Healthcare services – an overview
I have noticed that I am receiving more and more queries in this area and HMRC does appear to be taking an increased interest in healthcare entities. This is hardly surprising as it can be complex and there are some big numbers involved.
(This article refers to doctors, but applies equally to most healthcare professional entities including; opticians, nurses, osteopaths, chiropractors, midwives, dentists etc.)
The majority of the services provided by doctors’ practices are VAT free. Good news one would think; no need to charge VAT and no need to deal with VAT records, returns and inspections.
However, there is one often repeated question from practices; “How can we reclaim the VAT we are charged?” This is particularly relevant if a practice intends to spend significant amounts on projects such as property construction or purchase.
The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT and consequently cannot recover any input tax. Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate). If any of these supplies are made it is possible to VAT register regardless of their value. Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £85,000 in a rolling 12-month period, registration is mandatory.
Examples of supplies of services and goods which may be taxable are:
- drugs, medicines or appliances that are dispensed by doctors to patients for self-administration
- dispensing drugs against an NHS prescription (zero-rated)
- drugs dispensed against private prescriptions (standard-rated)
- medico legal services that are predominantly legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate
- clinical trials or market research services for drug companies that do not involve the care or assessment of a patient
- paternity testing
- certain rental of rooms/spaces
- car parking
- signing passport applications
- providing professional witness evidence
- any services which are not in respect of; the protection, maintenance or restoration of health of a patient.
So what does VAT registration mean?
Once you join the “VAT Club” you will be required to file a VAT return on a monthly of quarterly basis. You may have to issue certain documentation to patients/organisations to whom you make VATable supplies. You may need to charge VAT at 20% on some services. You will be able to reclaim VAT charged to you on purchases and other expenditure subject to the partial exemption rules – see below. You will have to keep records in a certain way (see MTD) and your accounting system needs to be able to process specific information.
Because doctors usually provide services which attract varying VAT treatment, a practice will be required to attribute VAT incurred on expenditure (input tax) to each of these categories. Generally speaking, only VAT incurred in respect of zero-rated and standard-rated services may be recovered. In addition, there will always be input tax which is not attributable to any specific service and is “overhead” eg; property costs, professional fees, telephones etc. VAT registered entities which make both taxable and exempt supplies are deemed “partly exempt” and must carry out calculations on every VAT return.
Partial Exemption
Once the calculations described above have been carried out, the resultant amount of input tax which relates to exempt supplies is compared to the de-minimis limits (broadly; £625 per month VAT and not more than 50% of all input tax). If the figure is below these limits, all VAT incurred is recoverable regardless of what activities the practice is involved in. More details here.
VAT registration in summary
Benefits
- recovery of input tax; the cost of which is not claimable in any other way
- potentially, recovery of VAT on items such as property, refurbishment and other expenditure that would have been unavailable prior to VAT registration
- only a small amount of VAT is likely to be chargeable by a practice
- may provide opportunities for pre-registration VAT claims
Drawbacks
- increased administration, documentation and staff time
- exposure to penalties and interest
- may require VAT to be added to some services provided which were hitherto VAT free
- likely that only an element of input tax is recoverable as a result of partial exemption
- uncertainty on the VAT position of certain services due to current tax cases
- potentially dealing with the Capital Goods Scheme (CGS)
- possible increased costs to the practice in respect of professional fees.
Please contact us if any of the above affects you or your clients.
