NHS England’s plan to make commissioning support units autonomous could be rendered financially unviable by government tax rules, HSJ has learned.

The agency has already launched a review to investigate the financial impact of making CSUs independent.

This will examine whether establishing autonomous CSUs would generate new tax charges for the NHS commissioning system.

Senior CSU sources are concerned that they may have to charge value added tax when they become autonomous in 2016 as currently planned.

Clinical commissioning

VAT would lead to an increase in the cost of using CSUs

This would lead to a rise in the cost of using external commissioning support services for clinical commissioning groups.

Crucially, VAT charges imposed by an external body such as a free floating CSU could not be claimed back by CCGs, leading to a rise in costs.

The picture is further complicated by HM Revenue and Customs rules which allow VAT exemptions on some contracted-out services which could otherwise be carried out in-house. These include professional services, such as legal services, IT support or finance services.

Although some exempted services are part of the package of services CSUs offer, significant aspects of these may not qualify for exemption.

These could include very specific service lines related to acute sector redesign, the management of outcomes-based contracts.

As a result, several CSU figures told HSJ that they expect to impose new VAT charges on services they supply to NHS commissioners once they become autonomous.

One senior CSU manager told HSJ that he had been told by two CCG finance directors that they would not support autonomisation if it led to increased costs.

Another CSU leader said the issue could “kill” the autonomisation agenda.

Although others were more sanguine, there was widespread agreement that VAT “fundamentally affects autonomisation”.

Kenny Lee, head of tax services at Liaison Financial Services, an advisor to NHS organisations, said the possibility of new VAT charges for NHS commissioners provided a disincentive to outsource to CSUs once they were autonomised.

Persuading HM Revenue and Customs to make the exemption CCGs would need to reclaim VAT on  new service line would be a “nightmare”, he added.

Bob Ricketts, NHS England’s director of commissioning support services strategy and market development, said: “VAT is one of a range of issues where we need to provide clarity in guidance to CSUs.

“We are reviewing the whole issue of VAT liability and the ability of commissioners to reclaim, service line by service line, and will issue guidance later in the year. We have bought in outside expertise to support this review.”

The review of the VAT issue will feed into NHS England’s impact assessment of CSU autonomy, due to be finished next autumn.