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HMRC internal manual

VAT Government and Public Bodies

Local government partnership programmes: local authority and NHS joint stores depots

Under section 75 of the NHS Act 2006, joint stores can exist under two partnership arrangements:

  1. A pooled funding arrangement whereby each party procures goods and pays for them from the joint funds (see VATGPB6640).
  2. An agency arrangement whereby the cross-charging for management services, etc., gives rise to taxable supplies.

Local authorities and NHS bodies are subject to different funding regimes and VAT treatment. The following VAT procedures apply to arrangement 2 above.


Some store depots are operated by a local authority and others by NHS bodies. The operator must charge VAT on the income received, in respect of salary costs and fuel and power, as payment for its supplies. This charge is often made as a supplement to supplies of stock or as a periodic charge. A local authority recipient of these services is able to reclaim the VAT, subject to the normal rules, while an NHS body may claim it as a refund under the contracted out service regime.

Stock purchases

Only one participant in a joint stores arrangement is responsible for accounting for an item of stock within its books. It is this participant that incurs any VAT charged by the supplier. The purchase invoice provided by the supplier to the operator should be made out to the participant with accounting responsibility for the item in question. However, approval may be given for alternative arrangements where this may cause difficulty, for example in using bulk purchase facilities. This allows the store operator to:

  • initially purchase the stock and reclaim the VAT on the supplier’s invoice, and
  • sell on items to the other party where they have accounting responsibility, charging VAT and accounting for output tax.

Reclaiming VAT on stock items, subject to the normal rules, is only available to a local authority recipient and only when it has accounting responsibility. NHS operators of stores depots may therefore need to discuss the VAT implications with the local authority.

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Hire of stock

A participant with accounting responsibility for an item of stock within its books may lend or hire it to the other. This might be to cover temporary shortages. VAT is not due on any charge made because this is not seen as a business activity for VAT purposes. When items are hired in from outside contractors VAT recovery is only available, subject to the normal rules, to a local authority recipient and only when it has accounting responsibility.


For further guidance please see the HMRC/Department of Health and Social Care agreement.

PDF icon20180102 HMCE DOH guidance June 2003.pdf