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VAT: Changes to the Exemption for Medical Services from 1 May 2007

A Revenue & Customs Brief announces the implementation of changes to the exemption from VAT for medical services, following the European Court of Justice (ECJ) decision in the case of Dr Peter d’Ambrumenil.

Dr Allan Tennant reports

1st February 2007

A European Court of Justice decision of 2003 ruled that VAT should apply to medical reports with no therapeutic purpose. Today HMRC announce how they plan to implement that decision.
The changes will take effect from 1 May 2007 subject to House of Commons approval. 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 court held that this exemption is restricted to ‘medical care’, which it defined as those services intended principally to protect (including maintain or restore) 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. This means that VAT liability is dependent on the purpose for which the supply is made - referred to as the ‘purpose test’.

Services affected

  • witness testimony/reports for litigation, compensation or benefit purposes
  • reports/medicals for the purpose of providing certain fitness certificates and
  • some occupational health services.

These services will become liable to VAT at 17.5 per cent from 1 May 2007. However, this summary is not exhaustive, and health providers should consider the liability of all their services in conjunction with the guidance given in Notice 701/57 Health professionals   (January 2007). If they remain uncertain as to the liability of any of their services having read the guidance, they should contact the National Advice Service on 0845 010 9000.

Insurance-related medical services

Business Brief 29/03 issued in December 2003 gave details of certain services - such as conducting a medical to assess the level of insurance premiums - which were specifically considered by the ECJ and ruled to be outside the scope of the health exemption, and therefore taxable. The Business Brief explained that doctors and other health professionals were not required to take any action to register for VAT or charge VAT on these services until such time as HMRC formally implemented the changes.
Although such services will no longer 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 Andersen (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 - these are regular check-ups to detect early signs of disease
  • income/credit protection insurance - medical services where the policy holder has fallen ill (as opposed to losing their job) which are aimed at assisting the individual in returning to a normal life
  • 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. (Note - this does not include medicals undertaken for DVLA purposes to ensure initial or continued fitness to drive which are liable to VAT at the standard rate)
  • 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 per cent.
HMRC will shortly be issuing an Information Sheet giving advice on VAT registration and accounting issues for those affected by the changes.
If the purpose of the certificate or report is to protect, maintain or restore the health of the individual, then they are exempt, if they are to allow a third party to make a decision of a non-therapeutic nature then VAT is liable. If you follow these simple rules then what is and is not Vatable becomes clear.


Certificates & Reports
·        Exempt-sick notes
·        Non-exempt – certificates or reports allowing people to claim benefits or compensation for disability or blindness

Occupational Health
·        Post-employment medicals
·        In employment health screening
·        Training and Advice

Non Exempt
·        Pre-employment medicals
·        Fitness to join a pension scheme
·        Health and Safety
·        Risk Assessment reports

Medico-legal work
Subject to VAT

Access to Medical Records
Outside scope of VAT

Clinical Trials
·        Exempt if monitoring patient for safety purposes.
·        Non exempt if only analysing data without patient contact.

Forensic Services
·        Exempt-Medical services to victims of crime.
·        Non-exempt subsequent report

Education services
Educational talks or promoting health are exempt.

As part of your registration for VAT returns online you can receive HMRC VAT updates automatically.

DDA Online would like to thank John Barnes, VAT advisor to the GPC, BMA and VAT Director of Baker Tilly, Accountants, Leeds.  For more information phone 0113 285 5221

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