Independent VAT Consultant
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VAT on travellers’ Covid tests

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The Guardian has revealed that some companies are not charging VAT on Covid testing kits for travellers, on the basis that these testing kits are VAT exempt as medical services. Are they correct to do this?

19th Aug 2021
Independent VAT Consultant
Columnist
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VAT on everything

The starting point with a supply of goods or services made in the UK is that you charge 20% VAT if you are registered for VAT. If you are not registered, then sales where you would charge VAT at either 0%, 5% or 20% are included in the VAT registration test to check if you should register in the future. This will happen if your total sales figure exceeds £85,000 in any rolling 12-month period, or will exceed it in the next 30 days alone. In the latter case, registration is needed at the beginning of the 30-day period.

Covid tests: Zero-rated or exempt?

The escape route to charging VAT at 20% is if the supply in question is either exempt from VAT or zero-rated. The latter is the better outcome because you can claim input tax on your related costs. The list of supplies that are exempt are included in Sch 9, VATA 1994 and the zero-rated supplies are in Sch 8 of the same legislation.

As far as fees for Covid tests are concerned, the potential window for not charging VAT is in Group 7 of Sch 9, helpfully headed ‘health and welfare’. But will the three conditions necessary for exemption of a medical service be met?

Condition 1: The service is intended to protect, maintain or retore the health of the patient.

Good news here – there is no doubt that a Covid test ticks this box. No more debate is needed.

Condition 2: It is carried out either by or under the supervision of a qualified medical professional.

We now have a problem. It would probably be a waste of a doctor’s time to just look at the equipment after a Covid test and record the result. After all, it is only a case of looking at whether the line has produced a negative or positive result.

However, the legislation goes further – the service can also be exempt from VAT if it is performed under the ‘direct supervision’ of a medical professional. HMRC’s VAT Health manual VATHLT2620 is ahead of the game here, aimed at preventing a business from claiming exemption when supervision is limited:

“The supervisor should be able to demonstrate that they proactively monitor the work of unregistered staff. A simple declaration made by the supervisor...will not suffice.”

Condition 3: The work relates to the skills of the person in question.

If I go to my dentist and she charges £100 for a dental check-up, this is exempt from VAT as it is designed to protect the health of my teeth and she is a registered dentist. But if she then agrees to give my feet some TLC for an extra £50, this fee would be standard rated. The exception would be if she was also a qualified chiropodist and the £50 fee would be exempt as well – to use a cricket phrase, she would then be an all-rounder – unusual in practice (see VAT Notice 701/57, section 2).

Conclusion

One word in the VAT legislation makes all the difference. If conditions for exemption or zero-rating include the word ‘and’ against a list of requirements, the window is more limited than if the relevant word is ‘or’.

Unfortunately, with the medical services exemption, all of conditions 1, 2 and 3 above need to be met. That is unlikely to be the case, so Covid tests will unfortunately be subject to VAT in most cases.

Replies (9)

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By alejandra
20th Aug 2021 09:45

The tests we provide in our pharmacy chain are supposed to be administered by medical staff, according to the supplier, so we are treating them as exempt. (The rule we apply is "If the pharmacist sticks it in you, it's exempt. If you stick it in yourself, it's standard rated".)
I wish it wasn't exempt, as we lose a lot of money through irrecoverable vat on the purchase of the tests, and the partial exemption calculation. I will be watching developments with interest.

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By Duggimon
20th Aug 2021 09:49

Quote:
Condition 1: The service is intended to protect, maintain or retore [sic] the health of the patient.

Good news here – there is no doubt that a Covid test ticks this box. No more debate is needed.

I disagree with this. The service has no impact whatsoever on the health or wellbeing of the patient.

Asymptomatic people who test positive receive no treatment. Symptomatic people are not allowed to travel and do not get a test. Anyone who tests negative had no need of the test other than to demonstrate eligibility to travel.

In all cases, there is no health impact, it is not a medical service, it's a travel service.

Thanks (1)
Replying to Duggimon:
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By Rgab1947
20th Aug 2021 10:07

"In all cases, there is no health impact, it is not a medical service, it's a travel service."

Cannot agree. My daughter who has a husband with chest issues tests the whole family weekly as she is worried about their health and wants to catch it as early as possible.

