Government bodies seeking to reclaim cash from the taxman for expensive IT purchases will face more stringent compliance rules from April.
Currently bodies can claim back VAT on a number of services once the invoice has been paid to their supplier.
However, from 1 April the recovery rules will be changed, limiting the period of claw-back to when the invoice is first received.
Kenny Lee, head of tax at accountancy firm Liaison, said the move will significantly narrow the window in which bodies can reclaim 20 per cent of their tax.
"That will put a lot of strain on bodies seeking to claim back money on invoices sent at the end of the financial year – as they will only have a very limited window in which they can get the money back," he said.
One senior finance manager at an NHS trust, who asked not to be named, agreed that the rule change will be an administrative problem, adding there was a possibility of major revenue leakage if bodies do not stay on top of the changes.
"IT is a sizeable amount of our budget. Overall, the changes by HMRC as to what bodies can reclaim have been positive, but the negative side is the stricter compliance," he said.
Overall, HMRC has broadened the scope of services bodies are entitled to claim back VAT on.
Previously it had proposed handing out VAT refunds just for large system integrators, while forcing public sector bodies purchasing off-the-shelf cloud services to pay the full whack.
The latest changes will come into force via an amendment to the VAT Act 1994. It will only affect central government bodies and the NHS. ®