Doctors / GPs

VAT considerations for doctors and locums

simon

Simon Misiewicz

10th February 2019

What are the VAT considerations for doctors and GPs?

Which doctors services are tax exempt?

No VAT charge on medical work

HMRC’s website shows the services doctors and GPs provide that are exempt when both of the following conditions are met:

  • The services are within the profession in which you register to practice
  • The primary purpose of the services is the protection, maintenance or restoration of the health of the person concerned

The following are examples of services which HMRC accept are for the primary purpose of protecting, maintaining or restoring a person’s health:

  • health services provided under General Medical Services (GMS), Personal Medical Services, Alternative Provider Medical Services, General Dental Services and Personal Dental Services contracts
  • sight testing and prescribing by opticians (only in England, Wales and Northern Ireland)
  • primary eye examinations and secondary eye examinations (only in Scotland)
  • enhanced eye health services
  • laser eye surgery
  • hearing tests
  • treatment provided by osteopaths and chiropractors
  • nursing care provided in a patient’s own home
  • pharmaceutical advice
  • services involving the diagnosis of an illness or the provision of analyses of samples forming an important part of a diagnosis

Your supply will only be exempt if it involves patient care. For example, where you are required to monitor a patient involved in the trial for adverse reactions which may be detrimental to their health.

If your involvement with the patient is restricted to monitoring side-effects for analytical / testing services which do not relate to an individual patient, this service is standard-rated.

Charging VAT on medical supplies/services

There are times when doctors/GPs need to charge standard rate of VAT. Examples being:

  • The charging of medical reports for third parties such insurance or legal companies
  • Health services not performed by an appropriately qualified and registered health professional. Except when either directly supervised by such a person or provided within a hospital. Or within other state-regulated institutions providing healthcare
  • Services not aimed at the prevention, diagnosis, treatment or cure of a disease or health disorder, such as paternity testing
  • Writing of articles for journals
  • Services directly supervised by a pharmacist
  • General administrative services such as countersigning passport applications and providing character references
  • Supplies of health professional staff. Except when exempt from VAT under the nursing agencies’ concession.

Medical reports and VAT

Insurance companies may request medical reports. Some services, whilst forming a mandatory condition of the policy once accepted, have a therapeutic purpose. HMRC accept that the following medical services commissioned by insurance companies meet the purpose test and qualify as an exempt supply of health in principle:

  • Health screening under private medical insurance policies – these are regular check-ups to detect early signs of disease
  • Income or credit protection insurance. Medical services where the policy holder has fallen ill (as opposed to losing his job).  And which you aim at assisting the individual to return to a normal life
  • Motor insurance – where medicals services are provided under a policy to assist in enabling an injured motorist to return to full health (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
  • Bringing together of parties to a contract of insurance
  • The administration of policies or the handling of insurance claims under such contracts

Medicals and reports provided purely for the purposes of valuing policies for tax reasons. For example, in relation to Inheritance Tax, are liable to VAT at the standard rate.

Psychologists’ services

The Health Professionals Council regulate all psychologists. This means any supplies of medical care are exempt from VAT.

Practitioner psychologists come under 7 domains:

  • clinical
  • counselling
  • educational
  • forensic
  • health
  • occupational
  • sport or exercise

There’s no change in VAT treatment for those that work purely in academic research/experimental psychology and who do not offer services to the general public.

‘Medical care’ means any service relating to the protection, maintenance or restoration of the mental health of the person concerned.

Medical care includes services such as counselling, working with children with emotional problems. Dealing with criminals’ behavioural problems or running stress management courses. It does not include supplies of time management services, which are not related to the mental health of the client.

Occupational health services

Pre-employment medicals:

The medicals are taxable. Primarily done so that the employer can make a decision on recruitment.

Post-employment medicals:

Where these are to make sure a person is medically well enough to undertake proposed work activities. Assess whether proposed work could adversely affect their health. And to make recommendations to minimise any risk accordingly or determine whether early retirement on ill-health grounds is appropriate. Then the principal purpose is protecting the health of the individual concerned and the supply is exempt.

