The Department of Health’s decision to transfer a £3.6bn portfolio of NHS properties to a private company may have exposed the health service to a hefty VAT bill, HSJ has learned.

NHS Property Services took ownership in April of the portfolio of properties and leases, transferred mainly from NHS organisations abolished under the 2012 Health Act. The company is wholly owned by the health secretary and manages properties including community health centres, GP surgeries and office buildings.

However, the DH this week conceded that because NHS Property Services had been constituted as a limited company, it could be forced to charge VAT on the rents it collects from NHS organisations.

“The VAT status of NHS Property Services as a limited company does potentially result in an additional VAT burden that did not apply when its properties were owned by NHS bodies,” the DH said in a statement.

“The department is considering solutions to minimise the impact of any additional VAT burden on the system.”

NHS Property Services is also in discussion with HM Revenue and Customs about the problem.

A spokesman for NHS Clinical Commissioners said the clinical commissioning groups it represents, “simply do not have any spare money down the back of the sofa” to pay VAT at 20 per cent.

“Any money would have to come out of patient care and this is not acceptable,” he continued.

“It is incumbent on the DH to find a solution that does not affect the ability of CCGs to do their job and ensure high quality innovative services for their patients and communities.”

As HSJ has previously reported, NHS Property Services has already notified commissioners of charges they will need to pay in 2013-14 to fund a shortfall between rental income and the cost of owning and maintaining its estate.

However, HSJ understands that the company has not yet issued rent bills; these may be subject to VAT, depending on the outcome of current discussions.

NHS England’s latest audit committee report said: “As all properties have been vested in a non-NHS body and private company then they have a duty to levy VAT on rents and other charges. This would put a significant (£60m) financial pressure into the system.”

An NHS England spokesman confirmed that £60m was an estimate of the VAT that could be chargeable across NHS Property Services’ entire portfolio.

An NHS Property Services spokeswoman said the company was “working with all parties to agree the most cost effective solution for our tenants”.