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HMRC internal manual

VAT Health

Is the supply made in a hospital or state-regulated institution? When is a supply ‘in’ that institution?

Our policy can be summarised as follows:

* a supply does not qualify for exemption merely because it takes place on hospital premises; but
* in certain limited circumstances, supplies made in a hospital can be exempt even if they are not made by the hospital itself, provided that the supply amounts to “care or medical or surgical treatment”.
  1. Supplies made from within hospital premises and state-regulated institutions for geographical reasons only

Healthcare providers such as hearing aid dispensers, opticians, and un-registered practitioners such as psychologists sometimes claim that their supplies of goods and/or services - which are ordinarily taxable - are exempt because they are made “in” a hospital or state-regulated institution. These supplies cannot become exempt solely because they take place within hospital premises/state-regulated institutions. Taxable supplies made by the individuals above will therefore remain taxable, even if they are supplied from within, and/or are to a hospital or state-regulated institution; although if the hospital then incorporates those supplies into a package of care which it provides to patients, that onward supply may be exempt.

This view is supported by the findings of the Tribunal in M J Coleman (VTD10512). Mr Coleman was a hearing aid dispenser who operated from a hospital, but was not part of that hospital. He contended that the use of the word “in” in Item 4 was entirely clear and unambiguous and that he was therefore entitled to exempt his supplies of hearing aids. We maintained however, that UK law fully reflected EU law and argued that his supplies were not exempt because they did not amount to “the provision of care or medical or surgical treatment”. The Chairman found for Customs, identifying the key question as whether, upon a proper interpretation of Item 4, Mr Coleman’s activities constituted “the provision of care or medical or surgical treatment”. He found that they did not and that therefore Mr Coleman’s supply was taxable. The principles established by this decision can be applied equally to any other professional wishing to claim exemption solely on the basis of their geographical location.

Please see VATHLT2270 VATHLT2300 and VATHLT2430 for details on opticians,

  1. Care or medical or surgical treatment supplied in the hospital but not by the hospital.

We allow exemption for a very limited range of services provided within hospitals, even if they are not provided by the hospital itself. These include services of nursing auxiliaries, the Women’s Royal Voluntary Service trolley services to patients in hospitals and the supplies of an outside contractor providing renal dialysis services within hospital premises. The logic underlying this is threefold:

  • these services could be fairly described as “care or medical or surgical treatment”;
  • their performance necessarily involves direct contact with the patient (see the Tribunal decision below); and
  • they were often provided by hospital staff prior to changes in working practices.

In Crothall and Company Limited, (VTD 6), the tribunal found that Item 4 should extend to services which directly contributed to the welfare of the patient and in their performance necessarily involved some contact with the patients. We accept that this principle is correct and use it as the basis for exempting the services of nursing auxiliaries in hospitals as these contribute to the welfare of the patient and are services which nurses used to perform. However, we no longer accept that the specific services considered by the Crothall decision are exempt as it predates the principal VAT Directive, which refers to “medical care”, and we cannot accept that the services in the Crothall decision are medical care.