This brief provides clarification about Her Majesty's Revenue
and Customs' (HMRC) policy on when laboratory pathology services
are exempt from VAT.
Readership
Health professionals, hospitals, hospices, nursing homes,
pathology laboratories and any other state regulated institutions
providing medical care. A state regulated institution includes any
provider (including companies operated for profit) which requires
approval, licensing, registration or exemption in relation to those
activities.
Action
To be aware of HMRC's clarification of policy on supplies of
laboratory pathology services.
Background
As a result of the Carter report on the review of NHS outsourcing
services (2006), which recommended the streamlining of NHS services,
some NHS pathology services have been, or are being, outsourced to
the private sector. HMRC consider that such services are exempt from
VAT. Some suppliers of these services challenge that view. They think
that such supplies are liable to VAT on the grounds that:
(a) they do not amount to diagnostic services, but merely
provide information a third party to enable it to make a diagnosis,
or
(b) the providers are not state-regulated institutions or are
not making their supplies in a state-regulated institution.
HMRC'S current position
Our policy (which reflects the decision of the European Court of
Justice in the case of LuP C-106/05) is that the supply of laboratory
pathology services that directly relate to the provision of
healthcare for individual patients is exempt from VAT. This applies
to all businesses that are state-regulated and supply laboratory
pathology testing services, whether they supply the services to the
NHS or to independent hospitals.
HMRC's Notice 701/57 Health professionals and pharmaceutical
products (section 2.3) explains what medical services are and which
services performed by health professionals (including biomedical
scientists and clinical scientists) are exempt from VAT.
HMRC's Notice 701/31 Health institutions (section 2.1) says
that the exemption for care and treatment provided in qualifying
institutions is exempt when either of the following conditions is
met:
- the institution is a hospital.
- the institution is either a hospice or nursing home, and is
either: approved, licensed or registered under the relevant social
legislation, or exempted from obtaining such an approval or
registration by the relevant legislation.
That Notice does not set out the full ambit of health institutions
which HMRC consider are subject to the exemption. This Revenue and
Customs Brief is designed to do this.
This Brief confirms that:
- state-regulated pathology laboratories are 'qualifying
health institutions', for the purposes of the health
exemption.
- laboratories are providing exempt medical services when their
services are connected with the protection, maintenance or
restoration of the health of an individual.
The Guidance will be updated to reflect this in due course.
Why are state-regulated pathology laboratories 'qualifying
health institutions?'
An institution is 'state-regulated' if it is approved,
licensed, registered or exempted from registration by any Minister or
other authority pursuant to legislation. A pathology laboratory which
is state-regulated qualifies for the purposes of the exemption
irrespective of the location from which it provides its services. It
makes no difference whether it occupies premises with or within a
hospital or in a separate location.
When are state-regulated pathology laboratories providing exempt
medical care?
Services supplied by a pathology laboratory or other similar
state-registered institutions are exempt if they are:
(a) made in respect of an individual.
(b) medical services, that is, they are connected with the
protection, maintenance or restoration of the health of an
individual. These include, but are not necessarily limited to:
- tests performed as part of a routine check-up to confirm
whether or not an individual has been exposed to a particular virus
or is suffering from a certain medical condition
- diagnostic services or services helping another health
professional or health institution to make a diagnosis
- tests to establish the overall health of patients to ensure
that they are fit enough to have an operation
- other tests provided as part of the medical treatment of a
patient
When are state-regulated pathology laboratories' services not
covered by the health exemption?
Exemption does not apply when the services are not:
(a) concerned with the protection, maintenance or restoration of
the health of specific patients, for example, the analysis of
samples for general research purposes or for autopsies.
(b) performed primarily for the protection, maintenance or
restoration of the health of the person concerned but are done
solely to provide a third party with information necessary for
taking a decision on non-medical matters such as insurance claims,
or for legal purposes.
Making claims or adjustments
Where a business has accounted for VAT on supplies of pathology
services which qualify for exemption it may make a claim to HMRC
(under section 80 of the VAT Act 1994) for repayment of VAT
incorrectly accounted for subject to the conditions set out in
Notice 700/45 How to correct VAT errors and make adjustments or
claims (customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile?contentID=HMCE_CL_000077).
All claims are subject to the four-year time limit in section
80(4) of the VAT Act 1994 and to the set-off provisions in section 81
of the VAT Act and section 130 of the Finance Act 2008.
We may reject all or part of a claim if repayment would unjustly
enrich the claimant.
More details on making claims and 'unjust enrichment' can
be found in Notice 700/45 How to correct VAT errors and make
adjustments or claims (customs.hmrc.gov.uk/channelsPortalWebApp/downloadFile?contentID=HMCE_CL_000077).
Further information
For further information and advice, please contact our Helpline on
0845 010 9000.
Issued 5 July 2013