COVID-19 PCR testing services

Unexpected VAT costs could arise

Robert Marchant, Partner, VAT and Customs Duty services
Over recent times, the obtaining of a COVID-19 PCR test has become a common necessity as organisations manage the impact of the pandemic to protect their staff and customers.

Many organisations purchasing COVID-19 PCR tests will have assumed that they will not be charged VAT by their supplier on the basis that the service is of medical care and that an exemption from VAT applies. This may not be the case; leading to potentially unexpected VAT costs.

Background to the issue

Most care homes cannot reclaim the VAT they incur on their operating costs so the question of whether VAT (at the current standard rate of 20%) is chargeable should they be in a situation where they are paying for COVID-19 PCR test services is a significant one for them.

The starting point is that VAT law contains an exemption for certain medical services. However, as with much of tax law, the ‘devil is in the detail’ as there are a number of conditions that must be met before the medical exemption can be applied. This is particularly the case for COVID-19 PCR testing services.

In summer 2021 HMRC issued guidance on their views on how the medical exemption applies to such services and in particular the circumstances when they consider the conditions are met (meaning that the services are VAT exempt) and when they are not (meaning that 20% VAT is to be charged).

The guidance gives some comfort in that it accepts that such services have an ultimate purpose of protecting human health, which is a requirement for the medical care VAT exemption to apply. This is even the case where the test is carried out more for convenience purposes, such as facilitating international travel, as HMRC accepts that the testing assists with the protection of health for both those being tested but also others that they interact with.

Denial of exemption

A note of caution is needed though in relation to HMRC’s views on the testing process. HMRC has indicated that in order for exemption to apply to COVID-19 PCR testing, the whole testing and diagnosis process i.e. the obtaining of a sample from a swab as well the diagnostic process in the laboratory, must be carried out or directly supervised by a registered health professional. This approach denies exemption for the many situations where the sample is collected from a self-administered swab.

If HMRC’s views are correct then it will deny VAT exemption to many COVID-19 PCR testing services and result in the testing services becoming 20% more expensive, assuming the full VAT charge is passed on by the supplier. This will be frustrating news for care home operators that pay for PCR tests as they cannot reclaim much, if any VAT, they incur, as they continue to take all appropriate steps to keep their residents and guests safe from COVID-19 infection.

HMRC’s guidance from summer 2021 also contained their views on other types of COVID-19 testing services and these are set-out below:

  • sales of tests where the test is self-administered and an immediate result provided — these are standard rated
  • tests administered in pharmacies — these are only exempt where directly administered by the pharmacist
  • tests in GP surgeries — these are exempt from VAT where administered or directly supervised by a registered healthcare professional
  • tests supplied by the manufacturer to hospitals, pharmacies or GP surgeries — these are standard rated for VAT.

It is worth keeping in mind that the comments above apply in relation to periods post December 2020 when a change in the regulatory regime took place. VAT exemption was more easily available before this date, but again, not in all situations.

Next steps

The suggestion that the obtaining of the sample can not be self-administered and must be carried out by or directly supervised by a registered health professional would appear to be unreasonable (and also impractical given the huge number of COVID-19 PCR tests carried out each day, particularly during 2021). It runs counter to the fundamental point of the VAT exemption for medical care which is to remove a VAT cost on goods and services that protect human health.

The views expressed in HMRC’s guidance are not legally binding and, as VAT is a self-assessed tax, organisations are entitled to take a different approach. However, to do so could ultimately invite a challenge from HMRC and so the organisation will need to be sure of their ground before applying a different treatment. Unfortunately, there is often very little opportunity for dialogue with HMRC and frequently such differing views have to be resolved via litigation in the VAT courts which can be an expensive and time-consuming exercise.

Care homes purchasing COVID-19 PCR tests will need to understand whether they will be charged VAT by their testing services suppliers and if so, to consider whether this VAT can be reclaimed.

Should you wish for further advice on this topic, please contact Robert Marchant, or your usual Crowe contact.

This article was first published in The Carer in April 2022.

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Robert Marchant
Robert Marchant
Partner, VAT and Customs Duty services