When do I charge VAT on Covid testing?

Why does this matter?

HMRC recently issued a Revenue & Customs Brief (RCB 11/21) which highlights the limited basis for VAT exemption on the supply and administration of Covid testing kits. The RCB provides details of when exemption can apply and when VAT should be charged.

This RCB helps businesses decipher the finer points of VAT for Covid testing. It also reinforces the need to tread carefully when determining the VAT liability of healthcare and related services.

What is covered in the RCB?

Lateral flow

The supply of a self-administered (lateral flow) Covid testing kit is subject to VAT. The result is immediate and is obtained without the intervention of a suitably qualified healthcare professional. This cannot benefit from VAT exemption.

PCR

If the test result is determined by a third party and not the buyer (PCR), it may qualify for VAT exemption. If testing and diagnosis is carried out or directly supervised by a health professional, the next step is to confirm who does the testing and who supervises that activity.

  • Testing in a pharmacy will benefit from exemption if it is directly administered by a pharmacist.
  • Testing in a GP surgery will be exempt if it is administered or directly supervised by a registered healthcare professional who is qualified to carry out the test.
  • Testing in a lab will benefit from VAT exemption if it is directly administered by a pharmacist. It will also be exempt if it is administered or supervised by a healthcare professional qualified to carry out the test.
  • If the supervising health professional is not within the professional registers recognised by HMRC as suitable to supervise this activity, then the supply of the test will be subject to VAT. HMRC highlight pharmacists, pharmacy technicians and dental technicians as unsuitable to supervise testing.
  • If the health professional is not within the professional registers recognised by HMRC as suitable to perform this activity, then the supply of the test will be subject to VAT. HMRC highlight dental technicians as unsuitable to perform testing.

Accreditation and state regulation

The RCB deals with both accreditation and state regulation. Accreditation by the UK Accreditation Service (UKAS) is not “state regulation” for the purposes of VAT exemption. State regulation by the CQC will also not confer VAT exemption unless the above criteria on testing are also met.

VAT grouping

HMRC routinely treat a VAT group as a single entity. However, they make it clear that treatment does not extend to state regulation, which is limited to the actual legal entity subject to state regulation. A VAT group will not extend VAT exemption to all members of the VAT group.

What can we learn from this and why does it matter?

There is more than just Covid testing highlighted in this RCB.

  • Are you supplying goods or services? The supply of a lateral flow test is a supply of goods, whereas a PCR test is a supply of services. The bargain struck between buyer and seller will determine the nature of the supply. If I think I am buying a completed PCR test, it is a supply of services. The test itself is just the means of service delivery.
  • VAT exemptions are narrowly drawn, be aware of their boundaries.
  • The VAT rules for healthcare services are far from straightforward. Take care to understand the nature of the activity, the person providing the service, and whether it is subject to state regulation.
  • The issue of state regulation is highly topical given recent litigation on adult social care. It is therefore not surprising that HMRC stress the limitation on VAT exemption as they touch upon state regulation.
  • Although a VAT group is a single taxable person, it is not single person if the question relates to regulated healthcare. Again, it is not surprising that HMRC make this point, as this limitation would extend to other VAT exemptions such as regulated education, insurance, or financial services.

How can MHA Moore and Smalley help?

If you need assistance with any VAT related issues, please don’t hesitate to get in touch and contact our team below.