HMRC wins case against Align Technology – The implications for dentists
HMRC have convinced the Upper Tribunal to overturn an earlier decision on the VAT treatment of clear aligners against Align Technologies Switzerland GmbH.
HMRC’s argument was that the clear aligners produced by Align Technologies were not dental prothesis which are outside the scope of VAT. The Upper Tribunal ruled that a prothesis replaces something missing or broken and applied this test to the clear aligners.
The Upper Tribunal concluded that clear aligners did not meet the definition of prothesis and so would be a standard (20%) rated for VAT.
The important thing to remember for dentists is that the supply of treatment to a patient has not been affected by the ruling.
HMRC says that the supply of health services, with the principal purpose of protection, maintenance, or restoration of health of the person concerned, and dental prostheses by a person registered in the dentists’ register or dental care professional register is exempt from VAT.
This also includes cosmetic services where they are performed as part of a supply of dental treatment, as this is viewed as a single supply of exempt healthcare.
Where this ruling does affect dentists is the lab costs for aligners as Align Technologies and other suppliers of aligners will have to charge VAT on supplying these.
As an example, if you previously paid £1,000 for an aligner, this will now cost £1,200. This has effectively added a fifth to the cost of providing aligners for patients overnight. A VAT registered business would be able to reclaim this VAT from HMRC, however, as mentioned, healthcare related dentistry is exempt from VAT and so dentists are not usually registered for VAT.
This means that the majority of dentists will have to suffer this cost or pass it along to patients.
The questions this ruling doesn’t answer
Whilst this makes it clear for the VAT treatment of aligners, it does bring up how HMRC will treat splints, retainers and other appliances that have previously been treated as exempt for VAT purposes.
It is unclear if HMRC will be reviewing these and looking to apply VAT to them. This seems the likely course of action given the definition given to protheses and government spending plans hinging on ‘closing the tax gap’.
HMRC has a history of similar products having differing VAT treatments. A recent decision by the Court of Appeals helped to determine the VAT treatment of ‘Mega Marshmallows’. The Court of Appeals rules that Mega Marshmallows should be exempt from VAT as due to their size they are not usually eaten with fingers and therefore not ‘confectionary’ which would bring the standard 20% VAT rate.
This means that currently, only standard-sized marshmallows are subject to VAT at 20%. Mini marshmallows, when held out for sale as a baking ingredient, are zero-rated along with their mega-sized counterparts!
What to do about this?
In general, we would not recommend dentists registering for VAT to reclaim these costs. As the supply of healthcare dentistry is exempt for VAT, the costs associated with providing this would not be recoverable for VAT purposes.
Consideration will have to be given as to how much of the costs can be passed onto patients by raising treatment fees.
When does a dentist need to register for VAT?
We are aware that HMRC have sent out these letters to taxpayers who have had turnover of more than £90,000 in their latest set of accounts. The letter is to remind taxpayers that they need to assess if they should be registered for VAT. With the results of the case from the Upper Tribunal, it is worth reviewing your position to make sure you are meeting your obligations to HMRC.
If you have more than £90,000 of VATable turnover over a 12-month period you will need to register for VAT and comply with the VAT rules. The 12-month period isn’t the calendar or tax year, HMRC applies a rolling basis for the 12-month period of assessment. This means that if your VATable turnover goes over £90,000 for any 12-month period, you will need to register for VAT.
As we have mentioned, HMRC treat the supply of health services with the principal purpose of protection, maintenance, or restoration of health of the person concerned, and dental prostheses by a person registered in the dentists’ register or dental care professional register is exempt from VAT.
When cosmetic treatment is completed on its own and outside of any healthcare, this would be within the scope of VAT. Facial aesthetics work is often completed by dentists, if this is for a purely cosmetic reason, this would also be seen as a VATable supply.
You would need to complete £90,000 of cosmetic dentistry and/or facial aesthetic work in any 12-month period, before you would need to register for VAT. The £90,000 is not your total turnover figure, e.g. healthcare related dentistry + cosmetic + facial aesthetic work. The healthcare related dentistry is considered ‘outside the scope’ of VAT by HMRC. This means you would only take into consideration the cosmetic and aesthetic work completed in the 12-month period for assessing the needs to register for VAT.
