Medical services
HMRC have announced the implementation of changes to the exemption from VAT for medical services, following the European Court of Justice decision in Dr Peter d'Ambrumenil v CCE; Dispute Resolution Services Ltd v CCE (C-307/01) [2005] STC 650.
They affect certain services provided by health professionals registered on a statutory professional register who are registered for VAT. They will not impact on primary health care and core NHS services, which will remain free from VAT.
The ECJ decision concerned the VAT exemption for health services provided by health professionals registered on a statutory professional register. The court held that this exemption is restricted to 'medical care', which it defined as those services intended principally to protect the health of an individual. 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. Thus VAT liability is dependent on the purpose for which the supply is made, referred to as the 'purpose test'.
In response to the recent consultation responses and in conjunction with the British Medical Association and British Dental Association, HMRC have drawn up detailed guidance on the application of the purpose test to key services.
UK law will be amended with effect from 1 May 2007 in order to limit the exemption from VAT for health services to those services which constitute the provision of medical care.
The services most affected by the changes are:
- witness testimony/reports for litigation, compensation or benefit purposes;
- reports/medicals for the purpose of providing certain fitness certificates; and
- some occupational health services.
The changes will affect health service providers registered on a statutory professional register who provide affected services and whose total taxable income is now over the VAT registration threshold, or who are already VAT registered. Health providers who are not already VAT registered will need to consider their turnover and, if the value of all their taxable supplies, including the income from affected services, is over the registration threshold, they will need to register for VAT. Registered health professionals who are already registered for VAT, 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.
With regard to insurance-related medical services which do not qualify under the health exemption, in a recent tribunal case: Morganash Ltd (MAN/05/0749), a ruling was given that medical services which were undertaken for the purpose of enabling a provider of life assurance to decide whether to accept a proposal for a policy, fall within the scope of the UK exemption for insurance-related services, pending the implementation of the ECJ decision in the case of Staatssecretaris van Financiën v Arthur Andersen & Co (C-472/03). HMRC have decided not to appeal this case and, as a result, accept that insurance-related medical services related to the setting up of contracts, the administration of policies or handling of claims, will remain exempt from VAT, pending any amendment of the UK exemption for insurance services.
Further, the following services will qualify as exempt under the health exemption as being principally for the purposes of protecting, maintaining or restoring the health of the individual concerned:
- health screening under private medical insurance policies;
- income/credit protection insurance — medical services aimed at assisting the policyholder in returning to a normal life where he has fallen ill;
- motor insurance — where medical services are provided under a policy to assist in enabling an injured motorist to return to full health and/or work;
- any other medical service provided in connection with an insurance policy where the principal aim is to assist in restoring the health of the individual.
Medical services provided for the purpose of valuing insurance policies for tax purposes, such as inheritance tax, will become liable to VAT at 17.5%.
RCB Brief 06/07, 30 January 2007
