VAT exemption of health and medical supplies: A tale of two territories

Tuesday, February 28, 2012

by Nick Ryan

Advising clients on the VAT treatment of professional medical services in Ireland and the UK over the past month has highlighted once again that VAT rests heavily on interpretation and application.
There have been a number of ECJ decisions which have impacted on the VAT treatment of professional medical services and seen a number of EU territories provide for revised clarification as to what medical services do and do not fall within the exemption.
As this re-clarification is initiated as a result of these ECJ decisions, and this includes the Rank Group, you would expect there to be uniformity in approach and in interpretation in that pretty much the same rules will be in place in each territory as the issue of fiscal neutrality is once again considered. But no, this is not the case and it is the basis of interpretation that holds the key.
In Ireland, the overall conclusion is that the decisions have lead to a widening in the application of the exemption with the interpretation of the decisions concluding that the position rests on the passing of two tests. Firstly that the services supplied fall within the meaning of those services considered to be provided by a medical professional i.e. by a health professional that is registered or enrolled under an appropriate regulatory board or equivalent legislation. The exemption applies to those services provided by the health professional supplied in connection with a patients’ health i.e. diagnosis and protection and cure and, also include services carried out on behalf of employers and insurers where it is to confirm the status of the patients’ health i.e. to confirm the presence of a disease or the conducting of a medical examination. This latter facility where the qualification for the exemption is not controlled under the remit of a principal provider of care confirms that the provision of care or medical services can be provided on an arm’s length basis. This differs from UK interpretation.
Once this has been established the second test to confirm whether the exemption applies or not is one which creates a further anomaly with UK interpretation. In Ireland it has been concluded that the exemption is not dependent on the legal form of the taxable person supplying the medical services as long as the medical services are provided on the same basis as if they were by either a self employed medical professional.
So how does the UK interpretation differ? The VAT treatment applicable to the supply of healthcare professionals was updated in November 2011 in order to fall into line with European law. Prior to November 2011 UK law provided for the supply to be VAT exempt subject to a number of conditions being met, this approach was considered not to correlate with European law and therefore the position was revised.
Following this realignment to European law based on the ECJ decisions UK HMRC took the view that the qualification for the exemption was narrowed not widened, and that the exemption was only applicable to the provision of professional medical services where they were provided by the principal provider of the care. UK HMRC took the view that were a medical professional provided their services under the canopy of a limited company, either as the owner of that company of contracted through it, then their supply could qualify as a supply of exempt medical services where the company could clearly demonstrate that it is the principal provider of care to the parties concerned. Where this was not the case the supply did not qualify as a supply of exempt medical care services rather, it was deemed to be a taxable supply of staff.
There is a clear difference in interpretation which leads us to ask the question of how does fiscal neutrality deal with this. Can two medical professionals, one in the UK and one in Ireland, both falling within the agreed European definition or list of medical professionals, both providing their services to a hospital and both operating as a limited company be considered to be different in the application of VAT. Could the UK professional challenge HMRC on this basis?
In Ireland the second test, or hurdle, is already highlighting problems with this interpretation. We have heard of a number of medical professionals who are operating under the canopy of a limited company falling under Revenue scrutiny as to what the VAT treatment of their supplies is, taxable or exempt. Here is where the problems arise. Revenue’s interpretation is that the exemption applies where the limited company provides the medical services on the same basis as they would be by a self employed medical professional. Where the basis is not the same then Revenue could argue that it is a supply of staff and therefore taxable. How is this determined? Does the limited company have medical health insurance to cover its services? Does the self employed medical professional have the same? My view is that the contract is key and this provides for the primary point of challenge by Revenue in assessing whether the services supplied are done so on the same basis as those of a self employed medical professional. If the contractual terms do not provide for this the Revenue have the facility to challenge the VAT treatment.
I would recommend that any medical professional who is considering operating under the legal company structure or is currently doing so need to review the contract they are to operate under to ensure it meets with Revenue’s interpretation as to the application of the interpretation.
If you would like assistance in advising clients on this or have any questions on this then please contact the VAT Practice.

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  1. Ann Cotter says:

    I agree this is open to challenge in Ireland. There are strict rules in the medical profession regarding professional indemnity insurance i.e. the medical professional only is covered (not the company) therefore this strengthens Revenue’s case that the company is supplying staff and not medical services. I would like to hear further views on this.

    Your mailshot is very good.

  2. Ann Cotter says:

    My comment is set out above.
    Ann Cotter

  3. REvenue in their vat on medical services leaflet state -In some cases health care professionals supply their services through an incorporated entity. The ECJ (European Court of Justice) in the case of Kugler C -141/00 held that the exemption is not dependant on the legal form of the taxable person supplying the medical services so the exemption can apply where services are supplied through such an entity – appears from this that medical services supplied through a company would still be exempt – if they tax it as supply of staff then that treatment would have to apply to other entities – if a get a building firm to do a labour only extension to my house then
    are they supplying staff to me (23%) or labour to built the house 13.5%. My own view is that a company supplying medical services should come under the general vat exemption. Of course revenue could have a different view ! be interested in further views on this

  4. We deal with a number of incorporated medical companies. Your article is succinct and very relevant to current Revenue focus. You have hit the nail on head in relation to the distinction between the supplies – the upshot is that the exemption from VAT only applies in relation to the actual provision of medical services. Where a medical professional provides services to another doctor , hospital or through a recruitment agency, regardless of whether he/she does so through his or her limited company or as a sole trader then I would be of the opinion that there is in fact multiple services being supplied, no doubt the patient is receiving medical care but simultaneously there is another service, which at first view is not apparent, this being a service supplied to the hospital or doctor – its best explained by asking the question “What is the hospital paying the doctor or the doctors company for?” There is a service provided to the hospital and its not a medical service i.e. the doctor isn’t curing the hospital – the principle of multiple supplies has long been established and Revenue Technical Services have confirmed their position in agreement with this analysis
    Kieran Coughlan,

  5. Nick Ryan says:

    Hi Kieran,

    Thank you for the comments and feedback, always welcomed. Revenue are certainly focusing on this area with dental associates also falling under their scrutiny. Interesting days ahead I suspect.


  6. Clodagh says:

    Hi Nick,

    Thank you for the advice published in this blog. I hope you don’t mind me picking your brain.

    I work in recruitment and supply staff to clients. I have been asked by a client that provides dental services to supply them staff that will work primarily in customer service over the phone as agency employees.

    This client don’t want us to charge VAT on the payment of staff wages saying they should only pay VAT for the recruitment fee associated with it.

    By reading the VAT Act and annexes there is certainly a grey area but as the recruitment agency will be the employer of these staff I don’t think this is actually feasible as they are not working for the medical company directly.

    Any suggestion will be greatly appreciated.


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