Q:
Hello there, I am trying to find out what the VAT position is for an Internet Private Clinic that I operate with in the UK.
The clinic allows patients to complete a thorough online health assessment for a given health condition. We then have a number of UK registered doctor’s available to assess the patient’s condition. If suitable the doctor will then issue a prescription for a particular medicine.
The patient then pays for the prescription and medicine in one all inclusive price.
My clinic then forwards the prescription to a UK Pharmacy who dispenses the medicine to the patient. At the end of each month I receive an invoice from the Pharmacy for all medicines they have dispensed for my clinic.
With prescriptions dispensed by Pharmacies VAT zero rated and Medical services by doctors been VAT exempt. I need to clarify that my Clinic is VAT exempt.
I would really appreciate your thoughts on this?
Regards
AB
A:
That’s a really interesting question and to be honest, I don’t know the answer! It also covers a big subject area and I’ve been thinking about it for the past couple of days, which is why it has taken me longer than normal to post this reply.
The liability will depend on the specific services provided and how those services are carried out. Just because the services of registered health professionals can normally be exempt doesn’t mean that the exemption will also apply to the services of an online clinic. And if the VAT liability is important for your business model, then you really should get definitive confirmation about the VAT position, possibly also request a formal ruling from HMRC, otherwise you could end up with a real financial mess in the future. I can’t find any guidance about this specific business activity in HMRC’s VAT guidance so I’m not sure if there are any precedents to follow.
First of all, HMRC’s views about the VAT position of services provided by health professionals is set out in VAT Leaflet 701/57 which is here http://tinyurl.com/yfd3j26 on the HMRC website. I’m sure you’ve already seen this but if not, sit down and read it cover to cover. If your business is in the health sector, you need to make sure you’ve covered every aspect as it will affect not only the prices you charge for your goods/services, but also how much VAT you can recover if some or all of your services are exempt. It’s not a long notice and you need to invest the time in reading up on this stuff. It explains when services of health professionals can be exempt and when drugs dispensed by pharmacists can be zero rated.
Unless the supplies made by your clinic fall within the strict guidelines set out in the legislation and explained in the Notice, you’d have to assume that the services of the clinic and the drugs are both standard rated. So that’s got to be your starting point.
For the purposes of this post, I assume that the doctors you would be using are all properly qualified and registered under the UK medical register so that their services would normally be exempt under the VAT legislation as set out in section 2 of the VAT Notice. What you have to establish is whether the service provided by the clinic fall within the exemption as health services.
You say that “The clinic allows patients to complete a thorough online health assessment for a given health condition. We then have a number of UK registered doctors available to assess the patient’s condition.”
HMRC state in their leaflet that: exemption will only apply to health services supplied by registered health professionals which are intended principally to protect (including maintain or restore) the health of an individual.
At first glance, it looks as though the services of your clinic could qualify for exemption as the primary concern is to assess and restore the health of the patients. However I wonder whether analysing the results of a questionnaire – online or otherwise – actually counts as health services given the way it could be carried out. Section 2.3 of the Notice contains a list of services which HMRC believe to be exempt:
health services provided under GMS, PMS, APMS, PCTMS, GDS and PDS contracts
sight testing and prescribing by opticians
hearing tests
treatment provided by osteopaths and chiropractors
nursing care provided in a patient’s own home and
pharmaceutical advice.
One of the main factors in all of these is that each of them involves some level of direct contact between the health professional and the patient. I assume that this means that HMRC would take the view that only services involving some direct contact – whether by the health professional or a supervised individual – can qualify for exemption.
So there are a number of issues to consider. How will the assessments be carried out? Will they be done by a member of staff or will they be done by a programme which is designed to identify those patients who may be at risk and only then a doctor is involved, so that only a proportion of patients are actually referred to a doctor? If so, then the “assessment” element might not be regarded as the provision of health care, simply a service of identifying potential “at risk” individuals and providing information, which might not qualify for exemption. However even in that situation there could be an arguement for exemption under the supervision rule – for example if the assessments are carried out by non qualified staff under the supervision of a medical professional as set out in section 4 of the VAT leaflet.
The liability could also depend on the contractual arrangements involved. For example are there different levels of charge according to whether or not a doctor or other healthcare professional is involved? In this case the charges could vary between standard rated or exempt.
You do say that the patient would pay for the assessment and prescription in one single price and in the event that teh assessment is exempt and the drugs zero-rated, then you’d have to apportion the price between the two.
Those are some of the main issues that I came up with. I’ve also had a quick look at HMRC’s internal manuals to see if I could find anything else to help – here is the link http://www.hmrc.gov.uk/manuals/vathealth/vathlt2100.htm. I couldn’t see anything that deals specifically with online medical services, but you might want to have a look through the guidance – which is more technical than the Notice and presumes a certain level of VAT knowledge – to see if you can find anything else yourself that would point you in the right direction.
I’m not sure whether this post helps much, I know I’ve rambled on quite a lot without coming to any conclusion. From a practical point of view, you might want to start by finding out what similar businesses are doing in respect of VAT and see whether your business model is the same or similar to theirs. But it’s important to remember that every VAT registered business is responsible for its own VAT affairs – in other words you can’t rely on the fact that a competitor is treating something as exempt, it always depends on your own specific circumstances.
Of course I may be getting teh whole thing out of perspective and it is possible that HMRC would agree that the services of your online clinic are exempt without any major problems! But I assume that the VAT liability is important to your business model and financial projections and I wouldn’t be helping if I over-simplified things for the sake of a quick answer. If you haven’t already, you really do need to take professional advice about this, whether from your accountant or other VAT professional. I would of course be happy be help through my formal consultancy services.
Either way it’s an interesting subject and I hope your do well in your new venture.
Marie