HMRC will allow the NHS and government departments to reclaim the VAT on off-premise technology.
This cuts the costs of those services by 20%, making them more price competitive with on premise solutions, and potentially driving up the use of cloud services in the public sector.
The savings could also be applied to the NHS and government departments who order bespoke computer software and services.
The change was brought in as part of the departments Contracted Out Services guidance, which outlines what those departments can reclaim VAT on, and came into force on October 12.
It comes after sustained pressure from campaigners, including Labour MP Chi Onwurah, who had raised the issue with a question in Parliamen.
At the time, the treasury minister David Gauke said that no estimate had been given on the effect on the market for cloud services.
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