Healthcare regulator to recommend level playing field on VAT rebates

Monitor report expected to make a series of recommendations to help charities that bid for NHS contracts against public sector providers

Healthcare contracts: Monitor to report
Healthcare contracts: Monitor to report

Healthcare charities should be entitled to the same VAT rebate as public sector providers when they bid for NHS contracts, a report from the healthcare regulator Monitor is expected to say tomorrow.

The Fair Playing Field report will make several other recommendations aimed at removing obstacles to fair competition between voluntary, private and public providers in the NHS, Third Sector understands.

Monitor was asked to produce the report a year ago by the government after complaints from the care charity Sue Ryder that VAT rules made its services more expensive than NHS rivals.

Under existing tax rules, NHS providers can recover VAT on some non-business supplies that voluntary sector organisations cannot.

There are no estimates for how much a VAT rebate would save the sector. But Peter Jenkins, a VAT specialist at the Charity Tax Group, said irrecoverable VAT might typically form between 3 and 5 per cent of a charity’s costs.

Monitor’s review is based on interviews with more than 200 organisations involved with the NHS, including social enterprises, foundation trusts and private companies. Many complained of distortions in the commissioning process.

The VAT proposal is expected to be one of about 30 recommendations, about half of which are aimed at helping voluntary sector organisations to win health contracts.

One of these will be that commissioners should create smaller contacts and reduce the amount of capital they require bidders to hold. Another is expected to be that commissioners should consider social value when assessing bids.

Stephen Bubb, chief executive of Acevo, who gave evidence to Monitor and took part in several public meetings during the review process, said that the problem of VAT had been a "long-running sore" in the sector.

If changes to the VAT regime were recommended in the report, the government should implement them swiftly, he said.

"The government mustn’t wimp out or wriggle out," he said. "We don’t want weasel words or lengthy consultations; if that is the recommendation, it should be implemented."

Jonathan Ellis, director of policy and parliamentary affairs at Help the Hospices, which has been calling for a level playing field for hospices on VAT, said urgent action was needed. 

"VAT is a significant cost to local independent hospice, and has a considerable impact not only on a hospice’s strategic and business planning, but also on the day-to-day decisions made by staff across the hospice," he said.

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