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HMRC internal manual

VAT Health

Wholly performed or directly supervised: Letting on hire of equipment

Note 1 to Group 7 excludes from exemption the letting on hire of goods except where the letting is in connection with a supply of other services covered by Item 1 of the exemption for health.

The letting on hire of goods is in principle a taxable supply. However, Note 1 ensures that, if the letting is subsidiary to a supply of services that are exempt under Item 1, then the supply of the letting on hire will be exempt.


Many hospitals - both NHS and private - do not own certain specialised equipment because it is extremely expensive and is often required only intermittently. Instead, they may make use of equipment owned by companies specialising in this sector.

The equipment made available in this way includes lithotripsy machines, x-ray machines, CT scanners, and ECG equipment.

How to determine liability

Officers should adopt a three-stage approach:

  1. Ascertain the precise details of the supply. For example: how is the service described in the contract? Are the attendants registered health professionals? How is the equipment made available and operated?
  2. Establish whether the equipment is hired on its own or as part of a package with exempt services falling within the scope of Item 1. If the goods are let on hire without attendant staff, or the attendant staff are not appropriately registered, there is no associated exempt service. If either of these scenarios apply, the supply will be taxable, but if the equipment is supplied as part of a package, then the final stage is to:
  3. Determine which is the principal supply and which is the subsidiary supply. If the principal supply is the equipment on hire and the provision of item 1 services is subsidiary to that supply, the whole supply is standard-rated. If on the other hand, the principal supply is the provision of item 1 services and the hire of the equipment is subsidiary to that supply, the whole supply will be exempt under item 1.

The following table will assist in evaluating the arrangements between the two parties to the contract and determining whether the supply is a taxable supply of equipment hire or an exempt supply of medical care.

Factor Points towards the standard-rated supply of goods on hire Points towards a single supply of exempt services.
Training Equipment supplier sends a representative to train hospital staff for a significant period - say 2 or 3 weeks. No training given to the hospital staff by the equipment supplier or manufacturer.
Medical personnel Hospital supplies registered medical personnel such as consultant radiologists or registered radiographers. Equipment supplier supplies personnel to a lesser extent. No registered medical personnel from the hospital are present; all registered medical personnel are supplied by the equipment supplier.
Who carries out the diagnostic function? Registered medical personnel from the hospital decide what use is to be made of the equipment in relation to each patient; for example, in the case of a scanner, how many images are to be taken, of what part of the body and at what angles. Personnel of the equipment supplier have no say in this. Staff of the equipment supplier decide what procedures are required, process the results (for example by developing the films) and send these back to the hospital.
Degree of control Hospital’s medical personnel in charge throughout. Medical personnel of equipment supplier have absolute control.
Why are personnel of the equipment supplier present? To ensure that the machine is used properly and that no harm comes to anyone. Not to operate the machine, although they may occasionally be consulted or asked for technical advice. To perform all the procedures.
Charge Consists of an annual flat rate plus a unit charge. Set fee per examination.
Location On hospital premises (for example, parked in the car park or similar), so as to be close to a pool of readily available medical personnel who are trained to use the equipment. Outside the hospital premises, e.g. on the premises of the equipment supplier.

Key Tribunal decisions

In “Aslan Imaging Ltd” (VTD 3286), in deciding whether the letting on hire of the scanner was in connection with the supply of services of the registered radiographer, the Tribunal considered the meaning of the phrase “in connection with”. It found that any supply “in connection with” another should be the less important or auxiliary of the two and that in this case, the services supplied by the radiographer were subsidiary to the letting on hire of the equipment “just as the services of a chauffeur would be subsidiary to the letting for hire of a chauffeur-driven limousine”. The Tribunal found that:

“What the hospital got was the opportunity from time to time to use the scanner. Precisely what it was used for and how it was used when it was at the hospital was decided by the hospital staff.”

The supply was therefore taxable.

In contrast, in “Cleary & Cleary T/A Mobile X-Rays” (VTD 7305), the Tribunal found that

“the appellant clearly provided an x-ray service and did not merely hire the machine out. Indeed … the equipment remained under the sole control of the appellant throughout: that does not accord with the normal concept of hire.”

Using the meaning of “in connection with” considered in Aslan, the supply was ruled to be exempt as the supply of radiography services. The letting on hire of goods was subsidiary to those services.

The main principal that both tribunals considered in coming to their decisions was the degree of control that the supplying company maintained over its equipment. In Aslan, the company radiographer was there predominantly to ensure that the machine was not misused. The hospital staff worked and controlled the machine and provided the medical expertise and the supply was seen as constituting the standard-rated hire of goods. In Cleary, the company radiographer was the only registered medical professional present and maintained almost total control over the machine, performing all of the medical procedures and the supply was found to be exempt.