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VAT on cloud services cut for government departments

HMRC has added commodity cloud services to its “Contracted Out Services guidance” list meaning that Government departments and NHS bodies can now claim back the 20% VAT charged on Cloud services, effective 12th October 2015.

The SaaS model of Cloud services means that client’s are charged a monthly fee (plus VAT of 20%) for the use of Cloud Software. This reclassification means that NHS and Government bodies can now reclaim this VAT on cloud services. The ruling does not just apply to the monthly SaaS fee but also the initial implementation costs, integration costs (if any) and development costs (if any) charged to the Government or NHS department. This means that on a project with implementation costs of £15,000 a Government department can reclaim £2,500 – a significant saving versus an on premise service.

This ruling will make Cloud services significantly cheaper to run than on premise desktop software and will further encourage the uptake of a public sector move to the Cloud. The UK Government has long been trying to encourage the Public Sector to move to the Cloud and has set up an online procurement site for Cloud providers to market their services, known as the G-Cloud.

Cloud technology offers significant savings when compared to on premise software as highlighted by our recent article “Analysing the cost saving of cloud computing”. AccountsIQ is a Cloud Accounting Software provider for medium and large sized entities that require multi-site accounting system, consolidated accounts and enhanced business analytics.

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