Managed Service Contracts (MSC’s) & Managed Equipment Contracts (MES’s)
There is a myth (largely dispensed by suppliers) that MSC’s & MES’s are eligible in full for VAT recovery. Whilst Heading 45 ‘Operation of Hospitals…’ permits VAT recovery on this type of contract it is intended to apply to fully outsourced departments. A supply of equipment thinly wrapped in a service contract is unlikely to suffice.
We then have the unpleasant situation where a Contract is structured as a single supply of services, yet fails the eligibility tests (Note : tests being plural) for being managed – nor by virtue of it being a single supply can the normally eligible maintenance costs be reclaimed.
Avoidable Pitfalls • Common misuse of terminology
- Supply is mixed not single (or composite)
- Goods are seen as separable
- Marketed by Supplier as “VAT Recoverable” – not tested or questioned by Trust
- Lease thinly wrapped in maintenance not sufficient
- The relevant heading is currently under discussion by HMRC and subject to change – risk that changes not communicated to key stakeholders
- Some areas / supplies are specifically ‘blocked’ from VAT reclaim – Boiler-house schemes & CHP