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Independents' Day

What the new VAT rules will mean for you

A European Court of Justice ruling amending the exemption from VAT for some non-NHS services was implemented at the start of this month. Accountant Rosemary Smith looks at the implications for GPs

As Dr John Canning, chair of the BMA professional fees committee, has said, all doctors need to be aware of the new rules. Though they will not affect most GPs, the VAT inspector wields considerable powers. Many GPs may think the new ruling does not apply to them. But what if they have to prove that they don't owe anything?

The new legislation was brought in following the ruling by the European Court of Justice in the case of Dr Peter D'Ambrumenil and Dispute Resolution Services. It ended literally years of wondering 'will they/won't they charge VAT on medical reports?'. Essentially, the court's ruling means that if the principal purpose of the medical service is the protection, maintenance or restoration of the health of an individual, then the services will continue to be exempt from VAT. Primary healthcare provided through either the NHS or the private sector will remain VAT-free. However, if the purpose of a medical examination or report is to enable a third party to decide a course of action, the medical services will not be exempt, but subject to VAT at 17.5%. So the answer to that long-asked question is yes, they will charge VAT on medical reports.

Taxable supplies

First you need to know if your practice's taxable supplies are likely to be over £64,000 in the current year or indeed any rolling period of one year from any day from 1 May 2007.

Regarding taxable supplies, first of all note that a number of insurance-related medical services will remain exempt from VAT. Her Majesty's Revenue and Customs (HMRC) are required to consider the Morganash ruling in the implementation process. This was a VAT tribunal case that considered whether medical services relating to certain insurance transactions could be exempt under the VAT exemption for insurance.The tribunal decided that the service was exempt from VAT under the UK (but not EU) insurance exemption. HMRC did not appeal against the tribunal decision and accepted that medical services provided in connection with the bringing together of parties to an insurance contract and the administration of policies, including the handling of claims, fall within the current UK insurance exemption as insurance-related services.Further information is given in the insurance section of the HMRC Public Notice 701/57 and the Revenue and Customs brief announcing implementation of the changes. Also see for a clear breakdown of the changes.

How to register

Your accountant will help you through the process and explain what forms need to be filled in. If you are brave enough, you can download form VAT1 and VAT2 off the website. You will need help in knowing what additional information you will have to keep, when returns are required and how much to charge for which reports. Things to remember are as follows:•It is not only the work that goes through the practice but any work carried out by the doctors privately as well. VAT registration is based on legal entity that should reflect actual working arrangements. VAT registration will cover all the supplies made by the registered legal entity. Although it is possible for a GP to be both a partner and a sole proprietor for VAT purposes, HMRC is likely to take a rigorous approach to the artificial separation of business activities and GPs are advised to obtain professional advice from a specialist medical accountant.•Access to health records is not VATable. The maximum fee remains £50 (or £10 in the case of records held electronically), even for doctors and practices currently registered for VAT (for example dispensing practices). This is a statutory amount and the fee remains outside the scope of VAT.•HMRC has confirmed that cremation certificates (forms B, C and F) issued by doctors remain exempt from VAT.

Despite the fact that a VAT registration may be perceived as adding to the burden of paperwork, it can be a useful tool for disciplining the practice or individual doctor to keep a more organised system of records. Your accounts system needs to be set up to identify activities that are subject (or potentially subject) to VAT if not yet registered and activities that are exempt from VAT. Any practices or individual doctors who have a catch-all 'non-NHS' or 'private' column are advised to separate them as soon as possible. For most practices there will be no need to register as they will be well below the threshold. Latest estimate is that 15-20% of practices will be required to register and charge VAT as their taxable supplies will be above the threshold. Of these the majority will be made up of dispensing practices that have had to register from 1 April 2006 so will have to charge VAT on reports from 1 May 2007. If in any doubt, you should refer to HMRC guidance and/or obtain professional advice from a specialist medical accountant.

Rosemary Smith is GP liaison manager, Sandison Easson and Co, Wilmslow, Cheshire

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