VAT in the Healthcare Industry

In the healthcare industry, there are some VAT related issues that can arise. Today we will be giving some guidance on VAT, this will be helpful for you as we will cover the important areas such as how you can account for VAT and when you need to register for VAT etc. Even if you are not in the medical industry, some of the points we will discuss might apply to you too. We will also share some questions commonly asked and some scenarios that some of our clients have been through.

What Services Can You Register for VAT?

If you become a locum doctor and you are doing freelance work, for the treatments and services that has a primary purpose of restoring human health, you will not be able to charge VAT for this so you do not register for VAT. This is due to the fact that it is necessary for people and the government want it to be affordable which is why it is exempt for VAT registration.

On the other hand, if you are a freelancer but also do a bit of medical legal work on the side, you are able to register the legal work for VAT. However, you do not have to if you do not reach your threshold. Currently, the threshold is £85,000 for any role in 12 months. If you are doing that level of medical legal work then VAT is something that you would need to watch out for. However, if you only do it on an ad hoc basis then it is probably not worth for you to register yourself for VAT and having to do all of the paperwork as it does cost money to submit a VAT and it takes up a lot of your time.

Another similar situation is a dental practice. As a dental practice, you are not only providing a treatment but you are also selling products, which you may register VAT for. In this case, you are able to register for VAT only when your business has reached the threshold mentioned.

Locum Doctors and Agency Workers

VAT implications for locum doctors who are working under a limited company and/or work via an agency can be a grey area. The limited company might become a staff supplying service as the company is supplying medical staff. You would need to be clear within your contract between yourself and your agency as well as any clients. You need to figure out whether you are working as a service provider as a medical professional or if your company providing medical staff. If you are providing medical staff, that service can be registered for VAT. If you are providing medical services as a medical professional then you cannot register for VAT.

Providing Work and Services Under a Company

Some people ask whether they are able to set up a different company just for medical legal work. If you put all of the VAT-able work to that company just to receive a payment and provide medical legal service then you can set up a company for this purpose. This can apply to you especially if you are a self-employed medical professional or if you are doing medical legal work it can also be classed as self-employment. Setting up a company can be tax efficient for you because you can get tax-free dividends and dividends cost less than your personal income tax. It is important to note that when it comes to setting up a company, please do seek legal and professional advice.

One thing you cannot do is split a company. For example, if you do medical legal work and use two companies to run it, you may think that each of the companies will be under the threshold. However, this isn’t the case as you are the person who provides the service which means you control both companies. In this case, you would need to combine the revenue when it comes to considering the VAT.

When Do You Need to Register and What Happens Once You Register?

You are able to voluntarily register even if you are under the threshold. You might be worried that you will not be notified once you reach the threshold and you forget to register so it is important to take care of this when you can so you do not forget about it.

Whenever you do register, you need to set-up an effective date. For example, if it is November but you want the effective date to start on the 1st December, any services/invoices you provide would need to start charging VAT from this date. There may be some delay from the date you register and the date you receive the VAT certificate, which means you might receive it after the effective date. You must not charge VAT until you receive the certificate. But within that time period you can do either of the following:

  • Increase the price by 20% and state it is a service fee. Once you do receive the certificate, you can just reverse the service fee and start charging VAT, OR
  • Invoice the service as it is, and issue a VAT-only invoice once you have received the VAT certificate.

You need to make sure you are transparent and let your clients know what is happening so that you have set some expectations for them.

From the effective date, any overhead expenses that you have paid VAT for you are able to claim it back from HMRC by doing your quarterly VAT return. It is something you would need to be really organised with and make sure you are able to record and provide the relevant paperwork on a quarterly basis. It is always beneficial to be compliant especially if HMRC decide to do a VAT investigation.

What to Reclaim

  • You are able to claim Any bill that clearly states you have paid VAT for, you need to make sure you keep the bill for your records. If something is VAT inclusive but it does not show the VAT on the actual bill then you would still need to include the VAT when you reclaim it.
  • If you are newly VAT registered, you can backlog some expenses. For services, you can backlog for 6 months and if you have any equipment or any goods that you have paid VAT and still own you can backlog for 4 years.
  • You need to watch out for things like entertainment as if it is for business purposes such as entertaining your staff then you can claim the VAT but if you are entertaining clients then you cannot. You might not be able to claim 100% of the VAT if it is a combination of business and personal use.
  • When it comes to a medical practice, anything directly related to the medical legal work you can claim the VAT on. For the overheads, such as rent, you can only claim an apportion of the VAT back if you are using the office to do treatments but also medical legal work.

