VAT on medical services - FAQs
Updated April 2007
Introduction
The following FAQs have been prepared by the BMA Professional Fees Committee secretariat. They provide a concise source of information and act as a quick reference guide for medical practitioners considering the potential VAT liability of medical services. The resource is intended primarily for BMA members. Please note that this advice provided must not be considered as a substitute for taking appropriate advice from a qualified accountant, preferably with experience in advising those working in your area of medical practice. The BMA is not liable for any loss or damage, howsoever arising, which is occasioned to anyone acting, omitting to act or refraining from acting in reliance upon the contents of this document.
Links to relevant websites are included if further information is required.
1. What is the Dr d’Ambrumenil judgment and what does it cover?
In December 2003 HM Revenue and Customs (HMRC) officials provided the BMA with a synopsis of the decision by the European Court on the Dr d’Ambrumenil case.
The association was informed that the decision of the European Court of Justice (ECJ) would affect the value added tax (VAT) treatment of certain medical services supplied by doctors and health professionals which are currently exempt from VAT. In the case of Dr Peter d’Ambrumenil and Dispute Resolution Services (C-307/01), the European Court of Justice (ECJ) ruled that the UK exemption for medical services is too wide. This ruling introduced, for the first time, a purpose test to determine whether a medical service was exempt from VAT or not.
Essentially, the ECJ’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. Therefore this judgment does not impact on primary medical services and other core NHS services, which will remain free from VAT. Medical services which are primarily for the purpose of enabling a third party to take a decision (many of which are currently exempt from VAT under UK law) are taxable. This means that VAT liability is dependent on the purpose for which the supply is made, referred to as the ‘purpose test’. From 1 May 2007 these services will be liable to VAT at 17.5 per cent.
Please note that a number of insurance-related medical services will remain exempt from VAT. Please see answer to Q 19.
2. What is VAT?
VAT is the national system of tax on turnover, not on profit. It is collected on business transactions, imports and acquisitions. Most business transactions involve supplies of goods or services. Medical practitioners should note that this is an indirect tax on turnover and will now be collected on a wide range of services that were previously considered as exempt in terms of VAT. When the term ‘taxable income’ is used this relates to VAT on the value of the services supplied and not tax applied on the profitable income (income tax).
3. What are the VAT rates?
There are three rates of VAT:
- a standard rate, currently 17.5 per cent
- a reduced rate, currently 5 per cent
- a zero rate.
HMRC has issued a business brief called ‘VAT: changes to the exemption for medical services from 1 May 2007’.
HMRC has also prepared a detailed guidance document for health professionals (Notice 701/57, January 2007) covering the VAT liability on certain goods and services provided by registered health professionals.
HMRC will shortly be issuing an information sheet giving advice on VAT registration and accounting issues for those affected by the changes.
5. When will implementation take place?
Implementation will take effect from 1 May 2007.
6. Will VAT on medical services be backdated?
The changes come into effect on 1 May 2007 and doctors are not required to charge VAT on affected services prior to this date.
7. Will my registration be backdated?
HMRC will not compulsory backdate VAT registration prior to this date as a result of these changes. However, it is possible to register for VAT on a voluntary basis and for this to be backdated. If you wish to consider this option, you are advised to refer to the HMRC website for further information on voluntary registration, and to seek professional advice from a specialist accountant if you are considering backdating your registration.
8. How much advice can the BMA give me on my potential VAT liability?
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 then they are advised to seek professional advice from a specialist accountant.
9. How much advice can HMRC give me?
If you are unable to find the answer to your questions within HMRC’s published guidance, then additional guidance on liability and general VAT registration issues can be obtained from HMRC’s national advice service on 0845 010 9000. You can also email your enquiry to the national advice service (enquiries.estn@hmrc.gsi.gov.uk).
HMRC has also established a helpline to deal with enquiries from medical practitioners regarding the completion of registration forms. Telephone numbers for this helpline will be available in the information sheet to be issued shortly by HMRC. However, it should be noted that HMRC is unable to provide accountancy or other advice that is not related to registration or liability issues.
10. Why can’t VAT on medical services be zero-rated?
The reduced and zero rates only apply to certain specified supplies. HMRC officials have indicated that it is not legally possible to classify medical services as being zero-rated supplies. European Union taxation law only allows the current zero-rated items to be retained and it is not possible to extend this to new areas that become liable for VAT. The BMA has also been informed that zero-rating cannot be extended by domestic legislation.
11. How do I explain to patients (and others whom I charge) that VAT is now chargeable?
The BMA suggests that medical practitioners declare in advance that VAT will be chargeable on certain non-NHS services. In the case of GPs it is suggested that a notice is placed in the surgery waiting area and on the practice website if possible.