In-service health screening:

As the aim is to protect, restore and maintain the health of the individual, they are exempt from VAT.

Risk assessments including advice on ergonomic layouts:

Whilst many are undertaken as a result of statutory health and safety requirements. These are generally not undertaken by health professionals in the exercise of their respective professions. As such they’re taxable whether undertaken by a registered or non-registered health professional.

Training and advice:

This may qualify as an exempt supply of education, but otherwise essentially represents the occupational health provider’s role in promoting and advising on health issues for the purposes of maintaining the good health of the company’s employees. Therefore we consider it exempt as medical care.

Self-employed locums

VAT is charged where self-employed locum doctors that provide services to an employment business. This is only the case when a third party is legally responsible for providing health care. The fact that the locum GPs may be supplied to a prison or other institution where they may not be supervised by any medical staff does not mean that the employment business supplying the locum doctor to the third party is legally responsible for providing healthcare to the final patient.

Goods supplied by doctors/GPs and VAT

The payments you receive from the NHS for dispense items for those zero-rated patients, the items must be:

  • dispensed to the patient on the basis of an NHS prescription
  • taken away from the surgery
  • supplied for the personal use of the patient

NHS payments received in respect of the drugs or appliances that you personally administer, inject or apply to a patient in the course of medical treatment are exempt. Even if you have the authorisation to provide NHS pharmaceutical services.

Does your GP surgery need to charge VAT?

Our team of GP and Doctor accountants are focused to help you make more wealth and pay less tax on your business and investment activities. This article addresses GP VAT Charges.

The fact that VAT is a cost of running a GP practice is of course nothing new. The large majority of services delivered to patients are exempt from the tax, which prevents its recovery on the costs of providing those services.

Most GP practices are therefore not required to be VAT registered. But beware. The assumption that VAT does not play a role in this sector, except as a cost, no longer holds true.

GP federations – New VAT issues

The advent of GP federations, established to bid for Clinical Commissioning Group (CCG) contracts, brings several new VAT issues into play:

  1. Has the GP federation considered the possibility that any funding received to cover its first (say) 12-18 months operating costs will be liable to VAT? This money is unlikely to be a payment for a provision of healthcare services although it may be for research or studies into the provision of healthcare in the local area. It will therefore most likely be liable to VAT. Has the federation correctly identified the date from which it should therefore be registered for VAT in relation to this receipt of funding, provision of consultancy or research services?
  2. On the assumption that the local CCG is the counterpart for these services, have both parties considered the potential need to charge VAT? CCGs are entitled to recover VAT on specific types of expenditure and that should be considered in relation to these contracts.
  3. Is there a cost sharing arrangement with individual practices to cover the operating costs of the federation? If so, has the VAT treatment of the recharges been considered? As most of the day-to-day costs are likely to be salary related, the recharge of these costs can effectively result in the creation of VAT out of thin air. There is, however, an opportunity for an efficient means of dealing with the cost sharing arrangement between individual practices, and I discuss this below.

Cost Sharing Exemption

Both EU and UK VAT law contains legislation designed to relieve VAT on the recharge of costs between ‘independent groups of people’ who make exempt or non-business supplies. The UK legislation was introduce in July 2012. This is therefore a basic provision of UK and EU law, which furthermore does not require HMRC permission. It can also be applied on a retrospective basis.

Where a legal entity is established, referred to in UK law as a cost sharing group (the CSG) set up to provide services to its members. Then those services are exempt from VAT when you satisfy certain conditions. In this case, the CSG would be the GP federation.

Let’s take each condition in turn:

The CSG must be an independent entity. A GP federation is typically an entity limited by shares, with each GP practice holding an equal share. As such, the GP federation is clearly independent from each of its members. This because none of them has a controlling interest. The members must carry on exempt activities This condition is clearly satisfied by the individual GP practices. The services must be directly necessary for the members’ exempt activities.

