VAT: HMRC reverses baby scan rulings
Following the taxpayer win at first-tier tribunal in Window To The Womb HMRC has revised its guidance. Emma Rawson explains what businesses should do now.
Following that decision, HMRC issued Brief 17 (2020): VAT liability of private sonography services - to clarify its position on the VAT liability of similar scans.
The brief confirms that HMRC has accepted the tribunal decision in Window to the Womb, and will not appeal it. This means that other businesses supplying scanning services can also exempt their supplies, provided they meet the following two conditions:
- the services are provided by an appropriately qualified health professional (see para 2.1 of VAT Notice 701/57); and
- they are medical care, which means that they must have a primary purpose that is the protection, maintenance or restoration of the health of the person concerned (the primary purpose test).
It was only the second of these conditions that was considered in Window to the Womb, but it should not be forgotten that both tests need to be met for the VAT exemption to apply.
The brief also invites those that may have received an HMRC ruling prior to that decision, which they now believe to be incorrect, to seek a corrected ruling and a refund of any overpaid tax.
What should businesses do?
Whilst HMRC’s clarification is welcome, it should not be assumed that any business providing pregnancy scans will now qualify for exemption. Given the fact-specific nature of the Window to the Womb decision, businesses need to look closely at the services they provide, including the purpose of the scans and who carries them out.
In coming to their decision, the FTT looked in great detail at the exact services offered by Window to the Womb under each scan package, including what the customer received, whether a similar service was available on the NHS and the various cost components.
In particular, the FTT placed great weight on the provision of a detailed medical report with every scan. If a business merely provides scanning images without this element, it may be difficult to argue that they are providing medical care and therefore qualify for exemption.
If a business previously received a ruling from HMRC that their services were VATable but believes - following HMRC’s brief 17/2020 - that those services may now be exempt, they can apply for a new, corrected ruling. HMRC says that requests will be considered provided they are properly evidenced.
In particular, those applying for a new or updated ruling will need to be able to show:
- That the services were performed by appropriately qualified professionals (or others who were under the direct supervision of such professionals); and
- The primary purpose test was met.
It is likely to be the second of these points which is most difficult to evidence.
If a business has accounted for too much VAT, they can correct this using the normal error correction procedure. However, such adjustments are subject to the normal four-year cap which starts from the end of the accounting period in which the error was made. It therefore makes sense to move as quickly as possible when you think a VAT correction is required.
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Emma a technical officer with the Association of Tax Technicians (ATT). Her background is in corporation tax and she also has a focus on VAT.
She trained with Deloitte, working in both their London and Leeds offices, and also spent a short time working in a specialist consultancy firm providing advice to other practitioners before joining...