Because the COVID-19 pandemic recedes many medical testing companies companies have been diversifying and bringing to market new merchandise aimed on the rising well being and wellbeing market. For instance, blood and DNA testing and screening companies. The VAT standing of those new choices will not be at all times clear and up to date VAT case-law, and commentary issued by HMRC, leaves some gray areas for interpretation, with dangers for tax compliance.

One of many issues when innovating and growing new merchandise is the query of whether or not or not the contemplated provides fall beneath the VAT exemption for medical care. As with all exceptions to plain score, the medical care exemption is utilized narrowly and has a sequence of circumstances that each one need to be met. There may be additionally a ‘cliff-edge’ within the impression between having to account for VAT (at the usual charge of 20% within the UK) and exempt remedy; the doable addition of 20% VAT both makes merchandise costlier or reduces the provider’s revenue margin. Equally, getting the VAT remedy fallacious may cause surprising prices at a later date given there’s a four-year look-back interval in VAT regulation.

Companies must also remember that the federal government affords company tax credit for qualifying R&D expenditures. This could present invaluable tax rebates to assist incentivize and fund additional analysis exercise. As well as, if the product is patentable, the corporate might be able to declare tax advantages throughout the patent field.

VAT issues

The COVID-19 pandemic has raised consciousness and curiosity amongst customers and employers for healthcare merchandise. There additionally appears to be a better acceptance of self-administering checks to acquire a speedy analysis. Some medical testing companies could look to capitalize on this heightened curiosity in wellness. There may be loads of proof of the introduction of recent testing merchandise for a spread of diseases or circumstances. A key query is whether or not or not that product meets the circumstances for VAT exemption as a medical care service. If it’s a product for customers or one being offered to organizations who can not reclaim their VAT, reminiscent of non-public healthcare suppliers, then the addition of VAT will almost definitely enhance the price of the product because the VAT charged can be irrecoverable.

Sadly, what could also be thought to be a medical service to a layman doesn’t mechanically qualify for exemption beneath the VAT guidelines. HMRC’s coverage on the VAT remedy of COVID-19 PCR testing companies needed to evolve quickly in response to the fast-moving nature of the testing rollout, and a number of the important adjustments to the regulatory framework making use of within the sector. That coverage evolution has led to inconsistent VAT remedies being utilized by some healthcare suppliers and testing laboratories. This has heightened the danger of HMRC difficult the strategy which some suppliers have taken to the appliance of the VAT exemption and restoration of VAT on their purchases.

Whereas the rule of thumb is {that a} medical service meant to guard, restore or keep human well being, can profit from VAT exemption, there are circumstances concerning how the service is delivered. For care or remedy outdoors a hospital, for example, it is necessary to ascertain whether or not that is wholly carried out or instantly supervised by a medical skilled on one of many UK’s acknowledged skilled registers. This isn’t at all times clear lower and the business goals of managing prices could be a issue, for instance the place outsourcing to lower-cost suppliers abroad is an element. The truth that UK regulation refers to UK skilled registers will not be a shock however does additionally elevate a query of the results of testing being outsourced to laboratories primarily based abroad whose staff could not meet this requirement. Does this preclude the UK VAT exemption from making use of to such outsourced actions?

One of many VAT learnings from the COVID-19 PCR testing expertise is that particulars reminiscent of whether or not the acquiring of a pattern is self-administered and the medical qualification held by the person finishing up the take a look at (there are additionally completely different VAT guidelines for pharmacists as in comparison with medical medical doctors) may impression on the VAT remedy. Each of those have been areas of recognized dispute with HMRC and future developments could also be anticipated that might have a retrospective in addition to potential impression on COVID-19 PCR testing companies. These could also be related to the way in which new medical testing merchandise adopting comparable methodologies are handled.

One other space of potential future income development is the testing of staff for employers, this might be all domestically however may additionally embrace multinational teams the place a UK father or mother firm agrees a worldwide contract to check or display screen the group’s staff for sure circumstances often. Given the contractual recipient of the service is the employer, does the service nonetheless profit from the VAT exemption for medical testing companies involved with the safety, restoration, or upkeep of human well being? One of many factors strengthened by VAT case regulation is that the medical care exemption is utilized primarily based on a major objective take a look at.

