Work out the VAT liability of goods and services supplied by health and care institutions and providers of non residential care to children.
This notice cancels and replaces Notice 701/31 (November 2011). Details of changes to the previous version can be found in paragraph 1.2.
1.1 What this notice is about
This notice explains:
- the VAT liability of goods and services supplied by hospitals, nursing homes, hospices, pathology laboratories and other state regulated institutions that provide medical care or treatment
- the VAT liability of goods and services supplied by third parties on the premises of a hospital or other institution that provides medical care or treatment
- when drugs or medicines dispensed to inpatients, residents or other people attending the premises of a hospital or other institution may be relieved from VAT
- when institutions that provide medical care or treatment should register for VAT
1.2 What’s changed
This notice replaces the November 2011 edition of Notice 701/31 Health institutions. The notice has been revised to provide guidance on state regulated institutions other than hospitals, hospices and nursing homes providing health care which qualify for VAT exemption.
Advice about supplies made to and by welfare institutions can be found in Welfare services and goods (Notice 701/2).
1.3 Who should read this notice
You should read this notice if you are:
- a hospital or similar institution that is approved, licensed or registered under the appropriate social legislation, or is exempted by such legislation from obtaining approval or registration
- a pathology laboratory or other state regulated institution providing diagnostic services or services helping to enable another health professional or health institution to make a diagnosis
- other state regulated institutions offering health care (for example, mobility or dialysis centres)
- any other business that provides goods or services to hospitals or similar institutions, or to patients, or other persons attending the premises of such an institution
1.4 The law covered in this notice
The VAT Act 1994, Schedule 9, Group 7, item 4 provides exemption for the provision of care or medical or surgical treatment and, in connection with it, the supply of goods, in any hospital or state regulated institution.
2. Exemption for care and treatment provided in qualifying institutions
2.1 A qualifying institution
An institution is qualifying when any of the following conditions are met:
- the institution is a hospital
- the institution is either a hospice or nursing home, and is either approved, licensed or registered under the relevant social legislation, or exempted from obtaining such an approval or registration by the relevant legislation
- the institution is any other state regulated institution providing medical care
An institution may be qualifying regardless of whether its activities are carried out on a charitable or commercial basis.
2.2 When services provided by a qualifying institution are exempt from VAT
Supplies made by a qualifying institution are exempt when both these conditions are met:
- the supply consists of care or medical or surgical treatment in connection with the health of the beneficiary
- this care or treatment is provided under the terms of:
- an approval, license or registration
- an exemption from registration under the appropriate social legislation
2.3 Medical care or treatment
Examples of medical care or treatment supplied by a qualifying institution include:
- performing medical or surgical procedures with the aim of protecting, maintaining or restoring the health of an individual
- nursing sick or injured patients in a hospital, hospice or nursing home
- other state regulated institutions providing diagnostic services or services helping to enable another health professional or health institution to make a diagnosis, for example, pathology laboratories or scanning units
- meals and accommodation provided to inpatients, residents or other care beneficiaries
2.4 Services provided by a qualifying institution that aren’t exempt
Examples of services that are not exempt include:
- any service that is not provided under the terms of an approval, license, registration or exemption from registration, granted under the appropriate social legislation
- any service provided to a person other than an inpatient, resident or other beneficiary of care or treatment in a hospital or hospice, this includes any supply made to visitors in hospitals or hospices, but special rules apply to the supply of meals and accommodation to parents staying in hospital with a sick child (see paragraph 2.11)
- any goods or services that are separable from care or treatment provided within the institution, for example, charges made for the use of telephones
2.5 Medical supplies made by qualifying institutions
Providing the medical services of qualifying institutions are made in connection with the diagnosis of illnesses relating to specific individual patients, their supply will be exempt.
2.6 Class 3B and 4 lasers and Intense pulse light source (IPL) machines
Class 3B and 4 lasers and IPL machines are now used in many medical and cosmetic procedures carried out on the premises of approved, licensed or registered institutions. But it should not be assumed that all treatments using this equipment are exempt from VAT.
Where the procedure using this equipment is supplied as part of a treatment programme drawn up by a registered health professional following the diagnosis of a medical condition, this treatment is exempt from VAT. But where it is carried out for a cosmetic reason rather than as an element of medical or surgical treatment, this service is taxable at the standard rate of VAT.
