Occupational health services and VAT
The treatment of occupational health and VAT has changed over the years, which often causes confusion. A huge number of occupational health providers are still charging VAT as standard on occupational health services, which often leads to confusion amongst clients.
Many occupational health businesses historically viewed that services were standard rated, with 20% VAT charged, as the primary service provision is information and advice to employers.
However, following a hearing in 2019, a Court (the First Tier Tribunal -Tax) found in 2020 that most occupational health services are exempt from VAT.
Why are most occupational health services exempt from VAT?
The Tax Tribunal decided that occupational health services are exempt from VAT because they fall within the ‘medical exemption’.
A specific exemption in the Value Added Tax Act (1994) applies to the healthcare sector. It states that services are exempt from VAT if “their primary aim is the protection, preservation or restoration of health”. The services must be provided by a registered health professional for the exemption to apply.
What guidance does HMRC provide?
HMRC publish guides for businesses covering many areas of taxation. The most relevant guide regarding the treatment of occupational health and VAT is “Health professionals and pharmaceutical products (VAT Notice 701/57)”.
Section 4.11 of the Notice states that “if the underlying purpose is to deal with a medical problem, it’s therefore exempt from VAT”. It is this principle that was partially tested before the Tax Tribunal.
HMRC also provide commentary about the most common occupational health services and whether they attract VAT, which is summarised below.
Occupational health assessments/management referrals
Occupational health assessments (sometimes called “management referrals”) are often made because of performance or attendance issues. In these cases, occupational health usually provides advice on how to manage problems, rehabilitation steps and advice to support the employee.
As medicals undertaken for the purposes of protecting and restoring the health of the individual are exempt from VAT, occupational health assessments are also exempt too.
Even though the service allows or helps employers to make decisions about the individual’s future, the underlying purpose of the assessment is to deal with a medical problem, which falls within the medical exemption (as stated in Section 4.11 of the HMRC guide).
What about GP reports?
If employers write to a GP to obtain a report about an employee’s health, it usually falls within the medical exemption for the GP writing the report, so VAT is not usually charged.
There are however notable difficulties associated with writing directly to a GP in order to access advice about an employee’s health. Our article on the topic sheds some more light on the most common issues for managers.
Whilst occupational health may sometimes need to obtain reports from an employee’s GP or specialist, related reports are considered by HMRC to be incidental to the principal supply and are therefore also exempt.
Pre-employment medicals and VAT
If a job offer has been made and a medical is used to see if any accommodations should be made to support an existing medical condition, the service is exempt from VAT.
If a medical is undertaken to ascertain the most suitable location for work, the service is also exempt from VAT. This is because the medicals are being undertaken to protect the health of successful job applicants.
The Equality Act 2010 has meant that ‘pre-employment’ medicals are rarely undertaken. If they are used to enable an employer to make a decision about whether to recruit or not, they must attract VAT, because they are not primarily concerned with the health of individual.
Medicals (including questionnaire based assessments) where a job offer is made as being conditional on the outcome of the screening also attract VAT at the standard rate. Again, this is because their purpose is to enable to an employer to make a decision, not to protect the health of the individual.
Medicals undertaken to assess whether someone can join a statutory register, such as shipping medicals, commercial or private pilots licences, UK Oil & Gas, commercial divers etc also attract full VAT.
Post-employment medicals (incl. health surveillance)
If a medical is conducted to make sure a person is medically well enough to undertake proposed work activities, the main purpose is the protection of health and the service is exempt from VAT.
The same applies if the purpose of medical is to assess whether proposed work could adversely affect health or to make recommendations to help minimise risks. This applies to health surveillance programmes too, such as regular respiratory, skin or other medical checks.
Sadly, when it comes to ill-health retirement medicals, there is a clear conflict between the HMRC advice pages and the judgement published by the FTT in 2020. HMRC guidance states (in Section 4.11: Post-employment medicals) that medicals to determine whether early retirement on ill-health grounds is appropriate are exempt from VAT, because the purpose is to protect health.
However, the tax Tribunal considered whether the employer’s primary aim in ordering the medicals was to identify possible adjustments to prevent damage to the employee’s health, or whether it was to give information to make a decision on termination of the employment.
The Tribunal decided that the primary purpose of the typical employer is to decide whether or not to terminate the employment on health grounds. Where the medical is requested by pension trustees, the process is the same, but the purpose is to establish whether the person meets the criteria for payment of the pension before the scheme’s normal retirement date.
It is possible that the HMRC guidance pages are yet to be updated, even two years after the judgement, so caution is advised regarding the treatment of VAT in ill-health retirement medicals. Professional advice should be sought if it may affect your business or pension scheme.
Where a medical is undertaken to determine whether a person can join a pension scheme, VAT should be added to the service provision, as the main purpose is clearly to let a third party take a decision.
‘On-site’ medicals, health promotions, executive screenings & VAT
Many different medical services are often provided to support corporate activities, sometimes on a rolling annual programme or within benefits programmes.
Medical assessments could include checking blood pressure, sugar levels (diabetes), cholesterol levels etc. As the checks are aimed at protecting, restoring and maintaining the health of the individual, they’re exempt from VAT.
Risk assessments and VAT
Risk assessment within the workplace are usually standard rated. These are generally not undertaken by health professionals in the exercise of their respective professions and therefore HMRC do not accept that they qualify for the exemption.
HMRC says that “whilst many are undertaken as a result of statutory health and safety requirements, these are generally not undertaken by health professionals in the exercise of their respective professions. As such they’re taxable whether undertaken by a registered or non-registered health professional.”
Training and advice
While the exact content of any training and advice should always be considered, historically, when it is undertaken by a registered health professional acting in that professional capacity, such services did not normally qualify as exempt medical care.
This is because the training and advice was given in order to protect and maintain the employee’s health. Training may also qualify as an exempt supply of education.
However, the tax Tribunal found that the delivery of training to businesses (specifically related to drug and alcohol testing, first aid and manual handling) was too far removed from the medical exemption to be applicable. The Tribunal found that they attract VAT at the standard rate.
Caution is advised for businesses purchasing training services from occupational health providers, although it is the responsibility of the provider to include VAT, not the recipient of the services.
It is common for some employers to seek independent medical advice to defend claims from employees or others. Services are often commissioned by Solicitors in this regard too.
As the provision of advice or reports is in order to defend an employer against a legal claim by an employee, the Tribunal found it is clearly standard rated: the main purpose is not the protection of the health of the employee.
Our massive disclaimer
Occupational Health Assessment Ltd provides professional medical services to business and is not able to provide taxation advice to businesses or individuals. The content of this article is intended only as information which may be relevant to purchasers of occupational health services. Please seek independent specialist advice if you have any questions about taxation and VAT at any time.
About Occupational Health Assessment Ltd
Occupational Health Assessment Ltd provides rapid access to expert occupational health support for businesses across the United Kingdom. Appointments are available within two days.
With a unique occupational health assessment service, fitness certifications and access to clinics in Belfast, Birmingham, Bradford, Brighton, Bristol, Cardiff, Coventry, Derby, Edinburgh, Glasgow, Hull, Leeds, Leicester, Liverpool, London, Manchester, Newcastle, Northampton, Nottingham, Plymouth, Portsmouth, Reading, Sheffield, Southampton, Stoke, Surrey and more, the business provides high quality, expert medical advice.
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