In this case, the members are of course the GP practices. This is quite a involved test. In some cases it will require an analysis of the members’ exempt and taxable activities to ensure that the exemption from VAT only applies to the recharge of costs to support the members’ exempt activities.

As a GP practice rarely makes any taxable supplies, this condition will clearly be satisfied in this case. The CSG must only recover the exact cost from its members

In simple terms, the CSG must not seek to make a profit.  It must be able to demonstrate that it applies a methodology which supports cost recovery from its members. A detailed analysis through the federation’s management accounts would provide appropriate support.

The application of the exemption must not cause a distortion of competition.

In practice, this condition will always be satisfied providing it is clear that the federation is a closed loop. Only seeking to support its member practices. In other words, this is not a commercial outsourcing concern in competition with other third parties. The last issue to consider is the employment of staff by the federation. In my experience, senior staff can be seconded to the federation in its first few months. This to deal with issues arising from NHS pensions arrangements.

For the cost sharing exemption to work. All staff will need to be employed by the Federation or seconded in a manner that will satisfy an HMRC concession to relieve the secondment from VAT.

To ensure the CSG incurred its own staff costs without VAT it would be necessary to do one of the following:

  • Change the entity employing the affected staff so that the CSG becomes the legal employer
  • Establish joint contracts of employment between the CSG and the current employer(s). Again, this change would need careful consideration of any employment or pensions issues, or
  • The CSG would pay the affected staff directly. Including payroll taxes and pension. So that the staff are treated as seconded to the CSG. The CSG can then recharge these costs back to its members in the required proportions. It would be perfectly acceptable for the federation to bid for contracts from the CCG. Plus, still be separately eligible to operate the cost sharing exemption. In this case the federation would need to show appropriate separation of costs relating to CCG business. Plus, that relating to the operation of the cost sharing exemption.

Services supplied by the federation must be necessary

As I’ve already mentioned, the services supplied by the federation must be directly necessary for the members’ activities. And, therefore by association any costs it incurs must only be those relating to the services provided to its members. It is possible for a federation to discover that it satisfies the cost sharing exemption effectively by accident. Purely because of the way it interacts with its members. This leads to the final issue. Whether to alert the HMRC. Particularly if the federation wishes to apply the exemption on a retrospective basis.

There is no requirement to seek approval from the tax authorities. But, it can demonstrate good governance to notify them that the federation is operating the exemption. Without seeking written approval or inviting an audit.

This would provide the federation with a greater level of certainty in relation to its VAT affairs in the future.

In the event of challenge, no penalties should apply. As long as the federation has taken reasonable care, most likely by seeking professional advice into its VAT affairs.

Other VAT considerations

HMRC accept that cosmetic services are exempt where they’re undertaken as an element of a health care treatment programme. Service is undertaken purely for cosmetic reasons with a standard-rate.

Lectures by doctors/GPs given as part of a medical training course or Continuing Professional Development (CPD)and training sessions to first aiders, are VAT exempt.  View this under supply of private tuition under the education exemption. This only applies where doctors/GPs are invoicing as a sole trader or under partnership.

Presentations to promote health are also exempt.  As their principal purpose is to protect the health of the individuals attending. However, if you present to a non-medical audience on the latest medical developments, this is taxable.

Such services as the below are also exempt the principal purpose of protecting the health of the person:

  • Counselling
  • Contraception and sterilisation (and reversals)
  • In Vitro Fertilisation (IVF) treatment

Care services can be exempt, but only when the service is health or nursing care that provides either:

  • Under the direct supervision of a health professional (other than a pharmacist) who monitors the services through regular checks
  • Or in a hospital or nursing home

If you’re an agent, your commission, fee or any other charge that you make for arranging and administering the supply is standard-rated.

Further reading:

NHS pension basics

VAT considerations for Doctors and GPs

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