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VAT recovery for hospitals and nursing homes

Because hospitals and nursing homes will in most cases make primarily exempt supplies, most of the input tax that they incur will not be recoverable. However, as discussed in V6.266 they may also make some taxable supplies which will give rise to some entitlement to VAT recovery. Taxable activities may include, for example, the zero-rated dispensing of medicines. An issue that might therefore arise is how to maximise VAT recovery without incurring excessive accounting and administrative costs. It is quite likely that a special method will be appropriate simply because it will enable the business to focus on those areas where VAT recovery is possible. For detailed discussion of partial exemption, see V3.460 and see V3.462 for consideration of special methods.

As a general rule, VAT can also not be recovered in respect of non-business activities. However, in common with other public authorities, NHS trusts and foundation trusts may apply for the refund of VAT suffered in relation to certain 'contracted-out' services