HMRC loses VAT challenge on baby scans

HMRC has lost a tax tribunal appeal over the VAT treatment of supplies of certain ultrasound scanning services to pregnant women, which private clinics claimed should be exempt as supplies of medical care, but which HMRC argued were standard rated

The First Tier Tribunal (FTT) appeal was brought by Window to the Womb, a franchise which operates high street clinics offering a range of private ultrasound scan packages to pregnant women including 4-D images, along with two of the franchisees. [Window to the Womb (Franchise) Ltd, D I Harries Ltd, DJC Studios Ltd, and the Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 201 (TC)].

The FTT was told that, in total, Window to the Womb franchisees conduct in excess of 120,000 ultrasound scans on pregnant women each year.  Those purchasing the scans do so in addition to the scans carried out as part of their NHS antenatal care.

All franchisees are registered with the Care Quality Commission to carry out a ‘regulated activity’ at specified premises, defined as ‘diagnostic and screening procedures’.  In its marketing literature, the company states that it offers a ‘well-being report’ which is based on information gathered via the scan, as well as a ‘baby bonding’ experience, by supplying a 4-D imagery of the unborn baby.

Despite an emphasis on a baby bonding experience and the imagery available, the company argued that from 2015 the service being offered was medical care in the form of diagnostic scanning, and as such exempt from VAT.

It pointed out that all franchisees are required to use qualified sonographers. These are sonographers who are registered with the Health and Care Professions Council, full members of the Society of Radiographers and hold professional indemnity insurance providing cover for mis-diagnosis.

The FTT was told that sonographers may be distinguished from ‘ultrasound technicians’ who can produce images using ultrasound equipment but are paid less.  The company said the use of qualified professionals added £100,000 per clinic per year in costs.

For its part, HMRC argued that the business model did not suggest that the primary purpose of the supplies is the protection of health, so therefore the services, whether the welling-being scan or the 4-D imagery package, should be standard rated for VAT at 20%.

HMRC claimed that the main reason for the scan was to provide high quality 4-D pictures of the foetus, and that there was no follow-up treatment on offer should a problem of any kind be detected. The clinics referred women to the NHS if the scan found they needed any further intervention.

The FTT stated: ‘The question is not whether there is a single supply or a multiple supply. It is agreed that each package is a single supply. The real question is whether those single supplies are properly characterised as supplies of medical care.’

The tribunal said it was notable that a large majority of customers (79%) purchase scans where their principal purpose is to obtain the well-being report or information about the growth and presentation of the foetus.

The FTT judge stated: ‘In my view it is likely that those remaining 21% are not purchasing scans principally for the 4D imagery.

‘Some may well do so, but most will be principally concerned to satisfy themselves that the foetus is healthy. Their principal purpose is to monitor the pregnancy and if necessary receive a diagnosis of any abnormality.’

On this basis, the FTT tribunal found in favour of Window on the Womb, and ruled that its scanning services should be exempt as they are examples of medical care.

Commenting on the tribunal’s decision, RSM said: ‘Following case law in the European courts, which has restricted the health exemption for cosmetic procedures, HMRC has often taken the argument a step further by arguing that a “non-essential” health-related service does not qualify for the exemption, despite being clinical in nature.

‘Private providers should protect their position by making sure their business and employees hold the appropriate medical registrations and that the medical care properties of their service are clearly described in contracts and advertising.’

Window to the Womb (Franchise) Ltd, D I Harries Ltd, DJC Studios Ltd, and the Commissioners for Her Majesty’s Revenue and Customs [2020] UKFTT 201 (TC)]

Pat Sweet |Reporter, Accountancy Daily [2010-2021]

Pat Sweet was the former online reporter at Accountancy Daily and contributor to the monthly Accountancy magazine, pub...

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