Could your business be expecting a COVID-19 PCR testing services bill?

12 May 2022

Published in: Member News

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Could your business be expecting a COVID-19 PCR testing services bill?

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Could your business be expecting a COVID-19 PCR testing services bill?

COVID-19 PCR testing has become a regular requirement in recent years as organisations take steps to protect their employees and customers. Many companies obtaining these tests will have presumed that they would not be charged VAT by their supplier because the service is for medical care and that the VAT exemption applies.

However, Robert Marchant, VAT and Customs Duty partner at national audit, tax, advisory and risk firm Crowe, says this may not be the case, with a potential VAT bill in the future. He said: “Certain medical services are exempt from VAT.

However, as with much tax law, it’s all in the details, as the medical exemption is subject to a variety of criteria.

This is especially true when it comes to COVID-19 PCR testing.

“HMRC released guidelines in summer 2021 on their views on how the medical exemption applies to such services, including when they believe the conditions are met, meaning the services are VAT exempt, and when they do not -meaning that 20 % VAT is to be charged.

“The guideline provides some reassurance to business as it recognises these services are provided with the ultimate goal of safeguarding human health - which is a criterion for medical care VAT exemption to apply.

“This is true even if to facilitate international travel, because HMRC recognises that the testing aids in the protection of health for both persons being tested and those with whom they interact.”

According to HMRC, in order for the COVID-19 PCR testing exemption to apply, the entire testing and diagnosis process, including the collection of a sample from a swab as well as the diagnostic process in the laboratory, must be performed or directly supervised by a certified health professional.

This method disallows exemption in many cases where the sample is taken via a self-administered swab. The position is further restricted if pharmacists are involved as the law does not permit exemption where they supervise medical care; it is only where they wholly perform the service that exemption is available.

Marchant added: “If HMRC's position is correct, many COVID-19 PCR testing services will lose their VAT exemption, resulting in a 20% increase in price, provided the entire VAT charge is passed on by the supplier. This will be discouraging news for partially exempt organisations that pay for PCR tests because they will be unable to recoup much, if any, of the VAT they pay, while continuing to take all necessary precautions to protect their employees and customers against COVID-19.

“The suggestion that the sample must be obtained by or directly supervised by a registered health professional and cannot be self-administered would appear to be unreasonable - and also impractical, given the large number of COVID-19 PCR tests performed each day, particularly during 2021.

“It also runs contrary to the ultimate point of the VAT exemption for medical care, which is to remove a VAT cost on goods and services that protect human health.”

Organisations procuring COVID-19 PCR tests will need to understand whether they will be charged VAT by their testing services suppliers and if so, consider whether this VAT can be reclaimed.

At Crowe we have an experienced team of VAT and Customs experts, and our global network of specialists mean we are equipped to support you both in the UK and beyond.

For further information or an informal chat, contact robert.marchant@crowe.co.uk