De-registration

If you see yourself doing less VAT-able work, you can choose to deregister VAT. When your revenue goes down and do not want to be registered anymore, HMRC will not automatically deregister you so it is important to evaluate your situation yourself. You need to make sure is based purely on business decisions instead of tax mitigation strategies.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me

Mid-Year Tax Planning – Allowance Maximisation

Have you considered mid-year tax planning so that you can take action in time to maximise your allowances and save tax? Mid-year tax planning is around October and there is less than 6 months till 17/18 tax year ends. A lot of people overlook things during the tax year and do not take action which causes them to not take advantage of available allowances and they receive a high tax bill. We are going to share some tips on what you need to consider at this time of the tax year to make the most of your entitled allowances.

3 Major Allowances You Need to Consider

  1. Pension Contribution – If you are paying tax on the 20% threshold, every £80 you invest in your pension pot, the taxman will top-up £20. It is effectively 25% return of investment. No other investment will give a good return as this and it is relatively stable. Despite your income level, you will always need to consider this type of allowance first. For most small businesses, it has now become an obligation for employers to contribute pension to their employees if they are an eligible worker. This type of contribution is funding your retirement and it is funding your future. Even if you could squeeze around £15 per month to your pension pot, that small amount will build up and eventually will give support your lifestyle when you retire. Currently the annual allowance is £40,000. It will be reduced when your income is over £150k. So consult your financial advisor if you consider investing relatively high amount of it.
  2. ISA Allowance – You might want to consider having some savings which is something that everyone can afford to do. A type of savings account is an ISA that is available at the moment. For 17-18 tax year, you can invest up to £20,000 worth of funds into an ISA. There is a cash ISA available as well as a stocks and shares ISA. The interest and dividends you earn from that particular ISA wrapper is tax-free as well. You do not have to have a lot of money in order to start saving, every small contribution counts. In reality, cash ISA can be very useful for when you are considering some emergency funds. It is easily accessible and the interest in it is tax-free.
  3. Venture Capital Trust – This allowance does require more amount of money and is relatively high-risk but the reward is really good. Every £10,000 you invest in a VCT, you receive £3,000 as a tax relief which means you get cash back from the government. It is a government scheme and the money goes towards UK start-up companies. It is a government incentive to encourage people to invest in UK businesses because these are the type of businesses that are very ambitious. The government wants to boost the prosperity and wants these companies to grow. Running a business is not always easy, most small business owners will have a brilliant idea but they might need a certain amount of capital which a VCT can provide.

If you can afford to invest then this is something you can consider, especially if you are earning more than £100,000 as an employee. This can help to reduce tax bill for someone who cannot form a company to run their business and have to be a sole trader but also earn a significant amount of profit. The downside is that you are investing in a small business and it is not always stable, it can be very risky therefore you would always need to consider your risk profile. If you are interested in investing then do seek for professional advice on this matter as a financial advisor will analyse your risk profile. There are different types of investments out there and it is not a good idea to put all of your money into a VCT so you do need to spread out your investments. This is to ensure that you always have some investments to lean on when one goes wrong. Once you have invested, the money will be tied up for at least 5 years, in order for you to keep the tax relief, which means that if you have some immediate cash needs then this is not an option that you should consider. However, if that is not the case then once the small companies grow and pay dividends, the dividends you receive are tax-free.

Things You Need to Double-Check

There are other situations that are quite common and should not be overlooked. If you are an employee you need to double-check if you have made sure your tax code is correct. For example, if you have a wrong tax code and are earning £70,000 but your tax code is BR this means only 20% can be taken from everything you earn which. This means you are under taxed which is a situation that you would want to avoid so do check your tax code if you are on PAYE.

If you are self-employed and the business has just started to take off, you can consider restructuring and looking out for the tax deductions so you do not miss out on them.

P.S. If you find this content useful, we do provide tailored professional advice on your personal or business tax matters. If you are interested, please book me in via the link so we can arrange a chat: https://hannah-xu.youcanbook.me