The client
A dispensing practice in Northamptonshire had been using a non-specialist accountant to submit their VAT returns.
An initial review of the practice’s backdated partial exempt VAT claims, carried out by the practice’s newly appointed AISMA accountant MHA Nottingham, revealed a significant volume of errors.
The dilemma
‘A conservative estimate was that the practice could be owed a VAT refund of over £50,000,’ said Ben Brauer, senior medical accountant at MHA Nottingham.
The practice’s VAT records were spread across various accounting systems and a paper VAT folder. A detailed multi-year analysis of historic VAT submissions was urgently required.
Errors and concerns identified included:
- Inconsistent VAT return periods, changing frequently between monthly and quarterly submissions.
- Unexplained adjustments to figures, resulting in mismatches with information filed on systems.
- No PPA (personally administered items), wages or dispensing square footage adjustments made to the VAT partial exemption percentage.
- Incorrect use of VAT codes differentiating between fully allowable, partially allowable and not allowable.
Action required
Once the detailed analysis had been completed, VAT returns for the practice going back several years had to be scrutinised in detail and corrections made.
‘We checked all the VAT codes to make sure exempt expenses, exempt income and fully allowable expenses were recorded correctly,’ said Ben Brauer. ‘We also checked the practice’s main contract statements for VAT misanalysis.’
Ben and his team at MHA Nottingham then checked that all PPA claims were entered correctly on the VAT returns and re-calculated the partial exemption percentage along with the annual adjustment for each period.
They discovered that multiple drugs bills, the main source of VAT refunds, were not claimed on any of the accounting systems used by the practice over the years.
On completing their checks, the MHA team found that the VAT back claim was closer to £150,000.
What happened next
A claim was submitted to HMRC. As expected with a claim this size, a VAT inspection then took place.
Ben Brauer said: ‘The first discussion with HMRC regarding the case was interesting as the process of how a practice receives its income and completes a VAT return had to be explained in detail. Since the inspector had not come across this type of partially exempt VAT before, we provided links to various NHS sites and HMRC legislation’.
‘The discussions with HMRC took over a year during which they asked various questions on our workings and the systems the client used. In the end, however, the inspector agreed that the error was correct and not deliberate.’
After assisting the practice to resolve an issue relating to Making Tax Digital (MTD) for VAT, whereby an MTD connection with HMRC needed to be updated, the practice was informed that the final amount to be refunded was more than £180,000.
The conclusion
This was a complex and lengthy process requiring specialist knowledge of VAT for GP practices, awareness of the inner workings of HMRC and the technical requirements driven by Making Tax Digital.
Ben Brauer added: ‘Whenever we take on a new dispensing practice from a non-specialist accountant, we always spend an hour or two looking at the VAT returns and checking that they have been prepared correctly.’
‘In this case our vigilance paid off, with the client proving to be very happy to receive such a significant VAT refund.’