2.7 Transport supplied or received by a qualifying institution
Transport services are exempt when the:
- transport is an integral part of the exempt supply of care and treatment provided by a qualifying institution
- transportation, by any provider, of sick or injured persons to or from a place of medical care or treatment, in a vehicle specially designed or adapted for the purpose
The following services are zero-rated, regardless of who makes the supply:
- passenger transport in any vehicle designed or adapted to carry not less than 10 people
- passenger transport in any vehicle constructed or modified to carry disabled passengers where, prior to such a modification, the vehicle was capable of carrying not less than 10 people
All other supplies of transport services are liable to VAT at the standard rate. Further information on passenger transport services and details of the input tax rules that apply to vehicles with special facilities for carrying disabled people can be found in Notice 744A: passenger transport.
2.8 Goods supplied as part of a package of care and treatment in a qualifying institution
Most goods supplied by a qualifying institution as part of a package of care or treatment are exempt. Examples include:
- incontinence products, drugs and medicines, bandages, plasters and ointments supplied to hospital patients
- meals and refreshments provided to inpatients, residents or other beneficiaries of care or treatment
- toiletry products provided to inpatients, residents or other beneficiaries of care or treatment, for which no additional charge is made
Any items that are separable from the care and treatment provided by the qualifying institution are not exempt. Examples include:
- use of bedside phones and televisions
- toiletries provided to inpatients for an additional charge
- merchandise such as commemorative T-shirts
- goods provided to any person other than the beneficiary of the medical care or surgical treatment, but special rules apply to meals and accommodation supplied to parents staying with a sick child in hospital (see paragraph 2.11)
The VAT liability of goods that are not exempt under this paragraph should be determined in accordance with the normal liability rules.
2.9 Drugs and other items supplied to patients in a hospital or nursing home
Drugs, medicines, bandages, plasters or ointments provided by a qualifying institution in the course of care or treatment are exempt when provided to:
- an inpatient of a hospital
- any person attending the premises of a hospital for medical care or treatment
- any other person or establishment where the item is for use by, or in connection with, either of the above
If you are not a qualifying institution, drugs or medicines that you supply to any of the above people are usually standard rated, even when the items are dispensed on the prescription of a medical practitioner. But by concession, we allow pharmacists (including those operating from an independent pharmacy within hospital premises) to zero rate drugs, medicines and other qualifying goods that are supplied to an inpatient of a hospital or any person attending the premises of a hospital for medical care or treatment, where all of the following conditions are met:
- the items dispensed are qualifying goods designed or adapted for use in connection with medical or surgical treatment
- the items are dispensed by a pharmacist in the normal way, on the prescription of a medical practitioner who is providing primary health care services
- the items are intended for self administration by the person named on the prescription
- the items are supplied separately from, and do not form any part of, any medical services, treatment or care provided in the hospital or nursing home
- in the case of National Health Service (NHS) prescriptions, the pharmacist is acting under the appropriate NHS pharmaceutical regulations, and is reimbursed for the dispensed items by one of the NHS bodies that pay for community pharmacy services
The application of this concession must not give rise to any abuse of the VAT system. HMRC may withdraw or restrict the application of this concession if we have reasonable cause to believe that it is being used for tax avoidance purposes.
2.10 Other goods supplied to disabled people in a hospital, nursing home or other qualifying institution
Goods supplied to disabled people qualify for zero rating where all of the following conditions are met:
- the relevant conditions detailed in Reliefs from VAT for disabled and older people (Notice 701/7) are met
- the goods are provided for the domestic or personal use of the customer
- the goods are not provided, ordered or paid for by a hospital, nursing home or other qualifying institution
- the goods are not integral to care or treatment provided in a hospital, nursing home or other qualifying institution
2.11 When goods are not provided for domestic and personal use
For the purposes of this relief, domestic or personal use excludes any items (other than wheelchairs) purchased by:
- an inpatient of a hospital
- any person attending the premises of a hospital for medical care or surgical treatment
- any other person or establishment where the goods are for use by, or in connection with, either of the above
Where the items in question are intended for use in the course of care or treatment provided in the hospital or nursing home. Items excluded from the zero rate by this provision include:
- incontinence products
- medical and surgical appliances
- bandages, plasters or ointments
Special rules apply to the supply by a charity of goods, other than spectacles and contact lenses, that are designed for use by a visually handicapped person (see Notice 48: Extra statutory concessions).
