Unravelling VAT. John H Barnes VAT Director, Baker Tilly

Transcription

1 Unravelling VAT John H Barnes VAT Director, Baker Tilly

2 Unravelling VAT DDA 2014 John Barnes VAT Director

3 Unravelling VAT - Agenda What you can reclaim VAT on What you can t reclaim VAT on What is Personally Administered and why is it important for VAT? What income is subject to VAT What income is not subject to VAT Current issues causing VAT difficulties

4 What can you reclaim full VAT on? Drugs purchased for dispensing Other purchases for the dispensary (e.g. labels, bottles)

5 What you can reclaim partial VAT on Medical consumables (couch rolls, paper towels etc.) Bandages & Dressings (as they are also dispensed) Consulting room purchases (as VAT is charged on some medical reports issued by doctors) General overheads, surgery running costs, building maintenance & refurbishment

6 What you can t reclaim VAT on Purchases of drugs or appliances for administering to patients (e.g. vaccines & IUDs) Purchases of medical equipment or medical items used in the treatment room or for minor ops.

7 What is meant by Personally Administered? Customs consider that this relates to drugs or appliances administered to a patient by the doctor or nurse acting on his behalf. The administration may take place in the surgery or at the patient s home If the patient administers the drug or appliance to himself it is Self-administered not Personally Administered in VAT terms (Hence the treatment of Insulin as NOT P.A.)

8 What is the difference? Self-administered drugs are taken away by the patient in a paper bag these are dispensed for VAT purposes and the VAT is fully claimable. Personally administered drugs are taken away by the patient within their body the doctor (or nurse) has performed the service of administration and the VAT on the cost of the drug is not claimable from HMRC (but the PPA pays a VAT Allowance to cover this).

9 What can a patient take-away? Customs allow Zero rated dispensing when a patient has been prescribed ANY drugs or appliances to administer to himself, provided it is listed in the NHS Drugs Tariff. Any such item dispensed on an NHS prescription for a patient s personal use is zero rated. This includes insulin, adrenalin, dressings and bandages when prescribed to a patient to take home.

10 Is Insulin & Adrenalin dispensed? Yes, HMRC consider that Insulin and adrenalin is dispensed to patients for them to take away and self-administer. Because of this, the VAT on their purchase is fully claimable on your VAT returns The fact that the PPA also reimburse you the VAT on all injectables in their VAT Allowance does not affect your ability to reclaim the VAT on purchasing these drugs from HMRC.

11 Partial Exemption A. Dispensing related costs VAT fully claimed B. PA/vaccine/surgical costs no VAT claimed (You can claim if total exempt Input VAT from B and C is under deminimus amount of 625 per month) C. General overheads & property costs VAT can be partially claimed, based on dispensing income percentage. (but the exempt proportion counts towards the deminimus allowance).

12 Expensive PA items are a problem Some injections are very expensive items, e.g. Sandostatin LAR 20mg at including VAT. Such large items can quickly use up the deminimus allowance of 625 VAT per month ( 1875 per quarter; 7,500 per year) Doctors could make a prescription for the patient to take to a pharmacy. If they do not supply the drug, they do not incur any VAT.

13 General Medical Income Generally, dispensing fees and dispensing drug reimbursements are zero rated, BUT Reimbursements for Vaccines & Personally Administered items are exempt Most other NHS fees are exempt (GMS/PMS), but should be apportioned to Zero Rate if related to dispensing (as per VAT Notice 701/57 Para 7.1) Most fees for medical care of patients are exempt (if primary purpose is to protect, maintain or restore the health of a person)

14 Apportioning Staff salary & cost rent Staff salary reimbursement and cost/notional rents include income relating to dispensary needs to be split (As confirmed in Para 5.1 of Booklet 701/57). If using IRIS, enter these in Set-up VAT Settings GP Staff & Premises adjustments For cost/notional rent reimbursement, IRIS has Rent/Rates codes set up as mixed VAT codes, which splits it into zero/exempt

15 Fees from Patients Fees from patients need apportioning Zero rate (NHS scripts), Standard Rate (Private dispensing) and Exempt (Vaccines & medical examinations) Medical Notes photocopying is Outside Scope (Information Compliance Office Subject Access Request confirmed as non-business, statutory requirement under Data Protection Act 1998) Some non-therapeutic reports have been liable to Standard Rate VAT (D Ambrumenil case) as from

16 Liability ECJ case (D Abrumenil) In the D Ambrumenil case ECJ ruled that the exemption only applied to the provision of services in a doctor/patient relationship directed in general to the physical and mental health of the patient. The exemption would therefore only apply to the therapeutic treatment of a patient, and not to services that were not directly connected with the prevention of disease or the treatment or care of a patient.

