United Kingdom

Sector Insight: Healthcare 

KPMG Budget 2013

By reiterating his pledge to safeguard the health budget from spending cuts, the Chancellor has signalled his continued commitment to one of the UK’s most valuable institutions.

Although the Chancellor’s 2013 Budget speech did not contain many new measures directly aimed at the Health sector, there is the removal of VAT exemption for supplies of research between eligible bodies, such as NHS bodies and Universities, will cause this area to be considered more closely moving forwards in terms of the nature of the arrangements.

Equally there are a number of new health entities that will become Section 41 bodies under the VAT Act 1994 that enjoy the contracted-out services refund mechanism.

We have summarised below key taxation proposals which could affect NHS bodies arising from the Budget Report delivered on 20 March 2013.

Employment Tax

1% pay increase cap

Public sector pay awards in 2015-16 will be limited to an average of up to 1 per cent

Single-tier State Pension

As announced in the Government White Paper in January 2013, a single-tier state pension is to be introduced with one effect being that employees will no longer pay contracted-out rates of National Insurance Contributions (NIC) – the current rate is 10.6%, with all other employees paying 12% (for earnings below £40,040). The employer rate is 10.4%, compared with 13.8% for “contracted-in” employments.

The new pension was to be introduced in April 2017; the Chancellor announced in the Budget that this will be brought forward to April 2016. From that point, employees and employers currently paying contracted-out rates of NIC will see their NIC costs increase.

Personal Allowance

Personal allowance is to increase by £560 to £10,000 from 6th April 2014 – one year earlier than expected.

Childcare Support

New Scheme being introduced in Autumn 2015 – extending availability to tax efficient childcare. The scheme will be available to all parents that work over 16 hours a week and earn less than £150,000 per tax year for children under 5 (phased increase to children under 12). It will be administered via an online account whereby for every 80p put in by the individual, HMRC will add a further 20p up to a maximum of £6,000 per child. Total tax relief will be available up to £1,200 per annum.

Current Employer Supported Childcare will still be available for those businesses that operate however it is proposed that these arrangements will be phased out in time.

A consultation document is to follow in the Spring when it should become clearer how this scheme will operate in practice e.g. can it work in conjunction with salary sacrifice as most current childcare voucher arrangements do.

Beneficial Loans

The Finance Bill 2014 will contain legislation which seeks to increase the tax free amount an employer can loan to its staff without giving rise to a benefit in kind. The current beneficial loan limit is £5,000 and it is expected that this will be doubled to £10,000 with effect from the 2014/15 tax year.

Company Cars/Vans

From April 2015, two new Company Car Tax bands will be introduced for Ultra Low Emission Vehicles (“ULEV”) at 0-50g/km and 51-75g/km of CO2.

The appropriate percentage of the list price subject to tax for 0-50g/km vehicles will be 5% in 2015/16 and 7% in 2016/17. For vehicles in the 51-75g/km category the appropriate percentages will be 9% in 2015/16 and 11% in 2016/17.

From 6 April 2014 the fuel benefit charge multiplier will increase by reference to the Retail Prices Index (“RPI”) for both company cars and vans.


The Government intends to create the health and work assessment and advisory service for those at danger of long-term sickness absence. It will also introduce tax relief provisions so that amounts up to a cap of £500 paid by employers on health-related interventions recommended by the service are not treated as a taxable benefit in kind. The Government will consult on implementation later in 2013.

Employment Allowance

From April 2014 all UK employers (businesses and charities) will be eligible for a new £2,000 Employment Allowance. The effect of this allowance is that it will reduce the overall amount of Employer’s NIC payable to HMRC each year. Each business will be able to employ one individual on an annual salary of £22,400, or four staff on the National Minimum Wage (£12,070 per annum), without having to pay any Employer’s NIC at all.

The scheme will be administered through payroll reporting and Real Time Information and employers will be required to opt in to confirm eligibility for the allowance. It is not yet known how the new Employment Allowance will operate in relation to companies with multiple payrolls, more than one PAYE scheme reference or Group structures.


As announced in the Autumn Statement 2012 the Government have confirmed they will amend the existing IR35 legislation, applicable to intermediaries such as personal services companies (“PSC”) to equalise the tax and NIC treatment of office holders.

Offshore Intermediaries

Offshore intermediaries are corporate entities put between UK workers and a UK business based in jurisdictions where tax is lower than in the UK. HMRC now estimate that at least 100,000 workers are being employed through an offshore intermediary.