2.12 Supplies made to relatives visiting residents in a hospital
Where a qualifying institution supplies accommodation and meals to a relative staying in hospital with a sick child, those supplies are exempt. No other supplies to visitors, relatives or carers qualify for exemption.
3. Supplies made by providers that are not qualifying institutions
3.1 Goods and services supplied on the premises of a qualifying institution
Some qualifying institutions allow outside businesses or practitioners to operate from their premises. Examples of businesses that might make supplies from the premises of a qualifying institution include:
- retail outlets or independent health professionals that occupy areas within a hospital building
- self employed hairdressers
For a supply made by such a business to qualify for exemption, they need to be providing care or medical or surgical treatment and all of the following conditions must be met:
- the goods or services supplied must form part of the medical care or surgical treatment provided within the qualifying institution
- the goods or services supplied must be of a type commonly provided to beneficiaries of such services
- the supply must not consist of drugs, medicines, incontinence products, bandages, plasters, ointments or any other items that are integral to the care or treatment provided in the qualifying institution
- the supply must involve direct contact between the provider and the beneficiary, and must contribute directly to the treatment of the beneficiary
- the supply must not take place in a qualifying institution for reasons of geographical convenience only, this means that the supply must not be of a type that might equally be provided at a location other than the premises of a qualifying institution
There are very few supplies made by outside businesses that meet all of the above conditions. Examples of services that meet these conditions include:
- care supplied by nursing staff and other carers
- treatment supplied by outside contractors providing renal dialysis services in hospitals
Supplies made by health professionals or charities from the premises of a qualifying institution may be exempt under separate provisions, even when all of the above conditions are not met, for example:
- health or home care services performed by, or under the direct supervision of, a registered health professional (see Notice 701/57: health professionals)
- welfare services (including care or treatment) provided otherwise than for profit by a charity, where any supply of accommodation is ancillary to the provision of care or treatment (see Notice 701/1: charities)
4. Qualifying institutions and VAT registration
4.1 Qualifying institutions registering for VAT
You are only required to register for VAT when the value of your taxable supplies exceeds the VAT registration threshold. If you are a qualifying institution providing care or treatment, it is likely that the majority of your supplies will be VAT exempt, and you may not be required to be VAT registered. A qualifying institution that makes taxable supplies below the registration threshold may apply to register for VAT on a voluntary basis. Notice 700/1: should I be registered for VAT? explains the rules that apply to VAT registration.
4.2 Pathology laboratories and other state regulated health institutions on hospital premises
As part of an outsourcing process, sometimes hospitals lease part of the premises to other bodies such as pathology laboratories and similar institutions which are ‘state regulated health institutions’ in their own right, regardless of the hospitals’ status.
In such cases the liability of the supplies by the pathology laboratory or similar state-regulated institution does not depend on whether they are part of a hospital, on the same premises as a hospital but not subject to a separate lease, or at a wholly separate location from the hospital. Nor does it matter that their supply of medical services may be made to the hospital rather than directly to the final patient (see paragraph 2.5).
5. Supplies received by a qualifying institution
5.1 Qualifying institutions buying goods and services VAT free
In general, a qualifying institution will incur VAT on its purchases in the same way as any other organisation. Depending on its status but, a qualifying institution may be eligible for the following zero rates and exemptions from VAT:
- zero rating of certain goods and services purchased by charities (see Notice 701/1: charities)
- zero rating of certain equipment, vehicles and repair and maintenance services purchased by charitable institutions, or by hospitals using charitable funds (see Charity funded equipment for medical and veterinary uses (Notice 701/6))
- exemption for human blood
- exemption for human organs or tissue and for products derived from human blood, when these are purchased for diagnostic, therapeutic or research purposes
- exemption or zero rating of certain transport services (see paragraph 2.7)
Exemption does not apply to synthetic blood products such as those of animal origin, or to any genetically engineered products, or to the storage of stem cells.
5.2 The letting on hire of specialist equipment or other facilities
The hire charge is exempt if the equipment or facilities are provided with, and ancillary to, the services of a health professional who either:
- operates the equipment
- oversees the use or operation of the equipment or the facility by another person
- provides care, treatment or diagnosis
Notice 701/57: health professionals explains the exemption that applies to the services of health and medical professionals.
The hire of equipment or the provision of facilities to a qualifying institution is standard-rated when the:
- equipment or facilities are provided without the benefit of the services of a health professional who is qualified to operate or oversee their use
- services of a health professional are ancillary to the main supply of the equipment or facilities
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