The building blocks of medical care provision and VAT law
With certain exceptions, the provision of medical care is exempt from VAT and most providers of primary care, such as GP practices and GP Federations, will not be registered for VAT.
There are two common exceptions. A GP dispensing practice will be required to register for VAT in relation to the zero-rated provision of drugs by prescription. Larger GP practice partnerships may be required to register for VAT if the level of income earned which is subject to VAT exceeds the VAT registration threshold. This is currently £85,000 per year. HMRC guidance provides details of the VAT liability of income earned by GPs. As an illustration, examples of income subject to VAT in HMRC guidance include:
- Periodic assessments required for car-parking badges for disabled schemes.
- A medical to determine fitness to hold a standard driving/LGV/HGV licence.
- Pre-employment medicals and reports.
The introduction of primary care networks (PCNs) in 2019 brought with it the need to understand the VAT consequences of employing and sharing additional roles (ARRS) within the PCN network of practices. That remains an issue, although the extent to which the current PCN structure will persist after 2024 is unclear, and so of course is the VAT outcome of any revised model to provide medical care.
Training, education, and assessments
In our experience, there are two areas of concern. First, the income earned by GP practices as a placement provider for medical students. Second, the income earned in the wider healthcare sector as a local or regional training hub (LTH or RTH).
The basic premise of the VAT system is that all income is subject to VAT unless there is a specific VAT relief or VAT exemption in place. As these are exceptions to the rule that VAT is due, they are strictly defined both by the law itself and in the guidance issued by HMRC.
There are detailed VAT rules designed to define and limit the scope of the VAT exemption for medical care. There are equally detailed rules which define and limit the scope of the VAT exemption for services provided within the education sector and more widely, those services which are linked to the provision of education.
In overview, the following education services are exempt from VAT:
- School, college, and university education.
- Private tuition.
- Vocational training funded by Department for Education (DfE).
- Education provided by a public body, or any entity precluded from distributing profits.
- Examination services.
We need to apply those definitions to primary care providers, such as GP practices. For point 1, a GP practice will not be a school, college, or university, as those institutions are defined in VAT law by reference to the Education Acts which govern their operation.
Point 2, a Partner in a GP practice can provide VAT exempt private tuition in a subject commonly taught in a school, college, or university. The VAT exemption would not though extend to staff employed by the practice.
Points 3 and 4, a GP practice does not receive DfE funding, it is not a public body, and it will not be precluded from distributing its profits.
We are therefore left with examination services in our search for an education VAT exemption for a GP practice.
Examination Services
The legal definition for VAT exempt examination services is:
“The setting and marking of examinations, the setting of educational or training standards, the making of assessments and other services provided with a view to ensuring educational and training standards are maintained.”
Health Education England (HEE) issued the following guidance on behalf of the Department of Health and Social Care (DHSC) on the VAT treatment of examination services in December 2022.
“The charge made by placement providers to HEE (or to a medical school where Education and Training Tariff funding has been devolved by HEE) has always been considered as a VAT Exempt charge. The exemption applied has been under Group 6 of Schedule 9 of the VAT Act 1994 as a provision of Examination Services. DHSC does not disagree with this VAT treatment.”
What does this mean for the GP practice?
DHSC considers that the legislative definition of the VAT exemption that applies to examination services aligns with “the charge made by placement providers to HEE (or to a medical school where Education and Training Tariff funding has been devolved by HEE)”.
Although we believe this is a reasonable view of the scope of the VAT exemption, unfortunately HMRC have declined to endorse this third-party opinion of VAT law and referred the author to their published VAT guidance. We are aware that rulings have been sought by individual GP practices and we hope that will provide further clarity.
Training hubs
We have already determined that a GP practice can only exempt its supplies of education or training based on the VAT exemption for examination services. It fails to satisfy the other criteria for VAT exemption. If a GP practice acts as an LTH or an RTH it may therefore have a VAT liability on the receipt of this income.
The same VAT restrictions may apply to GP Federations, PCN legal entities, or other independent provider organisations.
There may be other solutions, but these are not panaceas. Care should be taken to ensure that the following solutions are understood at all levels of the relationships between the NHS, the RTH, and the LTH.
If the RTH is established as a not for profit entity, such as a community interest company with appropriately drafted articles of association, its training hub income may be exempt from VAT.
Although this approach may allow the RTH to receive income from the NHS without the need to charge VAT, it will not address the VAT liability of funds passed from the RTH to the LTH.
If the LTH is a GP practice (or other for profit entity) it cannot receive this income without a liability to account for VAT unless the funds are not within the scope of VAT. In simple terms, can the receipt of LTH funds be treated as a grant paid by the RTH? If so, the LTH may be able to receive the funds without the need to charge VAT. Bear in mind that this solution can only be applied on a prospective basis, as it would need to be supported by suitable contractual arrangements and by the financial statements of both the RTH and the LTH.
What we observe in this article is the unhappy marriage of archaic VAT law with the modern practice of closer working between the NHS and primary care. There are solutions, but they must be used with caution to avoid unintended consequences.
