How does VAT impact on directly supervised medical treatments?

How does VAT impact on directly supervised medical treatments?

Medical treatments are VAT exempt under the guidance rules in HMRC document – VAT Notice 701/57 Health professionals and pharmaceutical products – see the HMRC website for the full text at . The basic premise is that if registered health professionals perform or directly supervise services, that have a primary purpose of protecting, maintaining or restoring health of the patient then the charges can be exempt from a VAT charge. That conclusion is obviously beneficial for our patients who cannot recover the VAT charge and is an effective saving of 16.66%.

The problem lies with the definition of directly supervised when it comes to using unregistered health professional services to deliver such treatments. The guidance is very good and detailed and is held in paragraphs – 2.2-2.6, 4.12, 5 – there are 32 pages in total in the VAT Notice 701/57 and if you are affected by the topic I would urge you to read the whole document as the following is only background/highlight guidance which could be amended given the specifics of any situation. Remember, you are fully responsible for your relationship with the tax authorities.

In order to succeed with exempting supplies in a directly supervised situation ALL of the 7 conditions in paragraph 5.3 need to be met. The major issues are:

  • The Supervisor has a DIRECT RELATIONSHIP with the staff performing the service, and is CONTRACTUALLY RESPONSIBLE FOR SUPERVISING their services.
  • A QUALIFIED supervisor is available for the WHOLE time that the care service is provided
  • A supervisor has a SAY IN THE LEVEL of care to be provided to the client, and will USUALLY SEE THE CLIENT PRIOR to the commencement of the care service – is this one treatment or every treatment? Our advice suggests that it is every treatment.

The supervisor must be able to DEMONSTRATE that they MONITOR the work of the unregistered staff.

An alternative is if the service is health or nursing care AND delivered in a hospital or nursing home (covered in paragraph 5.2 and 5.4)

Case law guidance is provided in Elder Home Care Ltd [1994] BVC 709 (no longer available on-line) – see News release 23/1996 relating to VAT Health Exemptions: General guidelines on “direct supervision” where guidance on what constitutes “Direct Supervision” is provided as follows:

If all the conditions below are met, Customs and Excise will accept that the services supplied qualify for VAT exemption, even though those services have not been supplied directly by qualified staff.

  1. The supervisor must be an appropriately registered person.
  2. Supervision cannot take place via a third party i.e. the supervisor must always be in a direct relationship with the unqualified staff.
  3. The presence of the appropriately qualified supervisor must be required at appropriate times during the process and he or she must be responsible, contractually, for supervising the unqualified staff. Customs and Excise will not accept that direct supervision exists where a supervisor is introduced primarily to gain VAT exemption and in practice carries out little or no supervision.
  4. The services performed by the unqualified staff must require supervision. Customs will not accept exemption for services performed by unqualified staff for which no supervision is required and will not accept that services which are not broadly of a medical or caring nature can gain exemption simply by the use of a qualified individual in a supervis

Can I claim the tax back on uniforms I have bought for my staff?

The buying of uniforms is a tax deductable item but you must attach the receipt to your tax return.

Laundering of uniforms is also a tax deductable item

[February 2009]

Can I reclaim the VAT on a lease?

As medical treatment including physiotherapy treatment is exempt from VAT there seems to be no way of avoiding VAT on a lease. VAT can only be recovered in line with the percentage of VATable income that you earn. In short as the service that you provide is exempt from VAT, even where your turnover exceeds the VAT threshold of circa 66,000, there is no business advantage in registering for VAT. As a business that is not registered for VAT, you cannot then reclaim any that attaches to any business expenses such as a lease. Whether VAT is to be charged by the landlord depends upon whether they have elected to charge VAT on their property or not. They will normally elect to charge VAT unless they are seeking to rent to businesses that do not charge VAT on income. It may be worth looking for properties that have not been subject to the election. There is nothing different from VAT on a rent expense to that on any other expense. In all cases you are advised to take advice from your own accountant so that your own specific circumstances can be properly reviewed.

