Since last August we have seen HMRC’s policy put into practice with some providers being approached to pay VAT on testing services that have been treated as VAT exempt.
Any organisation who is involved in the provision of tests for COVID-19 or receives these services from suppliers. The VAT legislation in this area would also cover for testing of other diseases and taking of sample for that purpose.
Recent correspondence from HMRC is the subject of an ongoing appeal process but currently HMRC are arguing that VAT at the standard rate should be applied to:
In some instances, HMRC is also seeking to apply penalties so it is important to take action now to address the position.
Crowe have been involved with a number of clients in this area and have the benefit of various legal opinions covering a range of services and different supply chains. Consequently, we are aware that the issues focussed on in HMRC’s Brief 2021/11 could also have an impact on services of taking any samples for testing purposes, e.g. blood, urine, tissue.
The legal analysis and application to different scenarios can be quite complex depending on the types of transaction taking place. However, it appears clear that HMRC’s current view could be subject to legal challenge on a number of fundamental principles that all revert to the general concept that healthcare should not be subject in order to reduce the cost to the public.
At this stage, if VAT exemption has been applied to COVID testing services this should be critically reviewed with all factors taken into consideration. Different supply chains and fact patterns will mean that different treatments can apply.
Watch this space: HMRC’s policy may change as the application of its rules to some scenarios.
Please get in touch with Kieran Smith or your usual VAT contact if you would like to discuss this further.
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