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Logo: NHS East of England Collaborative Procurement Hub
Government response to COS VAT reform consultation
29 July 2021

CRS VAT Chartered Tax Advisors, providers on the Hubs Analysis and Reconciliation Services framework, have released guidance following the Government's response to the consultation on reforms to the contracted-out services (COS) VAT refund scheme (Section 41 VAT Act 1994). This is applicable to government departments and the NHS.

CRS has summarised the Government's response to the consultation as follows:

  • The Full Refund Model (FRM) remains the preferred option, despite some submissions that it would create commercial distortion.
  • The funding cycles of public sector bodies will need to be carefully considered to ensure that the reforms are fiscally neutral.
  • Abolition of Section 41 completely and zero-rating of supplies to public bodies have both been ruled out as viable options.
  • Simplification of the current COS rules will be pursued on an ongoing basis, but is not considered to be a permanent solution.
  • Aligning the partial exemption treatment of Section 41 and Section 33 bodies (local authorities, Police and Fire authorities) will be considered.
  • Further consideration is being given to changing the current NHS Divisional VAT registration arrangements.
  • Given the complexities, the changes are unlikely to be implemented from the 2022/23 financial year.  No future date has been set and the Government believes that thorough preparation for the change is more important than quick implementation.
  • Making Tax Digital, currently postponed to 2022 for Section 41 bodies will likely be postponed further, in line with the reforms.
  • There will be no extension of the FRM to non-departmental public bodies.
  • When implemented, the FRM will not be retrospective.


If you have any questions or would like further information, please contact: business.services@eoecph.nhs.uk