VAT and COVID-19 testing services

Who should read this?

Any charity that has received or supplied COVID 19 testing services

What is the Issue?

HMRC released its business brief 11(2021) on 23 August 2021 in relation to the VAT treatment of COVID 19 testing services.  HMRC’s interpretation of the guidance restricted the application of VAT exemption to services that comprised of both obtaining and testing the sample. This meant that testing services provided alone were subject to VAT at the standard rate.  If you would like more detail in relation to the technical arguments please click here.

We have received correspondence from HMRC recently that indicates that HMRC’s policy was over-restrictive and we expect it to be changed to allow VAT exemption to be applied to testing services, although the timeline for release of the revised guidance is currently unknown.

Why is this important?

Charities are often unable to recover VAT in full on costs.  Therefore, if VAT has been charged on services that should have been exempt, this represents an additional unnecessary cost.

If your charity makes supplies of testing services itself, it may be that VAT has been over-paid on these services which again results in an additional cost to the charity.

What can be done?

If VAT has been applied incorrectly to services received, it is possible to correct the position by seeking a credit from the supplier.

In instances where a charity may have over-charged VAT on its own supplies a correction can be made directly with HMRC.

Therefore, action now could result in a VAT refund.

What now?

If your organisation has received or supplied COVID 19 testing services we would be happy to discuss the issues and expected change in policy.  Please contact Kieran Smith, Robert Warne or your usual Crowe contact.