Missing out on VAT claims when extending or refurbishing premises can be expensive

A thorough analysis of a practice’s financial history means the incoming accountant is able to provide the best advice going forward. So when AISMA accountant Haines Watts Kent took over a rural dispensing GP practice a few years ago, their first priority was to undertake a review to make sure the practice’s financial affairs were in order.

The five GP partners had, at their initial meeting with the Haines Watts team, mentioned a recent extension and improvement work to the practice. Overall this had added around a third to the floor space in the building, with both pharmacy and waiting area extended, four new consulting rooms added, together with a new large meeting room and more admin space.

David Lockitt, Associate Director at Haines Watts Kent, said: “My focus was to look at how the extension had been treated in the accounts since there were some complicated lending arrangements to understand. I also looked at the funding the practice had secured, which was a third of the build costs in return for a 10-year abatement in notional rent of 20%.”

The partners also wanted to make sure that the practice was managing its VAT correctly so during David Lockitt’s review he examined the calculations the practice had made for the current quarter’s VAT return.

His team discovered that:

  • No VAT had been reclaimed on the extension to the premises because the practice had been advised that there was none to recover.
  • Only VAT on drug purchases had been reclaimed with an annual adjustment carried out at the end of the year. The practice should have been reclaiming, on a quarterly basis, a percentage of their overhead VAT and the VAT on building costs put through the accounts as expenses.
  • The annual adjustment, and therefore the reclaim of input VAT, had not been calculated correctly in previous years.

David Lockitt explains how they were able to help the practice reclaim the VAT. “We agreed with the client to investigate this further and put in a claim for input VAT as well as dealing directly with HMRC to ensure that the claim was agreed. In the end we agreed a repayment of just under £70,000 from HMRC, of which £40,000 was for capital expenditure and so not liable to income tax.”

Unfortunately, the partners missed out on reclaiming a further £20,000 in VAT. This was for expenditure at the beginning of the extension and improvement work to the practice, mainly ground works. “These costs were more than three years old and the time limit for VAT reclaims had simply expired” explains David Lockitt.

 

 

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