Confusion over VAT recovery rules in public sector

NHS bodies have been given a reprieve from an estimated £500m tax bill after confusion over rules allowing public bodies to recover VAT paid on outsourced services, according to Baker Tilly.

New internal guidance from HMRC to government departments and NHS bodies could impose a more restrictive VAT recovery on contracted-out capital expenditure, agency staff and professional services, Baker Tilly said.

The idea is that all public bodies will be subject to the same rules on VAT recovery under section 41 of the VAT Act.

In the past few years, however...

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