[February 2009]

Is there any advantage in registering for VAT?

Physiotherapy treatment like all medical treatment is "zero rated". It is difficult to see any advantage in registering for VAT but professional advice should be sought upon this point. A first point of contact could be the HM Revenue & Customs (as Customs & Excise are responsible for administering VAT in the UK) advice line on 0845 010 9000 (this service is available from 8.00 am to 8.00 pm Monday to Friday). You can also contact your General Secretary Paul Donnelly on but before consulting either you should review the Customs and Excise website .

Useful links to this website are:

Introduction to VAT

Beginners Guide

EM2278 - Information Powers: Professionals: TMA70/S19A and FA98/SCH18/PARA 27: What Constitutes a Medical Professional and a Medical Record

Health professionals

[February 2009]

Should I pay VAT on report writing services?

There is no VAT implication on normal physiotherapy treatment and assessment. However, if you earn in excess of £61000 per annum from medico-legal report writing you should consult your accountant about this issue. 

Anyone interested in more detail, here is a summary of the law regarding medical services from March 2007:

The ruling by the European Court of Justice (ECJ) in the case of Dr Peter dAmbrumenil and Dispute Resolution Services stated that medical services that are used for the protection, maintenance or restoration of the health of an individual will continue to be exempt from VAT.

Witness testimonies and medical reports used during litigation cases will be subject to the standard rate of VAT.

Third parties, such as insurers and lawyers, that use medical reports and rely on expert witnesses for testimony, should be able to recover the VAT as part of their annual tax returns.

Primary health care provided through either the NHS or the private sector will remain VAT free.

Medical practitioners registered on a statutory professional register whose income subject to VAT exceeds the registration threshold (£61,000 in 2007) will need to register for VAT.



[February 2009]

What is the number of the Tax Helpline?

For self assessment returns only 0845 366 1204 For PAYE and Self assessment 0845 336 7816

[February 2009]

Are there any advantages in becoming a limited company?

Trading as a limited company can be more tax efficient for some individuals than trading as a sole practitioner or as a partner.

Most members only consider trading as a limited liability company when their accountant raises it and it before any such action is taken you must take the time to discuss the implications with them. There are however a few general points that you should take into account when considering whether to begin trading as a limited liability company:

  • Saving taxes - firstly your accountant may be able to save you from paying such high taxes. This obviously varies according to individuals financial circumstances and consequently there is no general rule that can be applied. It is however probably worth asking your accountant about possible gains to be made here. Do however remember that tax rules change on a regular basis and what is tax efficient now may prove negative in the future and there are costs associated with changing back from a limited company.
  • Preparing for Sale - there may be some advantages in trading as a limited company when preparing to sell your practice.
  • Attracting investment - trading as a limited company can involve the sale and purchase of shares in your business. This offers opportunities for anyone wishing to attract investment or new partners and can be a more satisfactory way of distributing ownership (especially to more junior partners) than trying to divide up shares in a partnership.


What are the implications?

As with all changes, one has to learn the rules and the rules of trading as a limited company are not too complicated, but do have to be adhered to. The new rules require a different presentation of your accounts which can be more expensive to produce. In addition you have to keep Companies House informed of any changes in Directors and file an annual return. Professional liability insurance is another implication, as the company itself will not be insured through the your individuaio professional indemnity Insurance cover that comes with membership of the CSP and Physio First. Additional insurance cover is, therefore recommended to insure the company itself.

Gaining access to funds can also be a little more difficult than when trading as a sole practitioner or partnership. As a sole trader or partner you can stipulate what you want to take out of the practice and this is called drawings. As a company however you will be an employee and/or shareholder and so money coming out of the business must be a salary, a bonus on salary or a dividend. Such withdrawals have tax and company law implications that do not apply to a partnership or sole trader. In practical terms these problems can usually be overcome, but thought needs to be given to this in advance. If you are contemplating a change you will need to consult your accountant, but the implications can be discussed with our General Secretary.

[February 2009]