Neil Warren thinks that tax advisers should make more use of HMRC’s manuals to solve VAT problems and not just rely on the VAT public notices.
What is your strategy for dealing with a VAT question asked by a client?
Let us imagine the following situation: a client telephones you and asks about the VAT liability of providing a transport service to a hospital, which involves using his vehicle to take people from their private homes to their local hospital for treatment. He understands the fees he charges the hospital will be exempt from VAT, but wants to be sure this is correct.
Stage 1: The law
The starting point is to review the legislation, particularly Schedule 9 of VATA 1994, which comprises all of the different groups of goods and services that are exempt from VAT. A good start to our query: Item 11 of Group 7 (Health and welfare) confirms exemption applies for: “the supply of transport services for sick or injured persons in vehicles specially designed for that purpose.”
Stage 2: Public notices
Our imaginary client is encouraged by the above reference but is unsure about the meaning of the phrase ‘specially designed’ as far as his vehicle is concerned. He also wonders if a person who is in good health but has preventative treatment for a condition is classed as a ‘sick or injured person’.
The relevant public notice reference on this part of the legislation is VAT Notice 701/31, headed “Health institutions supplies,” specifically para 2.7. This is the next important point: always be clear that the public notices mainly provide HMRC’s interpretation to the legislation, although some sections (not many) do have legal force. This interpretation takes into account the results of past tribunal cases. To quote directly from para 2.7:
2.7 Transport supplied or received by a qualifying institution
Transport services are exempt when the:
- transport is an integral part of the exempt supply of care and treatment provided by a qualifying institution
- transportation, by any provider, of sick or injured persons to or from a place of medical care or treatment, in a vehicle specially designed or adapted for the purpose.
The problem here is that the notice has not given any additional information that would help address our client’s two concerns. The second bullet point is mainly repeating the words in the legislation. We need another source of information.
Stage 3: HMRC VAT manuals
The VAT manuals are used by HMRC officers to deal with challenges in their day-to-day work. I have encountered situations where officers refuse to accept information in the public notices, instead preferring to quote and utilise the VAT manuals.
It is fortunate that these manuals are now available for us to access as a public record (this was not always the case), so we should take advantage of them where possible.
The good news is that the HMRC VAT manual on “VAT Health” has a very helpful policy note at VATHLT5030. This gives further detail about what HMRC considers to be a ‘specially designed’ vehicle, including detail about ramps and secure clamps for wheelchair users. The manual also defines ‘sick or injured persons’ very clearly as ‘persons in need of or having just received medical care or treatment.’
You may wonder how I found the above references so easily. The secret is to go to your favourite search engine (Google, Bing, DuckDuckGo etc) and clearly enter “HMRC VAT manual” followed by the relevant topic eg “HMRC VAT manual transport services hospital patients.”
I have just done this and it not only alerts me to VATHLT5030, which I quoted above, but also VATHLT5040, which gives details of when the exemption does not apply, eg hospital services provided by a taxi firm would not qualify for exemption because taxis are not ‘specially designed’ vehicles.
You will notice that in my three-stage analysis above, I have not suggested either telephoning HMRC’s helpline service or writing to HMRC in Southend for a clearance letter.
Putting aside the practical problems of getting to speak to someone at HMRC, my view is that a written audit trail to support a VAT outcome, such as the above analysis, gives much more legal certainty. With a telephone call issues could get confused with the interpretation of words, local accents or the use of jargon by the officer.
So as a final tip, don’t forget to copy and file the relevant HMRC information you use to solve a VAT dilemma, in case there is a query on a future compliance visit.
About Neil Warren
Neil Warren is an independent VAT consultant and author who worked for Customs and Excise for 14 years until 1997.