The Secretary of State for Health is to review the case for extending VAT rebates to external charity providers of NHS services.

Jeremy Hunt plans to look into the issue and others recommended in a report by Monitor, the regulator of NHS foundation trusts, titled A fair playing field for the benefit of NHS patients.

The report was requested by Andrew Lansley MP when he was Health Secretary in May 2012, when he wrote to Monitor asking it to undertake "an independent review of matters that may be affecting the ability of different providers of NHS services to participate fully in improving patient care".

Same VAT rights for charities as NHS

The Charity Tax Group’s VAT adviser Peter Jenkins told civilsociety.co.uk that CTG welcomes the move because it would give external bodies, such as charities, the same rights to VAT recovery as the NHS.

“When a function is carried out within the NHS, it is treated as outside the scope of VAT,” Jenkins explained. “The NHS is able to cover the VAT on the expenditure incurred in providing certain services under Section 41.

“When that service is contracted out to a private enterprise – like a charity – and is then provided back to the NHS as an exempt or non-business service provision, say by a hospice caring for people who are terminally ill, then there will be VAT incurred in providing the service, which can’t be recovered.

"So the charity can’t recover, but the NHS can – which means there is a disincentive for the NHS to contract out.”

Report 'must go further for social enterprises'

Social Enterprise UK, meanwhile, described the report as “a good start” and welcomed its understanding that social enterprises have distinct ownership models and specific social aims.

However, the organisation's chief executive Peter Holbrook added that the proposed changes to the VAT regime may not be as beneficial to social enterprises as they first appear.

“They will only likely impact upon providers where there’s no competition,” he said. “Perhaps good news for some charities operating in areas of market failure, but most of our members operate in competitive markets.

“We appreciate this report as a step forward; now Monitor and the government must go further to meet their duty under the Health and Social Care Act, which places a legal requirement on government that health providers are not discriminated against on the basis of their ownership structure.”

VAT measure 'will improve patient care'

Marie Curie Cancer Care's chief executive Jane Collins said that a change to the VAT position could save a significant sum of money that the charity could put towards patient care.

Collins said: “If the Exchequer agrees to [the VAT measure], for Marie Curie it would mean a saving of nearly half a million pounds a year for our hospices alone; funds which would enable us to provide an additional 2,000 nursing hours in each hospice."

Bubb: 'Government must now act'

Chief executive of Acevo Sir Stephen Bubb, 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 – and insisted that this report should prompt action.

“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.

"We don’t want weasel words or lengthy consultations; if that is the recommendation, it should be implemented."

A fair playing field for the benefit of NHS patients can be read in full on Monitor's website here.

 

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