Structuring managed service contracts to deliver 20% VAT saving

Hull and East Yorkshire Hospitals NHS Trust

The Trust had been working on a commercial proposal for a new Patient Records Management System that, when implemented, would generate hundreds of thousands of pounds of savings. However, without access to sufficient capital, the Trust required an off-balance sheet solution. The proposed contract would neither be off-balance sheet or, in the opinion of the Trust’s VAT advisor, VAT recoverable.


  • Analysis of original proposed contract
  • Identification of weaknesses re VAT recovery
  • Liaison direct with supplier to investigate options for change
  • Development of Managed Service structure and contractual details
  • Writing contract to deliver VAT recovery and off-balance sheet status
  • Competitive procurement of funding to finance the revised structure
  • Developing detailed accounting note to support VAT recoverability
  • Successful conclusion of both equipment and finance contracts

The Trust’s VAT advisor reviewed the new commercial proposal and, following the work we had done, was able to revise his opinion. He was able to advise the Trust to treat the arrangement as a Managed Services agreement and to treat the transaction as off-balance sheet and VAT recoverable. The Trust was able to report both the operational savings and also the full value of the 20% VAT saving.