The VAT Treatment of Income from Overseas Patients

3 August 2018

On the 31st July 2018 HMRC sent a letter to the HFMA clarifying their opinion on the VAT liability of charges to overseas customers for non-elective treatment. HMRC also issued new guidance on how the NHS should implement the National Health Service (Charges to Overseas Visitors) Regulations 2015. This guidance can be found here. It is important to note that this is not a change in HMRC policy, simply clarification on how the regulations should be implemented.

In summary, the guidance allocates healthcare costs charged to overseas patients to two categories, elective and non-elective healthcare.

Where payment is received for elective (non-urgent) care, this is an exempt supply. This is on the basis that the NHS is under no obligation to provide the care, so it is an exempt business activity. Where payment is received for non-elective (urgent and necessary care), this income is outside the scope of VAT and a non-business activity. The NHS has a statutory duty to treat these patients even though payment for treatment may be required.

Some healthcare will, of course, be free from any charge. For example, if the patient has come from a country that has a reciprocal healthcare agreement with the UK or if emergency care is required.

HMRC believes that some NHS organisations may have treated all income received from overseas visitors as exempt from VAT, and are not treating non-elective healthcare provision as outside the scope of VAT.

When calculating your business activities and partial exemption adjustment, the incorrect treatment of non-elective healthcare could result in a higher exempt input VAT payback to HMRC than would otherwise be achieved by applying the correct outside the scope treatment. Where VAT incurred has been partially recovered within the COS time limits, NHS bodies are entitled to adjust for VAT recovery subject to the four-year cap time limits

Contact your Liaison advisor for further information or if you believe that your NHS organisation is entitled to a refund of VAT.