PSTAX and Sharpe Pritchard launch new Due Diligence Service for the Care Contract Restructure

PSTAX and Sharpe Pritchard are pleased to announce the launch of our joint due diligence service for care contract restructuring.

PSTAX and Sharpe Pritchard can assist local authorities in undertaking the essential due diligence checks to ensure that a care provider’s proposals do not present unacceptable risks for VAT and other regulations. Our due diligence service will satisfy the requirements of HMRC and other relevant bodies.

By instructing PSTAX and Sharpe Pritchard to carry out the due diligence exercise, local authorities can agree to an appropriate restructuring request significantly more quickly and efficiently.

What is the care contract restructure?

Care Providers are approaching local authorities requesting to novate their care contracts to a new, unregulated “management” company. The contractual arrangements change, so they are between the local authority and the new management company, with a regulated company delivering the care under contract to the management company.

One of the benefits to the providers is that this allows them to reclaim significantly more VAT costs.

Risks to local authorities

Following the restructuring, an unregulated company will supply the local authority with welfare services. The VAT exemption will not apply, and VAT will be charged on the supplies made to the local authority. The intention is for the local authority to reclaim this VAT.

However, a local authority can only recover VAT that is properly charged. HMRC has powers to deny VAT recovery where an arrangement is “abusive”, i.e., artificially structured just to achieve a better VAT position.

A local authority must also operate within a specific legal framework and meet numerous regulatory, procurement, contractual, tax compliance, and other responsibilities. Just some of the risks that need to be reviewed and dealt with to an authority’s satisfaction include:

  • Public law and vires
  • Contract law (ensuring effective novation and legal due diligence on the proposed model)
  • Procurement law: variations to existing contracts under Regulation 72 Public Contracts Regulations 2015
  • Contract novation: which type is proposed and how will it treat pre-novation liabilities
  • Legal due diligence and corporate governance
  • The transparency of all proposed legal arrangements
  • The consistency of the subcontract and re-charge/management arrangements
  • Corporate governance
    • Information about the Directors in the new company
    • Effect on contract management
    • Re-alignment of contract escalation processes

Local authorities typically want to cooperate with providers and are happy to consider requests for a contract novation. But to ensure they meet their various responsibilities, it is prudent for local authorities to conduct a due diligence review of a provider’s proposals to ensure they would not create any unacceptable risks to its ability to comply with those responsibilities.

PSTAX and Sharpe Pritchard can assist local authorities in undertaking the essential due diligence checks to ensure that the novation proposal does not present any unacceptable risks for VAT and other regulations. Our due diligence service will satisfy the requirements of HMRC and other relevant bodies.

By instructing PSTAX and Sharpe Pritchard to carry out the due diligence exercise, local authorities can agree to an appropriate novation request significantly more quickly and efficiently.

Typically, there will be no cost to a local authority for the PSTAX and Sharpe Pritchard’s due diligence service.

Read more on Care Contract Restructuring

Download the Care Contract Restructuring Brochure

Nick Burrows

Written by Nick Burrows

Nick has nearly 30 years of working with and supporting public sector bodies with VAT and indirect taxes, starting at HM Customs and Excise and then as in-house VAT Officer at Hampshire County Council. Since moving to advisory firms, Nick has had senior public sector VAT roles at RSM Tenon (now RSM), KPMG, and PSTAX (since 2014). He has led VAT advice nationally on a wide range of public sector issues and helped shape HMRC policy in several key areas.

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