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Implementation of VAT on medical services

Updated 30 April 2007

HM Revenue and Customs (HMRC) has announced that implementation of the VAT ruling on medical services will take effect from 1 May 2007.

In the case of Dr Peter d’Ambrumenil and Dispute Resolution Services the European Court of Justice (ECJ) ruled that the UK VAT exemption for medical services was too wide. As a result, the UK is amending the exemption from VAT for health services with effect from 1 May 2007, and some services, currently exempt, will become liable to VAT at the standard rate.

Essentially, the Court’s ruling means that if the principal purpose of the medical service is the protection, maintenance or restoration of the health of an individual then the services will continue to be exempt from VAT. Primary heath care provided through either the NHS or the private sector will remain VAT free. However if the purpose of a medical examination or report is to enable a third party to decide a course of action the medical services will not be VAT exempt, but subject to VAT at 17.5%.

Therefore, medical practitioners registered on a statutory professional register whose income subject to VAT exceeds the registration threshold (currently £64,000) will need to register for VAT. They are advised to seek professional advice from a specialist medical accountant regarding the date when VAT must start being applied.

Medical practitioners who are already VAT registered, for example, as a result of dispensing changes which took effect on 1 April 2006, will need to ensure that they account for VAT as appropriate on any affected services from 1 May 2007.

HMRC has given the medical profession three months' notice to prepare for implementation on 1 May 2007. HMRC has prepared a guidance document on the effect of the ruling that is available on its website. HMRC will shortly be issuing an information sheet giving advice on VAT registration and accounting issues for those affected by the changes. Please note that there will be no compulsory back-dating of VAT registration before the implementation date.

Detailed discussions have been held over the last year between the BMA and HMRC officials to establish precisely which medical services would be affected by the judgment. The discussions have been led by the BMA Professional Fees Committee but in consultation with branches of practice and national committees representing doctors affected by the ruling. The Professional Fees Committee has consulted in particular with the General Practitioners Committee, the BMA Occupational Health Committee and the BMA Medico-legal Committee.

Although HMRC has the legal authority to implement the ruling it should be noted that the comments of the Association (in a neutral position as a representative organisation on behalf of the medical profession) have been carefully considered during the preparation of the HMRC guidance. The BMA does not have editorial rights on the guidance provided by HMRC, however we have been assured that implementation difficulties that arise at a national level can be brought to the attention of HMRC officials. The BMA Professional Fees Committee has been aware of the implications of the VAT ruling since 2003 and welcomes the fact that the uncertainty regarding the date of implementation has now ended.

As well as the HMRC guidance the BMA Professional Fees Committee has prepared an FAQs document that will hopefully be useful in dealing with queries. The BMA will be able to ‘signpost’ members to the appropriate advice from HMRC but staff dealing with queries will be unable to provide accountancy or commercial advice. If members have questions of this nature (for example on claiming back input VAT) then they are advised to seek professional advice from a specialist medical accountant.

BMA Press releases on the implementation of VAT on medical services

• BMA advises doctors to prepare early for new VAT rules, 30 Jan 2007
• New VAT rules for doctors “just days away", says BMA,27 Apr 2007

Useful links
VATHLT2130 - A summary table outlining the liability of different services provided by doctors http://www.hmrc.gov.uk/manuals/vatmanual/vathealth/VATHLT2130.htm
VAT Information Sheet 05/07 which gives further information for health professionals affected by the changes to the exemption for medical services announced in Revenue & Customs Brief 06/07
http://customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageVAT_ShowContent&id=HMCE_PROD1_026825&propertyType=document