In these challenging times of ever-increasing cost pressures, many operators are only too aware of the added financial strains associated with running a care service. However, VAT Group Registration (or ‘Contract Restructuring’) presents providers with the opportunity to register for VAT, start reclaiming applicable costs and utilise such savings to boost financial efficiencies and business growth. Rob Burton(Managing Director of VAT Solutions) outlines what the specialist arrangement involves, the associated benefits and considerations when engaging a VAT specialist.
What is ‘Contract Restructuring’?
No matter what scale or type of provision your group offers, generally speaking, care services have traditionally been exempt from VAT and therefore unable register for, charge or recover VAT. However, the Care Act of 2014 removed the statutory requirement that local authorities and NHS bodies must contract with a regulated business, permitting operators to subcontract the provision of care. Through ‘Contract Restructuring’, providers are therefore able to recuperate indirect tax savings on an ongoing and retrospective basis by creating a vehicle for taxable supplies.
Traditionally, care groups consist of a regulated care provider company or companies which do business with the local authorities and CCGs, providing care supplies as a VAT exempt supply. ‘Contract Restructuring’ introduces an unregulated, intermediary contract management company to the group, which is responsible for dealing with the management, administration, and negotiation of publicly funded contracts. A VAT group is then wrapped around the group and care fees are raised through the contract management company rather than regulated provider companies. As this company is not regulated, the care fees it invoices are liable to VAT at the standard rate when charged to the local authority and CCGs, who in turn recover any VAT from HMRC. As the provision of care must continue to be carried out by a regulated business, care contracts are subcontracted back to the registered provider companies and there is no change in registration. It is also important that self-funders remain solely contracted to the registered care provider ensuring that such fees remain VAT exempt and private fee payers do not pay VAT they cannot reclaim.
Considering the benefits
‘Contract Restructuring’ streamlines business operations and financial efficiencies whilst producing significant VAT savings which assist with long-term growth. As the originators of this arrangement and with experience implementing for a variety of health and social care clients (private, not for profit and charitable sectors), at VAT Solutions we have noticed an upsurge in enquiries from care groups considering VAT strategy for growth.
Whereas, historically the issue of VAT has negatively impacted the care sector in terms of working capital and cash flow, a business regularly recovering VAT on relevant trading supplies consequently increases financial efficiencies and stability. By reclaiming indirect tax on an ongoing and retrospective basis, a care group can significantly reduce overhead costs, invest more in care provision, and develop care services for clients.
As all the businesses within a VAT group are considered one entity, current expenditure does not need to be moved to the contract management company simply because it is raising VAT on invoices; any cost hitting any part of the VAT group will be potentially recoverable. This results in all applicable VAT which would previously be lost being regularly recovered on quarterly VAT returns and resulting in increased cash flow through the regular collection of VAT on local authorities care fees as well as repayment to HMRC.
Furthermore, the ability to reclaim capital expenditure on a retrospective basis can provide a significant boost to financial function and future development. At the point of registration, a care group is able to look back 4 years at capital expenditure that may have incurred retrospectively and may be recoverable based on the taxable supplies anticipated moving forward. That, of course, is outside the capital goods scheme, which gives the possibility to go back up to 10 years and identify any VAT incurred, provided that you have met the conditions of the capital goods scheme.
The benefits of ‘Contract Restructuring’ spread beyond the scope of VAT recovery to equally important commercial benefits which support service development and growth strategy. By providing a streamlined, centralised, and optimised group structure, care providers are able to realise significant commercial benefits and economies of scale. For example, we regularly find that groups with multiple homes or service lines tend to have several purchase ledgers which can be confusing and inefficient. But streamlining a group so that there is one purchase ledger as opposed to multiple, can in turn increase business and operational efficiencies.
For managers in individual homes or services dealing with care contracts and financial management, the re-structuring process creates a single point of contact for contracts and a more efficient finance system across the group. This frees managers to focus on service delivery and operations, which positively impacts business efficiencies within individual provisions as well as across the group.
Further benefits include streamlining management and administration fees which are charged to local authorities and CCGs, as well as a single point of contact for these communications. As a specialist provider of this service, VAT Solutions have a dedicated team for liaising with funding authorities for their clients, and take away the ‘heavy lifting’ of the entire process.
Funding future growth
The benefits of ‘Contract Restructuring’ in terms of funding future growth are wide-ranging and unique to each care provider depending on the current business outlook and development goals. Whether a provider seeks to maintain their current service offering, develop new services or pursue investment and exit strategies, the benefits for future growth can be significant if this arrangement is in place.
If a care group has undertaken building projects and maintenance, ‘
Contract Restructuring’ is an essential consideration for effective and financially viable growth strategy. The VAT recovery on such projects can be significant boost for those who re-structure particularly in the first year of VAT reclaim. This would cover, of course, any capital projects that may be undertaken going forward and qualifying purchases prior to VAT registration also.
For those considering acquiring new care homes either through building or purchasing property, it is important to consider if VAT will be charged on the sale of a home and whether VAT is recoverable
(either in full or in part). PostCovid-19, the care home sales market is expected to be more active than previous years, and those groups that are not VAT registered risk being unable to reclaim VAT if charged on the sale of property. VAT Group Registration could enable a care group to recover such VAT on future purchases, or on a retrospective basis (4 years maximum).
At VAT Solutions, we recognise that our ‘Contract Restructuring’ service is adopted readily by those who are seeking to develop, expand and strengthen the sustainability of their group and understand the real potential of the structuring we offer. The combination of the fact that the returns are brought about promptly in our tried and tested manner, with the added assurance of our specialist sector knowledge and network of contacts, makes our VAT arrangement an attractive one for any care provider to explore.
Why VAT Solutions?
VAT Solutions are specialists with a unique combination of in-depth VAT and sector knowledge, having worked almost exclusively in the care sector since 2004. We initially started looking into ‘Contract Restructuring’ as soon as the change to the Care Act 2014 opened the possibility of subcontracting care, and spent two years conducting due diligence, dealing with tax counsel, and obtaining regulatory specialist opinion, so we can ensure that we are providing our clients with a safe, secure approach which is thoroughly researched and all aspects of legal and regulatory are covered. With a thorough understanding of HMRC legislation, full implementation support post-restructure and a tailored approach to each client, VAT Solutions are dedicated to ensuring the best possible outcome for each specific provision. Our team, some of whom are ex HMRC specialists, not only have up to date VAT expertise, but also have the extensive care sector knowledge to enable us to optimise commercial VAT position and have been dealing with relevant bodies including local authorities and CCGs for many years.
We recognise that every care business is unique, and work with a range of providers from small owner-managed care businesses through to the largest national operators covering the entire spectrum of care provision including nursing and residential, care of the elderly, learning disability, mental health and children’s services.
To find out more
For more details on how VAT Group Registration/ ‘Contract Restructuring’ could enable your care provision to reclaim VAT on an ongoing basis as well as its associated benefits, please contact
Clare Newboult at VAT Solutions
firstname.lastname@example.org Tel: 0114 280 3630