Should VAT be charged on COVID-19 PCR testing services?

We have been working with organisations that are either supplying or purchasing COVID-19 PCR testing services to determine the correct VAT treatment of the activities, we have also recently supported a client in defending a challenge from HMRC. What is clear is that the specific facts of the services and ‘how’ they are performed matters. There also appears to be potential to apply the VAT medical services exemption in a broader way than set-out in the public guidance issued by HMRC in summer 2021.

VAT treatment of PCR testing services  

HMRC’s policy on the VAT treatment of COVID-19 PCR testing services had to evolve rapidly in response to the fast-moving nature of the testing roll out, and some of the significant changes to the regulatory framework applying in the sector. In our experience, that policy has led to inconsistent VAT treatments being applied by some healthcare suppliers/testing laboratories. This potentially means that VAT costs are wrongly arising, for example, where a medical services supplier charged VAT on testing services to consumers/heavily exempt organisations such as residential care providers and schools. While testing volumes have reduced in 2022, testing was significant in 2021 and there are likely to be material amounts of VAT in issue.

While the rule of thumb is that a medical service intended to protect, restore or maintain human health can benefit from VAT exemption, there are conditions in relation to how the service is delivered. For care or treatment outside a hospital for instance, its important to establish whether this is wholly performed or directly supervised by a medical professional on one of the recognised professional registers. Indeed, one of the learnings from the COVID-19 PCR testing experience is that details such as whether the obtaining of a sample is self-administered and the medical qualification held by the individual carrying out the test (there are also different VAT rules for pharmacists as compared to medical doctors) could impact on the VAT treatment. The logic being that if a sample is self-administered the VAT requirements in relation to performance and supervision by a medical professional may not be met. But should this matter? In our view, it should not.

The performance and supervision aspects of the medical exemption have been disputed by HMRC in relation to one of our medical testing laboratory clients. We were able to help that business to demonstrate that it was correct to have applied exemption. On the back of that action, future developments may be expected that could have a retrospective as well as prospective impact on COVID-19 PCR testing services. These may also be relevant to the way new medical testing products adopting similar methodologies are treated.

For now, organisations that have either purchased or received such services are encouraged to review the VAT treatment that has been applied.

Further information

For more information or to discuss any of the points highlighted in this article, please contact Robert Marchant or your usual Crowe contact.