VAT: Online dispensing not viewed as medical careby
The tribunal in this case looked into the supply of dispensing services for contact lenses and decided it was not supervised medical care, so not VAT-exempt.
This first tier tribunal (FTT) case looked at the supply of services linked with online sales of prescription contact lenses and considered whether they should be exempt from VAT.
For a supply of medical services to be exempt, there are two conditions that must be met.
- The supply must be of services “consisting in the provision of medical care”, and
- The services must be performed or supervised by an appropriately registered person.
The law is set out in VATA1994, Schedule 9, Group 7 and VAT Notice 701/57 gives further details about how to interpret those two conditions.
Case law in the UK has long concluded that, when it comes to glasses, there are two separate supplies: an exempt supply of dispensing services and a standard-rated supply of glasses. This applies, even where the glasses and the dispensing services are provided by the same person.
In the 2013 case of Prescription Eyewear vs HMRC, it was found that the dispensing services could still be exempt, even if provided remotely.
The same applies to contact lenses.
Vision Direct Limited (VDL) is a company based in the UK. It has a fellow group company, Vision Direct BV (VDBV), which is based in the Netherlands. VDBV operates a website through which prescription contact lenses and other optical goods are supplied to UK customers.
Customers enter into two separate contracts:
- one with VDBV for the supply of contact lenses (standard rated), and
- one with VDL for the supply of dispensing services (exempt).
The split is required as the sale of the lenses must come from the Netherlands to avoid regulations in the UK.
VDL operates a large warehouse facility near York. Contact lenses belonging to VDBV are stored in the warehouse. They are despatched to customers by VDL. The terms and conditions explain that the site is operated and the products are sold by VDBV. It explains that placing an order amounts to an offer to contract with VBV to buy the lenses and with VDL for the supply of dispensing services in relation to those lenses. Of the consideration, 82% is treated as consideration for the contact lenses, and 18% for the supply of dispensing services.
Provision of medical care
For services to qualify as medical care, they must have as their purpose ”the diagnosis, treatment and, in so far as possible, cure of diseases or health disorders”.
A supply that forms a distinct part of an overall process of medical care can amount to medical care, even if provided by a person not otherwise involved in the process. For this to apply, the services must be “an essential, inherent and inseparable part of the process, none of the stages of which can usefully be performed in isolation from the others”.
HMRC’s argument here is that the services provided by VDL, and described by the taxpayer as dispensing services, cannot properly be described as professional clinical advice or therapeutic care and so should be standard rated.
They made the point that VDL never sees a customer. In HMRC’s opinion, healthcare must include professional intervention and advice given to the person seeking help. Clinical advice cannot be delivered in an impersonal or generic way.
Another point raised by HMRC was the fact that the website terms state that users cannot legally rely on any advice given on the website. If a user cannot rely on it, how can it be evidence of medical care? VDL takes no account of the customer’s individual circumstances, they simply ensure the customer gets what they order.
The tribunal commented that lots of other issues had been raised by the parties to the case, such as compliance with regulatory guidelines, but said: “None of this is our concern. We are concerned only with whether VDL supplied appropriately supervised medical care.”
HMRC had stated that material on a website could not amount to the provision of medical care as it is untargeted.
The tribunal said: “We do not agree. As we have already found, the material on the website is comprehensive and seeks to address every conceivable question someone might have about contact lenses. We have also already held that process, which starts with the diagnosis of an eye defect, following an eye test, the selection, measuring and fitting of corrective glasses or lenses to correct the defect and the supply of those glasses or lenses is a therapeutic process (designed to treat the eye defect). We consider that providing information that helps people understand what contact lenses can do to help them and goes on to help them understand how they can best use and look after their lenses and addresses any problems they might have, must be a part of that therapeutic process as it goes to maximising its efficacy.”
The above paragraph sounds like a score for the taxpayer but, the next question is whether the provision of the website is part of the supply made by VDL.
VDBV operates the website and owns the intellectual property rights in its content.
The tribunal concluded that the material on the website belongs to VDBV and so VDL was not providing medical care.
It also concluded that, whatever services were provided by VDL, they were not properly supervised by an appropriately registered person and so, even if the supply had been one of medical care, it would still not qualify for exemption.
As such, the 18% received by VDL is standard-rated.
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Hilary Bevan has over 20 years of experience working in accountancy and tax. She is a qualified chartered certified accountant as well as a chartered tax adviser and an associate of the Institute of Indirect Taxation.
In 2018 Hilary set up her own independent consultancy firm, providing specialist VAT advice to firms of accountants and...