We are aware that local authorities are making extra payments to care providers as a result of the COVID-19 outbreak. This is clearly good news for the sector but how should the extra be treated from a VAT perspective and what, if any effect, does this have on VAT recovery?
The VAT treatment applicable to income received will depend on whether the payment is structured as extra consideration for the supply of services or as a grant.
Further funding by way of grant does not change the nature or value of the services provided under the contract and so VAT recovery would not be affected. However, under the standard method of partial exemption, where the payment is extra consideration under a contract the VAT recovery of overhead costs would be increased if the contract was taxable but reduced if it is exempt.
Should you have any further questions please do not hesitate to contact Rob Warne or Kieran Smith.
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