The Government is proposing to give HMRC the powers to collect full employment taxes for UK workers. A consultation document will be published in May on measures to ensure that employment taxes will be payable for all employees in the UK, irrespective of where their payroll is located. It is expected that the new measures will apply from April 2014.

It is estimated that this will benefit the Exchequer by an extra £100 million a year. HMRC will consult after the Budget on the design and operation of these measures.

Employee shareholder

To ensure that the first £2,000 of share value received by those adopting the new employee shareholder status is free from income tax and NICs, the Government will legislate to deem that employee shareholders have paid £2,000 for shares they receive from 1 September 2013, when the new status comes into force.

There were the usual increases to the VAT registration threshold and fuel scale charges, the Budget 2013 also had some specific VAT announcements which have a direct affect to NHS bodies. These have been summarised below.

Business supplies of research

In December 2012 a consultation was issued on the withdrawal of the VAT exemption for supplies of business research by “eligible bodies” (e.g. by Universities or NHS Bodies) where supplies are made to other eligible bodies. Subject to the outcome of the consultation process secondary legislation will be introduced withdrawing the exemption with effect from 1 August 2013. The impact to NHS bodies will be that where research is being carried out for business purposes for another eligible body, VAT will become chargeable. This is with the exception of supplies that are intra NHS divisional registration.

From a VAT perspective consideration should be given as to whether a supply is being made between eligible bodies, or whether the relationship and transaction between the parties is only a mechanism for passing funding. This will be fundamental to identifying the VAT liabilities and also where possible ensuring funding is used in the most cost efficient manner.

Where VAT is charged by a third party eligible body, we expect that the VAT will be recoverable by NHS bodies under contracted out services heading 74 “Original research undertaken in order to gain knowledge and understanding”.

Section 41 application

It has been confirmed that the following NHS bodies will be included within Section 41 of the VAT Act 1994 meaning that the contracted out services rules will apply to their non business expenditure.


  • The NHS Commissioning Board
  • Clinical Commissioning Groups
  • The National Institute for Health and Care Excellence
  • The Health and Social Care Information Centre.

Following changes proposed in the Care and Support Bill it will be legislated in the Finance Bill 2014 to include the Health and Research Authority and Health Education England within Section 41 also.

Charitable Buildings

As previously announced in the Budget 2012 with effect of August 2013 the scope of reduced rate VAT to be applied to the installation of energy saving materials will be removed, meaning that supplies will be subject to VAT at the standard rate. Most NHS bodies will be unaffected by this change, but there could be an impact for associated charities and therefore clarity should be sought if you think that it does have application.
Corporation Tax

Where there are Trusts that have subsidiary companies; the following announcements made in the Budget will be applicable to such companies and may therefore be of interest.

Rate of corporation tax

The current rate of corporation tax is 24 per cent, falling to 23 per cent on 1 April 2013. From 1 April 2014 the main rate of corporation tax in the UK will be reduced to 21 per cent, and today it was announced that from 1 April 2015 this will now fall to 20 per cent.

Capital allowances

The 100 per cent first year allowance available for expenditure on cars with low carbon dioxide emissions and electrically propelled cars will be extended until 31 March 2018. In addition it was announced that the list of designated energy-saving and water-efficient technologies qualifying for enhanced capital allowances will be updated during summer 2013, subject to state aids approval.


There are no changes affecting the NHS in terms of SDLT. The main changes were aimed at anti avoidance schemes and the purchase of residential properties with a value in excess of £2m in corporate vehicles.
Other – Government procurement

Following the publication of the “Tax and Procurement” consultation document on 14 February 2013, HMRC has now confirmed that the new rules will come into effect from 1 April 2013.

The consultation document proposed that, from 1 April 2013, tenders for contracts being issued by Central Government (which would include the NHS) and Non-Departmental Public Bodies would need to include a requirement for “occasions for non-compliance” to be disclosed as part of any tender submission. The purpose of this requirement was to enable Government to consider the tax compliance profile of potential suppliers as part of its procurement process. However, the proposed rules have been changed in a number of ways that will reduce the potential effect on the Health sector, in particular:


  • A new de-minimis limit, so that only contracts over £5 million are included;
  • The definition of occasions of non-compliance has been clarified, with the reference to “targeted anti-avoidance”, which was not defined, being removed;
  • Only occasions of non-compliance occurring from 1 April 2013 will be considered, and is in respect of a tax return submitted after 1 October 2012, so past activities are not included.

NHS bodies will, of course, need to consider whether any of their activities will be subject to these new rules, which will to some extent depend on how the relevant commissioning bodies implement the rules, but the potential implications in relation to Government contracts of any tax planning entered into in the future will clearly need to be considered.

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