those care providers that do take the time to research VAT could end up reaping the benefits, by making considerable savings on what are known to be costly factors. Having the necessary knowledge gives operators more time to focus on the important task of providing care to the individuals in their responsibility.

Tamara originally trained as an artist and ran her own small manufacturing business before deciding to have a complete career change. She joined HMRC as a VAT inspector in 1991 covering such roles as large trader assurance, small businesses, computer systems audit and debt management before jumping ship and joining the “real” business world as a VAT advisor in 1998 passing her AIIT exams in 1999 and joining The VAT People in 2008. This wealth of experience allows Tamara to see VAT issues from both sides of the fence which is useful when negotiating with HMRC as well as bringing an ability to find creative and workable solutions to VAT issues.
 

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