New guidance suggests that supplying medical services via a company may no longer be VAT exempt.
The guidance in VAT notice 701/57 states that if you are a qualifying health professional your services are exempt when both of the following conditions are met: 1. The services are within the profession in which you are registered to practise. 2. The primary purpose of the services is the protection, maintenance or restoration of the health of the person concerned.
However, in a recent tax case (Rapid Sequence Limited) HM Revenue & Customs (HMRC) have successfully argued that locum doctors provided to NHS hospitals via a medical agency was a taxable supply (not an exempt supply). As such the medical agency should apply VAT to their invoices.
The tax tribunal found that the VAT exemption only applies to the ‘supply of medical care’ and in this case the agency was supplying staff to the NHS not providing medical care.
This is a very worrying decision as it has been suggested that this is the first case in which HMRC have successfully argued that an EC Directive overrides UK legislation to the taxpayer’s detriment.
It is very early days but the immediate concern is how this ruling affects doctors who provide services through their own company. Whilst your own company is not a medical recruitment agency, will HMRC now argue that this structure is just the same as that of Rapid Sequence Limited? i.e. the supply of staff by a company.
If you are using a company as your business trading vehicle it would be prudent to review the VAT position as a matter of urgency.
A further consequence of the decision is that businesses could be subject to VAT assessments in respect of its past supplies.
The tax tribunal actually said: “We would understand if Rapid Sequence finds this outcome highly unsatisfactory.” HMRC has accepted that the wording in their guidance is “unfortunate” and “problematic” and the tribunal commented that they hoped HMRC will view Rapid Sequence’s position sympathetically – whatever that means.