12. Why is one GP surgery charging VAT on an item of work and another surgery is not charging VAT?
It should be noted that practices are required to charge VAT where their taxable turnover has exceeded the VAT registration threshold. It may be the case that the value of taxable supplies in another practice is lower and therefore VAT will not need to be applied.
Doctors are legally required to comply with taxation law and if registration is required, then the GP has no option but to charge VAT at 17.5 per cent.
13. How has the BMA consulted with HMRC and represented the medical profession?
The BMA has been involved in discussions with HMRC since the publication of the ruling in 2003. The discussions have been led by the BMA Professional Fees Committee but in close 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 occupational health committee and the medico-legal committee.
Extensive discussions have taken place between HMRC and the BMA. Although HMRC had the authority to implement the ruling with limited consultation it should be noted that the comments of the association (as an ‘honest broker’) have been very carefully considered and reflected in the guidance provided. The BMA does not have editorial rights on the guidance provided, however, we have been assured that implementation difficulties that arise at a national level can be brought to the attention of HMRC officials.
14. Is the requirement to charge VAT binding and what are the penalties?
A medical practitioner who makes taxable supplies is obliged to notify HMRC if taxable supplies exceed the VAT registration limit. A penalty can be levied for failure to notify a liability to register by the proper date. In addition, the VAT which would have been accounted for had the medical practitioner registered on time must be paid.
15. Can I avoid charging VAT by undertaking work outside my GP partnership?
VAT registration is based on legal entity which should reflect actual working arrangements. VAT registration will cover all the supplies made by the registered legal entity. While it is possible for a GP to be both a partner and a sole proprietor for VAT purposes, HMRC is likely to take a rigorous approach to the artificial separation of business activities and GPs are advised to obtain professional advice from a specialist medical accountant.
16. Can I charge for requests for access to medical records/medical reports?
Where a doctor provides a copy of all or part of a medical record or report under the terms of one of the four statutory requirements set out below, that activity is outside the scope of VAT:
Data Protection Act 1998
Access to Medical Reports Act 1988
Access to Health Records Act 1990
Access to Health Records (Northern Ireland) Order 1993.
But where a copy of a health record is provided in circumstances that do not fall within one of these statutory obligations, that is a taxable supply, and liable to VAT at the standard rate.
17. Are doctors required to charge VAT on access to health records requests?
No, as stated above doctors must not levy VAT on access to health records requests. The maximum fee remains £50 (or £10 in the case of records held electronically), even for doctors and practices currently registered for VAT (for example dispensing practices). This is a statutory amount and the fee remains outside the scope of VAT.
18. Is this ruling linked to the ruling affecting dispensing practices?
The ruling affecting VAT on medical services (Dr d’Ambrumenil ruling) and the change in Department of Health regulations affecting the VAT liability of dispensing GPs are not directly connected and members should consider each of these developments separately. However, those practices registered for VAT under the dispensing GPs ruling will need to charge VAT on the appropriate services as soon as the Dr d’Ambrumenil ruling is implemented, irrespective of turnover on work which has been brought into the VAT chargeable arena. Members are advised to seek further professional financial advice on the application of VAT on dispensing services and note that HRMC guidance is available on the HMRC website on www.hmrc.gov.uk and then going into HMRC Notice 701/57 for Health Professionals. There is also a national advice service on the HMRC website, and the telephone number is 0845 010 9000.
19. Will BMA fees guidance schedules be amended to reflect the potential VAT liability on certain medical services?
Yes, the series of fees guidance schedules will be revised to indicate items of medical services work that are subject to VAT. As the current fees guidance are detailed documents, the professional fees committee secretariat will undertake a comprehensive review of the documents. Please note that the fees schedules currently available do not indicate any potential VAT liabilities.
The BMA believes that the addition of VAT on medical work should not reduce the professional fee received by the doctor and the fees schedules will make that clear.
20. Which insurance services will remain exempt from VAT?
HMRC was required to consider the Morganash ruling in the implementation process. This was a VAT tribunal case that considered whether medical services relating to certain insurance transactions could be exempt under the VAT exemption for insurance. The tribunal decided that the service was exempt from VAT under the UK (but not EU) insurance exemption. HMRC did not appeal against the tribunal decision and accepts that medical services provided in connection with the bringing together of parties to an insurance contract and the administration of policies, including the handling of claims, fall within the current UK insurance exemption as insurance-related services. Further information is given in the insurance section of the HMRC Public Notice 701/57 and the Revenue & Customs Brief announcing implementation of the changes.
21. How many GPs will be affected by the Dr d’Ambrumenil ruling?
The current estimate is that between 15 and 20 per cent of practices will be required to register and charge VAT as their taxable supplies will be above the threshold. However, this is only a guide and circumstances will vary from practice to practice.
22. How many medico-legal doctors will be affected by the Dr d’Ambrumenil ruling?
The BMA believes that the majority of full-time medico-legal doctors will be affected by the ruling and be required to register for VAT as taxable supplies are likely to exceed the VAT threshold in any year. However, doctors who undertake medico-legal work on an occasional or part-time basis should refer to the HMRC guidance regarding registration and it is suggested they obtain professional advice from a specialist medical accountant.
