VAT and COVID-19 Testing

In August 2021 HMRC released its policy in relation to the VAT treatment of COVID-19 tests in, Revenue and Customs Brief 11, our initial release that summarise the policy is available here.

Since last August we have seen HMRC’s policy put into practice with some providers being approached to pay VAT on testing services that have been treated as VAT exempt.

Who should read this article?

Any organisation who is involved in the provision of tests for COVID-19 or receives these services from suppliers. The VAT legislation in this area would also cover for testing of other diseases and taking of sample for that purpose.

Why is this important?

Recent correspondence from HMRC is the subject of an ongoing appeal process but currently HMRC are arguing that VAT at the standard rate should be applied to:

• COVID testing services provided post 16 December 2020 on the basis that from this date services were only accredited by UK Accredited Services (UKAS) and not the Care Qualify Commission. Consequently, the services are not VAT exempt as a result of being state regulated
• any COVID testing service that does not incorporate the taking of the test (the swab) by either a medical practitioner or somebody is ‘directly supervised’ by a medical practitioner.

In some instances, HMRC is also seeking to apply penalties so it is important to take action now to address the position.

Other related Issues

Crowe have been involved with a number of clients in this area and have the benefit of various legal opinions covering a range of services and different supply chains. Consequently, we are aware that the issues focussed on in HMRC’s Brief 2021/11 could also have an impact on services of taking any samples for testing purposes, e.g. blood, urine, tissue. 

The legal analysis and application to different scenarios can be quite complex depending on the types of transaction taking place. However, it appears clear that HMRC’s current view could be subject to legal challenge on a number of fundamental principles that all revert to the general concept that healthcare should not be subject in order to reduce the cost to the public.

What next?

At this stage, if VAT exemption has been applied to COVID testing services this should be critically reviewed with all factors taken into consideration. Different supply chains and fact patterns will mean that different treatments can apply.

Watch this space: HMRC’s policy may change as the application of its rules to some scenarios. 

Further information 

Please get in touch with Kieran Smith or your usual VAT contact if you would like to discuss this further.