Value Added Tax (VAT)
VAT is a tax on consumer expenditure. It is collected by businesses on behalf of the government, on business transactions, imports and acquisitions. Most business transactions involve supplies of goods or services. VAT is payable if supplies made:
in the UK or the Isle of Man;
by a taxable person;
in the course or furtherance of business;
that are not specifically exempted or zero-rated.
Supplies which are made in the UK or the Isle of Man which are not exempt are called taxable supplies.
Business activities
It is important to establish whether a business supply of goods or services is being made as this will determine how it should be treated for the purpose of VAT. If the activities are not business they will be outside the scope of VAT. An activity is business if it:
is mainly concerned with making supplies to other persons for any form of payment or consideration, in money or otherwise; and
continues over a period of time with some degree of frequency and scale.
Medical services
As most doctors are aware the medical services they provide direct to a patient for their health and welfare carries an exemption from charging VAT. The primary purpose of the service must be to protect, maintain, or restore the health of the person concerned. If pharmaceutical goods are provided as part of exempt care, they will normally form part of that exempt care.
Where the services are provided by a business which is not a registered professional in its own name, for example a company is not registered as a medical practitioner, but can provide the services of individual professionals, those services may still be exempt if either:
· the services are wholly performed by a person who is registered on the relevant registration; or
· the services are directly supervised by a registered person.
Some restrictions do apply and it is important to remember that it is the service which is potentially exempt not the supply of staff and you must ensure there is clarity about what is being supplied. The supply of medical or welfare staff is a standard rated supply of services, except in very limited circumstances. This is why it is important when businesses are formed involving the services of many doctors, that consideration is given to the structure and the contracts to ensure the supply of the service is medical and direct to patients, for example a group of doctors in a limited liability partnership (LLP), with corporate members.
Welfare
VAT exemption may also apply to various services relating to that medical care including in limited circumstances welfare advice and information, where welfare advice or services relate directly to:
o Physical or mental welfare of elderly, sick, distressed, or disabled persons; and/or
o Care or protection of children or young persons.
We reported on a case recently involving Window to the Womb (WW) franchisees who conducted over 120,000 ultrasound scans annually and are CQC registered because they perform a ‘regulated activity’ at specified premises, defined as ‘diagnostic and screening procedures’. Their principal purpose was found to be the monitoring of the pregnancy and if necessary, to provide a diagnosis of any abnormality shown by the scan for parents to follow up.
Other services
Some services doctors perform are subject to VAT if those services breach the threshold beyond which there is a legal requirement to register for and to charge VAT. The threshold is currently at £85,000. The types of services provided by a doctor which are not necessarily for the direct health and welfare of a patient is subjective, for example in some cosmetic surgery, or in providing guidance for a hospital department through consultancy or giving lectures or training.
Lectures and training
Courses if they are provided by an eligible body, may be covered by the education and vocational training exemption but lectures on behalf of pharmaceutical companies, or medical guidance as an external consultant to a private hospital, are likely to be subject to VAT.
Lecturing as part of a medical training course or continuing professional development, 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 may be exempt if their primary purpose is to protect the health of the individuals attending. Presentations given to a non-medical audience on, for example, medical developments or drug research findings are considered to be taxable.
Medico-legal services
Medico-legal services involving the production of reports on which the court may rely in order to award damages or assess claims, are subject to VAT. This is because their primary purpose is not specific to the protection, maintenance or restoration of a person’s health. If the court uses the report to confirm treatment as with psychiatric patients then this may fall to be exempt if the patient has been examined and then will be placed into a medical facility for treatment, for example.
Where the required primary purpose is not at the heart of the activity and that activity is paid for in order for the recipient to make a profit (ie not just a reimbursement of expenses incurred), these are usually business activities.
Consultancy services
Providing consultancy services outside of employment, for example, to set up a department with protocols or to assist with appropriate recruitment or policies, is likely to be considered taxable. This is because the primary purpose is to assist with setting up an efficient business in order to provide a medical service, rather than as part of the delivery of that service to a patient for their health. This is why accountancy and business advice carries VAT even if it is for a doctor’s private practice.
Cosmetic surgery and treatment
HRMC set out their view in https://www.gov.uk/guidance/health-professionals-pharmaceutical-products-and-vat-notice-70157 stating that 'Each case will need to be considered on its individual merits. However, we will generally accept that cosmetic services are exempt where they are undertaken as an element of a health care treatment programme. Where services are undertaken purely for cosmetic reasons, they will be standard-rated.'
The principles underlying the VAT liability of cosmetic surgery derives from PL d'Ambrumenil and another v CCE; Dispute Resolution Services Ltd v CCE [2005] CJEU Case C-307/01. This case was determined on the grounds that medical procedures are not automatically exempt just because they are performed (or supervised) by a doctor. The courts have ruled consistently that any consideration for VAT relief should be narrowly construed hence treatment is not automatically assumed to be exempt, but standard-rated. Although there may be scope for cosmetic work to fall within the VAT exemption, it is crucial for there to be some clinical assessment of the underlying reasons for why the work is being performed. This should include a record of any therapeutic or psychological reasons for the work being done and conclusions drawn as to whether or not this is to protect, maintain or restore the health of the individual. Health is not merely physical of course, but mental health may not always be suitably assessed by a surgeon and this needs to be considered.
Problems will always arise, such as the confidentiality of a patient’s treatment if HMRC are able to view records maintained, but this must be taken into account when devising the structure of such records. For example, a surgeon may pay for and use a standard checklist provided by a mental health expert to diagnose body dysmorphia with scores associated to enable a diagnosis to be reached even if the surgeon is not suitably qualified in the eyes of HMRC.
Photographic evidence may be necessary and post-operative questionnaires completed on mental well-being including activities engaged in or pain, anguish or anxiety (all government phrases in the context of the Equality Act 2010 for assessing employees’ mental health for example) no longer suffered. GDPR and storage needs to be considered and how to distinguish between medical and underlying business records in order to provide appropriate evidence for decisions taken. It is a very difficult tightrope to tread without proper structure to diagnosis and treatment; and it is with real consideration not just the hope that because you are a doctor, the service is exempt.