The place a enterprise is concerned in procuring medical look after particular person recipients that may elevate a query as to what’s the enterprise’s important objective in involving a well being skilled to undertake a take a look at or examination of an worker. The well being of the affected person or another business purpose?

Within the case of CIG Pannónia Életbiztosító the Court docket of Justice of the European Union Court docket lately determined that, regardless of certified well being professionals being concerned within the provision of the companies, the companies didn’t qualify for an exemption. The Court docket concluded that the aim of one of many companies was to offer a report referring to an insurance coverage declare, somewhat than to learn a person’s well being and a second service offered regarding the preparations for the person’s remedy was predominantly administrative. The choice highlights the necessity to assess whether or not the service is in regards to the safety, upkeep, or restoration of human well being and that this stays a subjective space.

One other instance of the place the VAT remedy of provide might be doubtful is the place suppliers of medical care outsource logistics and testing actions i.e they successfully stand between the client/ affected person and the laboratory by offering a coordination or facilitation function. This sort of state of affairs raises necessary questions. First to what extent should the provider make use of its personal appropriately certified medical workers to instantly supervise the availability of medical care companies? Second, will the regulatory framework to which the provider has to stick be reminiscent of to qualify it as a state-regulated establishment, which, like a hospital, is entitled to learn from the VAT exemption? Case regulation has proven that the place the service is basically considered one of administration of care by third events, that is unlikely to be exempt. As in all situations, the precise info of every provider should be thought of.

R&D and Patent Field

R&D tax credit are actually invaluable to firms. Primarily based on present guidelines they’ll supply financial savings of as much as 25% of the qualifying R&D expenditure. Loss-making SMEs and bigger firms can even declare a compensation of tax. From 1 April 2023, adjustments are being made to UK R&D tax credit, together with the charges. This partially displays a rise in the primary charge of UK company tax, but in addition improves the good thing about the R&D Tax Credit score (RDEC) scheme whereas lowering that of the SME scheme. HMRC is consulting on introducing a single R&D tax credit score scheme – bringing to an finish the present two schemes.

Medical testing firms may have had sure merchandise for different functions, however to satisfy the quick want and impression of COVID-19 they are going to have needed to innovate. As COVID-19 developed and adjusted these firms needed to reply and adapt to adjustments in recommendation and calls for from senior medical specialists; they needed to adapt their processes and merchandise to make sure that the outcomes had been more and more correct and produced in a shorter timeframe.

The place these adjustments constituted an advance in science or know-how, resolving uncertainties {that a} competent engineer within the discipline couldn’t do simply, that is more likely to be an R&D exercise that qualifies for the tax credit.

Medical testing firms must be searching for specialist tax recommendation to find out whether or not they need to declare R&D tax credit. These present invaluable tax financial savings and refunds for qualifying firms.

A number of medical testing firms may have utilized for a number of patents for his or her testing merchandise. These firms ought to discover whether or not they qualify for and would profit from the patent field. The impact is that income referring to merchandise containing a number of qualifying patents entice a company charge of 10%. A declare can’t be made till the patent has been granted though the profit can accrue whereas the patent is ‘pending’ offering the corporate has made the required elections.

Taking this ahead

The event of recent modern merchandise and buyer choices highlights the necessity to take into account the tax remedy. The impression on margins between having to account for VAT at the usual charge or not will probably be appreciable and there are sometimes ‘quirks’ within the VAT regulation which should be understood. In some instances, we’ve seen that these could be acted upon within the design section to optimize the popular VAT remedy. These challenges are elevated when contemplating VAT on cross-border actions because it then signifies that multiple nationwide VAT system must be thought of and the VAT guidelines are sometimes not totally aligned.

Latest experiences of HMRC’s coverage of the UK VAT remedy of COVID-19 PCR testing companies demonstrates that there’s typically extra complexity than suppliers would possibly count on and additional developments on this are anticipated which can then have a consequent impression on different medical testing companies delivered utilizing the same course of.

Lastly, R&D tax credit and the patent field could be invaluable sources of finance for modern firms. The board of any firm ought to ask two easy inquiries to a specialist tax adviser – “does the corporate qualify?” and “how can we make a declare?”.