VAT for Healthcare and Medical Services

Healthcare and medical services benefit from several important VAT reliefs in the UK. Most medical services provided by registered health professionals are exempt from VAT, whilst certain pharmaceutical products and medical equipment can be zero-rated when specific conditions are met. Understanding these rules is essential if you work in healthcare or supply goods and services to the medical sector.

Medical Services Provided by Registered Health Professionals

If you're a registered health professional, your services are exempt from VAT when two conditions are met:

1. The services are within the profession in which you're registered to practise

2. The primary purpose is to protect, maintain or restore the health of the person concerned

Who Counts as a Health Professional?

You must be enrolled or registered on the appropriate statutory register. Qualifying professionals include:

Medical practitioners (including anaesthesia associates and physician associates)
Nurses, midwives and health visitors
Dentists and dental therapists
Pharmacists and pharmacy technicians (in England, Scotland and Wales)
Optometrists and dispensing opticians
Physiotherapists
Occupational therapists
Chiropodists or podiatrists
Dietitians
Paramedics
Radiographers
Speech and language therapists
Clinical scientists and biomedical scientists
Osteopaths and chiropractors
Practitioner psychologists
Arts therapists
Hearing aid dispensers

Therapists without statutory registration (such as acupuncturists, psychotherapists or hypnotherapists) cannot currently exempt their services from VAT. The UK links VAT exemption to statutory registration as an objective way of defining health professionals.

Examples of Exempt Medical Services

The following services are exempt from VAT when provided by registered health professionals:

Health services under General Medical Services contracts
Sight testing and eye examinations
Laser eye surgery
Hearing tests
Treatment by osteopaths and chiropractors
Nursing care in a patient's home
Pharmaceutical advice
Diagnosis of illnesses and analysis of samples or scans

Services That Are Not Exempt

Some services provided by health professionals remain taxable at the standard rate of VAT:

Services not performed by an appropriately registered health professional (unless directly supervised by one or provided within a hospital)
Services not aimed at preventing, diagnosing or treating disease (such as paternity testing)
General administrative services (countersigning passport applications, character references)
Writing articles for journals

Medical reports and certificates can be either exempt or taxable depending on their primary purpose. If the report is principally aimed at protecting, maintaining or restoring health, it's exempt. However, if it's done solely to provide a third party with information for insurance or legal decisions, it's taxable at the standard rate.

Services Provided by Health Institutions

Hospitals, hospices, nursing homes and other state-regulated institutions providing medical care can also exempt their services from VAT.

What Qualifies as a Health Institution?

An institution qualifies when it meets any of these conditions:

It's a hospital
It's a hospice or nursing home that is approved, licensed or registered under relevant social legislation (or exempted from registration)
It's any other state-regulated institution providing medical care

The institution can operate on either a charitable or commercial basis and still qualify for exemption.

Exempt Services from Qualifying Institutions

Services are exempt when both these conditions are met:

1. The supply consists of care or medical or surgical treatment connected with the health of the beneficiary

2. The care or treatment is provided under the terms of an approval, licence, registration or exemption from registration

Examples of exempt services include:

Medical or surgical procedures
Nursing sick or injured patients
Diagnostic services (pathology laboratories, scanning units)
Meals and accommodation for inpatients, residents or care beneficiaries

Services That Are Not Exempt

Not all services provided by health institutions are exempt. These remain taxable:

Services not provided under the terms of approval, licence or registration
Services to visitors (not patients or residents)
Goods or services separable from care or treatment (such as telephone charges, newspapers, cigarettes)

Special note on cosmetic procedures: treatments using Class 3B and 4 lasers or intense pulse light machines are only exempt if they're part of a treatment programme following diagnosis of a medical condition by a registered health professional. Procedures carried out for cosmetic reasons are taxable at the standard rate.

Pharmaceutical Products and Prescriptions

Qualifying pharmaceutical goods are zero-rated when they're:

Dispensed to an individual for their personal use
Provided on prescription from an appropriate practitioner
Dispensed by a registered pharmacist or in accordance with relevant legal requirements

This zero-rating applies to drugs, medicines and other goods available on prescription, as well as contraceptives and smoking cessation products.

Drugs and medicines supplied to hospital inpatients, residents or people attending healthcare premises can also be relieved from VAT when they're part of the package of care and treatment.

Medical Equipment Purchased with Charitable Funds

Special zero-rating rules apply to medical equipment and services when purchased with charitable or donated funds by eligible bodies.

Eligible Bodies

The following can purchase qualifying goods at the zero rate:

NHS trusts and health boards
Hospitals whose activities are not carried on for profit
Health authorities and clinical commissioning groups
Research institutions not operating for profit
Certain charitable institutions providing care to chronically sick or disabled people
Any person or organisation purchasing qualifying goods for donation to an eligible body

A hospital or research institution operates on a not-for-profit basis when it cannot and does not distribute any profit, and applies any surplus to furthering its objectives.

Qualifying Charitable Institutions

Charitable day centres are eligible when they:

Do not exist primarily for social or recreational activities
Provide care or medical treatment where, over an extended period, the majority of recipients are chronically sick or disabled people

Charitable hospices and residential care homes are eligible when they:

Provide institutional care or medical treatment where the majority of recipients are chronically sick or disabled
Are approved, licensed or registered under relevant social legislation (or exempted from registration)

Charitable domiciliary care providers are eligible when they provide medical, personal or nursing care services to disabled people in their own homes.

Conditions for Zero-Rating

For equipment to be zero-rated, these conditions must be met:

1. The goods are purchased either by an eligible body or for donation to one

2. The supply is of qualifying goods or services, or the repair and maintenance of qualifying goods

3. If the supply is medical, scientific, computer, video, sterilising, laboratory or refrigeration equipment, it's mainly for medical or veterinary research, training, diagnosis or treatment

4. When purchased by an eligible body, the goods are paid for using charitable or donated funds

5. The purchaser provides the supplier with a valid declaration of eligibility or sufficient evidence demonstrating eligibility

This relief covers both the purchase of equipment and its repair and maintenance.

Transport Services

Transport services connected with healthcare can have different VAT treatments:

Exempt: Transport that is an integral part of exempt care and treatment provided by a qualifying institution, or transportation of sick or injured persons to or from medical care in a vehicle specially designed or adapted for the purpose.

Zero-rated: Passenger transport in vehicles designed or adapted to carry at least 10 people, or vehicles modified to carry disabled passengers where the vehicle could previously carry at least 10 people.

All other transport services are liable to VAT at the standard rate.

Registration for VAT

If you provide healthcare services, you must consider whether you need to register for VAT. Even if most of your services are exempt, you may still need to register if you provide any taxable services that take your total taxable turnover above the VAT registration threshold.

When your supplies are entirely exempt, you cannot recover VAT on purchases and overheads. However, if you make both exempt and taxable supplies, you may be able to recover some VAT using partial exemption rules.

Sources

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.

VAT for Healthcare and Medical Services