VAT on travellers’ Covid testsby
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?
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).
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.