17 VAT Liability after D Ambrumenil As a result of D Ambrumenil, VAT applies to services supplied by doctors which are primarily to enable a third party to make a decision. This affects - Reports or testimony for Litigation, compensation or benefit purposes Medicals or reports for purpose of providing certain fitness certificates Some occupational health services

18 VAT Registration as a result? Dispensing Practices will already be VAT registered and will have to implement D Ambrumenil straight away. Other practices will need to consider which types of income are affected and whether they exceed the VAT registration threshold (currently 81,000)

19 VAT liability of Insurance reports Insurance reports no longer qualify for medical exemption, as their primary purpose is to enable the Insurance Co to decide on level of premiums. However the VAT Tribunal in Morganash Ltd (MAN/05/0749) ruled that medical reports were covered by the insurance exemption. HMRC have accepted that decision (Business Brief 06/07 refers), so insurance reports remain exempt as part of the process of issuing the policy or as part of the claims handling process.

20 VAT liability of Insurance reports (2) HMRC have now given further guidance as they acknowledge that the guidance published in BB06/07 and in Notice 701/57 (Health Professionals), was not clear with regards to the VAT liability of work undertaken by doctors for insurance companies. HMRC s current policy is that for a service to fall within the exemption relating to insurance intermediaries, the following criteria must be met the service has to be insurance related, the provider must be acting in an intermediary capacity, and the service must be an intermediary service.

21 Medico-Legal work from Medicals, reports and expert witness testimony for the judicial system are S/R This is the case even if court s decision concerns the well-being of an individual. This is because the principal purpose of the service is to enable the court to make a decision.

22 Occupational Health. Pre-employment ECJ ruled these as Standard rate their purpose is to enable the prospective employer to make a decision on recruitment Also Standard Rated are medicals and reports to determine whether someone is medically fit to join a professional register

23 Post-employment medicals These are EXEMPT (for the protection of a person s health) if they are to a) Ensure a person is well enough to undertake proposed work activities b) Assess whether proposed work could adversely affect their health c) Recommendations to minimise health risks d) Determine whether early retirement on illhealth grounds is appropriate

24 Pension Scheme Medicals These are Standard Rate as the principle purpose is to enable a third party to make a decision

25 In-service Health Screening Still EXEMPT, as they are considered to be aimed at protecting, restoring or maintaining the employee s health. These include - Statutory health screening tests and management referrals because of poor attendance or poor performance at work HMRC accept that whilst these enable the employer to make a decision, the medical does protect and restore the health of the individual.

26 Reports for Benefits etc. From Standard rate applies to a) Blind & Partially Sighted benefit reports b) Blue/Orange badge reports c) Court attendance exemption reports d) Shotgun licence & Driving licence fitness reports f) Character references g) Freedom from infection certificate (to enable a person to return to school or work)

27 Miscellaneous Medical Equipment will now be generally Overhead and non-attributable rather than wholly attributable to exempt care. This is because many medical examinations, whose purpose is to enable a third party to make a decision, will become Standard Rate Dispensing Doctors will therefore recover more input tax on medical equipment

28 Disaggregation? It is possible for non-dispensing practices to keep under the VAT registration threshold if D Ambrumenil income is earned individually. If each doctor keeps their own fees out of the partnership accounts, HMRC accept that the partnership is not obliged to be VAT registered if the partnership s remaining taxable income stays under 81,000

29 New business structures Practices may set up Limited Companies or other entities to provide alternative services. These services may be therapeutic and so remain exempt from VAT if supplied by a qualified health professional Non-therapeutic services (D Ambrumenil) would be subject to VAT in whichever entity supplied them.

30 Shared resources A big VAT problem would be in respect of shared resources if different entities are established to supply different services Some shared services would be subject to VAT e.g. supplies of admin staff and facilities Some supplies would be exempt from VAT services of medically qualified staff and rent of premises or rooms (unless the rent has been Opted for Tax)

31 Avoiding unwelcome VAT To avoid VAT on shared staff, consider joint contracts of employment or letters of appointment (if possible under HNS employment rules) A VAT Group may be beneficial (one person, a partnership or a company must control all members of the VAT Group). Only corporate bodies can be members of a VAT Group. A partnership cannot be part of a VAT Group

32 New Surgeries/Extensions Building work will be generally Nonattributable and VAT can be recovered by dispensing practices based on % of income Non-Dispensing practices can also recover VAT on new surgeries/extensions if they are partially occupied by third parties Opting to Tax and using area-based special methods can result in large VAT reclaims.

33 Any Questions? Contact John Barnes, Baker Tilly, 2 Whitehall Quay Leeds LS1 4HG johnh.barnes@bakertilly.co.uk

34 Medical VAT John Barnes VAT Director