Review the VAT position

VAT is a significant cost when budgeting for new primary care premises, and specialist advice is absolutely essential before any scheme reaches financial close. This is the stage at which irrevocable contracts are set up with either a developer or another third-party or contractor.

Ideally specialist VAT advice should be taken immediately after early project costings have been identified, and the planned ownership arrangements for a scheme are under discussion.

Generally, it is the involvement of GPs in the finance and ownership of primary care premises that causes VAT difficulties. This is because GPs are not usually VAT registered. They cannot reclaim VAT on building and other VATable costs so this element of the total project cost is pushed up by the current rate of VAT (17.5%).

Commercial companies, such as specialist property developers, can reclaim VAT on all building costs, professional fees etc and so 'save' this overhead. However, when they then lease these buildings to GPs and others, VAT is chargeable on the rent. In turn local authorities, PCTs, pharmacists, dentists and other similar primary care providers (but not GPs) are able to reclaim this VAT charged on leases. A key test that Customs use when assessing whether or not VAT is chargeable, is whether or not a GP is 'connected' in any way to the development concerned. There are four structures within LIFTs, which have different VAT implications (for details see ‘NHS LIFT VAT paper’). These structures are likely to be very similar to organisational arrangements found outside LIFTs. For non-LIFT funded projects, replace 'LIFT' with the name of the procurement vehicle in question.