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Replying to Rgab1947:
RLI
By lionofludesch
20th Aug 2021 10:53

Rgab1947 wrote:
...... and wants to catch it as early as possible.

Could've been better phrased.

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Replying to Rgab1947:
By Duggimon
20th Aug 2021 10:57

Rgab1947 wrote:

"In all cases, there is no health impact, it is not a medical service, it's a travel service."

Cannot agree. My daughter who has a husband with chest issues tests the whole family weekly as she is worried about their health and wants to catch it as early as possible.

Re-read the article until you get to the bit where it talks about the tests being those for people wanting to travel. It's the whole article, those are the tests being discussed.

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Replying to Duggimon:
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By VATs-enough
20th Aug 2021 13:11

What people need to be able to fly is the certificate, not the Covid test. But they must have the test to get the certificate.

We could argue about 'why' someone wants/needs to have a Covid test, but is that strictly relevant?

Playing devils advocate. I go to the clinic, GP, hospital, etc. and get a Covid test. Maybe I'm feeling unwell. Maybe I am convinced I have Covid even without symptoms, maybe I just want peace of mind because some bloke I passed on the street was coughing. And by the way, I'm not planning on flying anywhere.

In any case, I am getting a Covid test and the result will tell me if I have it or not. If I do, there is no treatment as such. I just go home and self isolate. If I don't have Covid, I can crack on.

The point being, there is arguably no health impact either way. Buy you appear to be saying then, that Covid tests can't be an exempt supply because there was no health impact.

Is is not more plausible to say, the Covid test can be exempt (if conditions for exemption are met) and that the certificate is taxable?

Appreciate your viewpoint, and I genuinely can see where you are coming from. I just think there's more than one way to view this.

But thats VAT for you isn't it !?!

Thanks (1)
Replying to VATs-enough:
Jason Croke
By Jason Croke
25th Aug 2021 09:30

That sounds like a single supply being (artificially) split into two! I can't have the certificate without the test and I can't have a test without getting a certificate.

I think it is more nuanced because there are a variety of testing formats. For example, if you travel to say France, you need a Covid test before you depart back to England. You can buy a lateral flow test before you leave England, take it with you and then 3 days before returning to England you log onto a website and have a live video consultations with a nurse, they will watch you do the lateral flow test and they will wait until the result, they then ID with via your passport to prove you are who you say you are and as the test was witnessed live, then the nurse issues a fit to fly certificate by email.

So in that scenario you do have a consultation, exempt supply.

Other PCR tests are delivered in the post when you arrive back home for your Day 2/8 tests, you test at home and post back to the lab and there are also tests done at the airport but not by qualified staff, just people to usher you to the right booth and hand you a kit.

So I think this is why there has been confusion on these tests, because they are not all performed in the same manner and that determines whether it is exempt medical or standard rated services.

Since Neil's article, HMRC have published their opinion
https://www.gov.uk/government/publications/revenue-and-customs-brief-11-...

Thanks (1)
Replying to Jason Croke:
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By VATs-enough
25th Aug 2021 19:07

Jason Croke wrote:

That sounds like a single supply being (artificially) split into two! I can't have the certificate without the test and I can't have a test without getting a certificate.

Hi Jason
I certainly wasn't aiming at supply splitting, rather two distinctly separate supplies.
It would appear that HMRC, rightly or wrongly, agree with my line of thinking given the most recent update.
And that a fit-2-fly covid-19 test (in the right circumstances) is deemed to be for the health of the individual and the wider public.
I've been running this debate/discussion with HMRC for a couple of months and recently won on this exact point.

Thanks (0)
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By Springfield
20th Aug 2021 10:25

Another case of closing the stable door after the horse has bolted? We have to ask why it wasn't possible for the Government (through HMRC) to adopt a ruling on this at the outset. Then everyone would know where they stood. If anybody wanted to challenge the ruling down the line they would do so with their eyes open. Everyone else could get on with the job (or jab) in hand.

We'll probably now have a situation where they'll be some lengthy tribunal process and the outcome will be that suppliers will be on the one side of the argument or the other and we'll have winners and losers and all the confusion and aggravation within business and HMRC that will then cause.

It's just as well our Civil Service is "gold-plated" otherwise we'd be in a real mess.

Thanks (4)