23. How do I calculate if my VAT supplies take me over the registration threshold?
You are advised to refer to VAT Notice 700/1 that provides advice on how doctors can determine whether they should be registered for VAT. This notice is available on the HMRC website together with other publications containing general guidance. You will also wish to seek the advice of your professional advisers.
24. Should I reduce my original fee by 17.5 per cent to compensate for an additional VAT liability?
Doctors may come under pressure to reduce their basic fees by up to 17.5 per cent to reduce the VAT liability on the organisation commissioning the work. This is a matter for individual medical practitioners but the BMA believes that 17.5 per cent should be applied on top of the original fee (current Fee rates should be considered as basic rates,not inclusive of VAT). The rates listed in BMA fees guidance schedules will be treated as basic fees and any VAT liability will be treated as additional to the basic rate.
25. Can I keep all my activities that are subject or potentially subject to VAT in one account?
Despite the fact that a VAT registration may be perceived as adding to the burden of paperwork, it can be a useful tool for disciplining the practice or individual doctor to keep a more organised system of records. Your accounts system needs to be set up to identify activities that are subject (or potentially subject to VAT if not yet registered) and activities that are exempt from VAT. Any practices or individual doctor who have a catch all ‘Non NHS’ or ‘Private’ column are advised to separate these activities as soon as possible. This is particularly important if HMRC request an inspection of your records. Please note that this is general advice and you are advised to seek the appropriate advice from a specialist accountant regarding your individual circumstances.
26. Is it just private income that is subject to VAT?No, although the term private income is sometimes used to classify contract for services or non-NHS income within general practice or other accounts there is the potential problem of confusion with private practice work. As noted above (see answer to question 1) services related to the protection, maintenance and restoration of health provided through the private sector are not subject to VAT. The HMRC information refers to the term ‘medical services’ but practices are advised to carefully read the HMRC guidance provided and take professional advice to establish which professional fee services will be subject to VAT.
27. Should VAT be charged on cremation forms?
HMRC have confirmed to us in writing that cremation certificates (forms B, C & F) issued by doctors remain exempt from VAT.
From 1 May2007, the scope of the exemption for medical services will be restricted to cover only those services provided by a health or medical professional where the principal purpose is the protection, maintenance or restoration of an individual’s health. This change will exclude work in connection with cremations from this exemption.
While cremation certificates will no longer be exempt from 1 May under the UK exemption for medical care, HMRC have considered whether an exemption or other relief might also exist elsewhere in the legislation. HMRC officials considered whether exemption might also be possible under Item 2 of Group 8 of Schedule 9 to the VAT Act 1994 “the making of arrangements for or in connection with the disposal or the remains of the dead” and in addition, they have considered whether one or more of the certificates may be outside the scope of VAT given their statutory nature. .
As a result of these considerations, HMRC notified us that they were satisfied that fees charged for cremation certificates (forms B, C & F) should not be subject to VAT and may continue to be exempted under Item 2 of Group 8.
HMRC have informed us that they will be notifying the main trade bodies affected.
28. Should VAT be charged on medical education?
The HMRC guidance for health professionals states that “consideration should be given to whether they qualify as an exempt supply of education (see Notice 701/30 Education and vocational training) before considering whether they qualify as a supply of exempt healthcare.
Lectures (be they one-off or a series) given as part of a medical training course or Continuing Professional Development and training sessions to first aiders, which are provided by a doctor in either a sole proprietor or partnership capacity, are exempt as a supply of private tuition under the education exemption.
Presentations aimed at promoting health are also considered to be exempt as their principal purpose is to protect the health of the individuals attending. However, presentations given to a non-medical audience on, for example, the latest medical developments are considered to be taxable”.
29. Is VAT exempt on medical education provided through universities?
Provided the doctor makes a supply of medical education in his capacity as a sole proprietor or partner, and the subject is one ordinarily taught in a school or university then HMRC would see this as a supply of private tuition which is exempt under Schedule 9, Group 6, Item 2 of the VAT Act 1994. HMRC do not consider that we would see such supplies as covered by the health professionals’ exemption (Schedule 9, Group 7, Item 1) after 1 May 2007.
30. How will I apply VAT on Disability Living Allowance forms and DS1500 forms if I am registered for VAT?
We have raised with Department of Work and Pensions (DWP) officials the need to be able to provide VAT registration details (if applicable) on the claim form for the GP Factual Report and the DS 1500 report. Although the claim forms are being changed and re-issued by the DWP for these purposes it may be some time before the new forms are in general use. If medical practitioners are registered for VAT then they are advised to put their VAT registration details on the claim form (preferable) or enclose a VAT invoice.