Fees paid for the health care services of certain health professionals are exempt from UK value added tax (VAT). This includes the health care services of doctors, nurses, dentists, osteopaths, chiropractors and other people with medical qualifications. This exemption in UK law is based on the relevant European Union (EU) VAT directive which however gives the individual EU member states the scope to decide precisely which types of medical specialist and health care are covered by the exemption.
As a result of decisions of the European Court of Justice, the UK tax authority HM Revenue and Customs (HMRC) issued Revenue and Customs Brief 06/07 which confirms that medical care and treatment provided by the National Health Service (NHS) is exempt from VAT. Medical services for the purpose of the VAT exemption are services to protect or restore the health of an individual. Services by a medical professional that are undertaken to help a third party such as an insurance company to reach a decision are in principle subject to VAT. The exemption therefore depends on the purpose for which the services are undertaken.
When drugs are dispensed on an NHS prescription they are exempt from VAT. Drugs provided on private prescriptions are however subject to VAT at the standard rate. Generally, doctors who dispense drugs have to register for VAT and must account for the VAT on their taxable income as well as reclaiming the paid VAT on drugs, medicines or medical appliances acquired for dispensing to patients.
According to HMRC the following services would not qualify for the VAT exemption under the health category:
Services not requiring medical skill and knowledge; Services that do not involve medical care, for example writing books and articles; Services required for legal reasons, for example in connection with dispute resolution; Analysis performed for medical trials; or Providing references or signing passport applications.
The VAT exemption applies to the work of unqualified personnel when they are supervised by qualified medical professionals. Some Tribunals have found that this supervision test was satisfied when a specialist was present for some of the time and available on call for the rest of the time to provide advice that might be needed by the unqualified personnel. However there is no precise definition of when the exemption applies to such cases and the VAT treatment depends on the facts of each case.
The VAT exemption also applies to the supply by an employment bureau of nurses and nursing auxiliaries providing health care. This exemption applies if the bureau makes the nursing staff available to a nursing home and the bureau is acting as principal and registered with the appropriate body.
Charges made by hospitals (registered under the appropriate law) to patients are also exempt from VAT. The exemption relates to the provision of care or the provision of medical or surgical treatment and also applies to any goods supplied in connection with this.
The definition of “care” covers the protection, control or guidance of an individual for meeting medical or personal needs, usually involving contact with the individual receiving the care. The provision of care does not need to involve medically qualified staff. HM Revenue and Customs accept that the definition of care includes activities such as:
Assisting everyday tasks for residents in a home for the elderly, infirm or disabled; Accommodation and meals for inpatients, residents or other recipients of care; Supervision of children in a day nursery; or Leisure activities if these are not separable from the main supply of care.
However provision of catering for staff is not included in the VAT exemption.
As the VAT exemption for health relates to services provided directly to patients, it does not cover services supplied to the hospital itself rather than supplied directly to the patients. These services would be chargeable to VAT at the appropriate rate.
Where a charge by a doctor does not qualify for the exemption as a health care service because it involves a report or opinion for insurance purposes, consideration should be given to whether the service may be exempt from VAT under the category of insurance services which can also be exempt under some circumstances. In addition, certain health screening services required in relation to insurance contracts could be VAT exempt as health care services because they are contributing to the health care of the patient by detecting early signs of disease.
Sources:
HMRC website www.hmrc.gov.uk
Revenue and Customs Brief 06/07, HMRC 2007
“Value added tax” by Andrew Needham and Steve Allen, Bloomsbury Professional, 2009