VAT on Rehabilitation Services & Advice
I run a small rehabilitation advice service. Clients contact my Team for advice on their addictions and in most cases it is evident that they require the services of a registered rehab clinic or specialist. The clinics or specialists pay my company for the pre-assessment, treatment/counselling, pre-care and after-care of the patients. The fee is calculated as a percentage of the total cost of the patient's treatment but does not add to their cost of treatment.
This process secures very high sucess rates and the clinics appreciate the cost and time saving our service provides.
When I set up my business, a sole trader partnership, and realised I was going to breach the VAT limit of £66,000 (?) I contacted the HMRC VAT advice line and was told verbally that not only could I not register for VAT but that it would be an offence to do so; my service was considered exempt under 3.11 of the VAT Act 1994 that states: 'We accept that the principal purpose of most rehabilitation services is to improve both the physical and psychological health of the invidual and as such, they are exempt.'
UK Case Law and EU Directives and European Court of Justice cases indicate that people working in the same way as me have been prosecuted for registering and claiming back input tax, yet I am being pursued for potentially £300,000 in penalties and back tax for 'failing' to register. This will bankrupt me.
I have now requested an Internal Review but would appreciate the advice of anyone who can help or refer me to a specialist lawyer in VAT.
I feel particularly aggrieved that I took advice, they claim they cannot find a record of my call, and was given unequivocal advice 'not to register', and I am now being told I face a huge penalty for failing to register. I also sought expert advice from a Tax consultant and I use a chartered accountant to submit my tax returns. The consultants and my accountant profess not to undserstand the rules on 'medical services' and considered it a grey area.
The advice also warned that once I started selling 'books' or charging for 'lecture tours' etc. I would become only partially exempt and would have to register; I do not sell books or charge for lectures.
The VAT Officer has registered me, against my wishes, and I'm now wondering if I should be levying VAT on my invoices to the clinics or can I wait until the outcome of the review and later Tribunal?