An Introduction to Contract Restructuring

An Introduction toContract Restructuring

© Kingscrest Services Ltd (t/a VAT Solutions) 2014


Who We Are…

• Care Sector Indirect VAT Specialists

• Exclusively in sector since 2004

• Team consists almost exclusively of ex HMRC inspectors and industry change specialists

• Dedicated local authority / CCG liaison team

• Tax counsel / CQC regulatory opinion



What We Do…

• Bespoke service (commercial, charity and not for profit)

• Niche VAT advice and expertise


• Different billing system and locations

• Different expenditure systems and locations

• Different accounting systems

• Staff at different sites with mixed abilities operating different systems

• Resident contracts held in different locations to variable standards

The Current Position…

• ‘Contract Restructuring’ - centralisation

• Cost savings brought about by economies of scale

• Directors fiduciary responsibility

• Increased efficiency and streamlining in the management and administration of local authority / CCG fees

• Dedicated single point of contact for dealing with local authority and CCG enquiries

• A specialist and more knowledgeable contract management / administration team better equipped to share best practice

Opportunity…



How and Why…

• Care Act 2014

• Sub-contract care

• Local Authorities / CCGs recover VAT correctly charged to them

• Supplies are therefore subject to VAT – a proportion of VAT may then be recovered by the operator


VAT Implications …

• State regulated care – services VAT exempt

• VAT on related expenditure not recoverable for the care home

Position pre Care Act 2014

• VAT recoverable on a proportion of costs

Position post Care Act 2014


VAT Regulations …

• The supply by a

• Charity;

• A state-regulated private welfare institution ; or

• A public body

of welfare services and of goods supplied in connection with those services

VAT Act 1994, Group 7, Item 9


CQC Position …

“CQC registers the legal entity that is providing the regulated activity only. From CQC’s perspective it is the legal entity (sub-contractor) that is delivering the care that needs to be registered for the

required regulated activity/ies. Any company created for VAT purposes would not need to be registered as it is not providing any regulated activities. We would not comment on the arrangements providers

have in place to charge VAT for commissioned work.”

Care Act 2014 – quote direct from CQC to ADASS


Existing Standard Contracts…

• The Provider shall not assign or sub-contract this whole Contract or any part of it without the prior written consentof the Authorised Officer. Such consent is not to be unreasonably withheld. For avoidance of doubt, this will include the use of outside consultants in relation to providing specialised Services to meet the agreed needs of individual Customers. Such consent, if given, shall not relieve the Provider from any liability or obligation under the Contract and the Provider shall be responsible for the acts, defaults or neglect of any sub-Provider, its employees or agents in all respects as if they were the acts, defaults or neglect of the Provider.

• The Council shall be entitled to assign the benefit of the Contract or any part of it and shall give written notice of any assignment to the Provider having first obtained the Provider’s written consent, such consent not to be unreasonably withheld.

Assignment and Sub-Contracting


Processing Care Invoices with VAT…

• VAT charged to Section 33 (1) bodies in relation to non-business activity is recoverable by that body

• Under section 41(3) of the VAT Act 1994, government departments and NHS bodies are eligible to reclaim refunds of VAT on certain outsourced services for their statutory activities.

• Where the provision of care is an outsourced service, VAT is reclaimable under Contracted Out Service (COS) Heading 71

• Different billing methods by operators to accommodate local authority accounting systems:

• VAT only invoices

• Pro forma invoices

• Tax invoices

VAT Act 1994, Section 33(1) – Local Authorities

VAT Act 1994, Section 41(3) – NHS Bodies


Controlling Risk…

Risks Controls• Diluting relationship with the

regulated provider • Examine documentation provided by clients. Our arrangement has legally binding documents that

specifically tie Contract Management Co to the provider to ensure full transparency and responsibility

• Local authority input tax irrecoverable

• Our clients provide local authorities with tax invoices to facilitate recovery of VAT by the local authority

• Our operators have received assurance visits from HMRC and are comfortable with the output tax charged

• References with other LAs

• Retrospective action by HMRC with operator

• Full Disclosure to HMRC by operator with group VAT registration application or changes to existing

• Time consuming novation process • Single point of contact with our novation team who provide standard deeds of novation

• Third party legal costs incurred reviewing documentation

• Care operator will meet all such reasonable costs

• Contracts don’t permit novation• Care Act permits

• Internal policy at odds

• Irrecoverable VAT costs for private fully self funded residents

• None with our arrangement



Questions …

DDI: 0114 280 3632

Mob: 07957 143 378

Email: [email protected]

Rob Burton

Tel: 0114 280 3630

Mob: 07905 506 909

Email: [email protected]

Clare Newboult

An Introduction to Contract Restructuring

Documents

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