Abi Draft Response to the Vat Consultation Document
ABI RESPONSE TO THE HMRC REVIEW OF THE SCOPE EXEMPTION FOR MEDICAL SERVICES
1INTRODUCTION
1.1The Association of British Insurers (ABI) represents about 400 UK insurers accounting for some 95% of the business transacted by UK insurance companies. We welcome the opportunity to respond to the HMRC Review of the Scope of the VAT exemption for medical services following recent European Court of Justice (ECJ) Decisions in Peter d’Ambrumenil (C-307/01). UK insurers pay hundreds of millions each year for a range of medical services and so are significantly affected by the proposals.
1.2The European Sixth Directive allows exemption from VAT for the provision of medical care by the medical and paramedical professions as defined by the member state concerned. The UK has implemented this by exempting from VAT services provided by certain defined medical practitioners. This definition has provided both taxpayer and HMRC with a clear line of what service is taxable and what is exempt. As a result the exemption has been simple to administer for the UK tax authorities and taxpayers.
1.3The d’Ambrumenil decision in substance ruled that the exemption for medical services should be restricted to the provision of medical care where there is a therapeutic aim. We accept that the UK has to amend the current UK VAT exemption for medical services to reflect this clarification. A difficulty is that restricting the exemption to where there is a therapeutic aim requires a subjective decision to be made and so will create uncertainty.
1.4We therefore urge that before changes are made to the UK legislation, agreed detailed guidance on the change in VAT treatment for both providers and receivers of medical services will be available. Time will also be required to amend systems which can only be done once the precise scope of the new regime is clear to all concerned. We believe that the earliest this can be achieved is April 2007.
2SPECIFIC QUESTIONS FOR INSURERS
Question 1
If a patient requests and pays for a report or certificate, are you generally aware of the precise reason/s for the request?
Insurers will request medical reports for a range reasons. In many cases the medical practitioner will be asked to complete the agreed standard form and it will be clear what is the main purpose of the request. However there will be a range of requests where without detailed guidance the medical practitioner will not easily be able to decide what is the main purpose and whether there is an ancillary purpose of a medical service and therefore the VAT treatment.
Question 2
When providing certificates of fitness (of whatever nature), in what percentage of cases are limitations or certain conditions imposed on the activity concerned?
No Comment
Question 3
Where no limitations or conditions are imposed, are these mainly confined to particular types of certificate – for example, certificates of fitness to drive for the elderly or for pilots to fly? If so, please detail which types of certificate are concerned.
No Comment
Question 4
Do insurance companies commission medicals for any reason other than for the purpose of setting premiums and settlings claims, and if so, for what purpose?
An insurer will request medicals for a range of purposes. The majority of requests will be related to setting premiums and settling the value of claims. However a significant number of requests for medical services insurers are for rehabilitation of the individual, valuing policies for tax reasons and in the case of private medical insurance and travel insurance, settling claims. A summary of different types of policy and their use of medical services is attached in Annex 1.
While there is unlikely to be a therapeutic aim where the medical is part of the underwriting process, a medical following an insurance claim could be used to maintain or restore the health of the individual as well as to quantify a claim. Guidance will be needed to show how the exemption will apply in such cases.
Insurers will also often use medicals to assess the medical needs of a claimant and in particular whether the individual is suitable for early medical treatment that will help the person return to health earlier than would otherwise be the case. This is a clear help for the individual as well as benefiting insurers in managing the claims costs. In the case of private medical insurance and similar rehabilitation cover, the purpose of the medical treatment is to assist the individual to return to health.
Question 5
Are there any occasions when you would consider that the primary purpose of the rehabilitation services provided is not that of medical care? If so, please state when and why.
The primary purpose of rehabilitation will be medical care. A secondary reason why an insurer will pay for rehabilitation is to help the individual return to a normal life as it might have an effect on the size of the claim.
Question 6
We are interested in views on whether more general advice and/or risk assessments contain a sufficient element of preventative care to be regarded as principally for the purpose of protecting, maintaining or restoring the health of individuals.
We believe such advice helps individuals to identify potential medical problems at an early stage as well as maintain a healthy life style and should be treated as medical care.
Question 7
How many hours a week do you or your practice (if in a practice basis, please state how many GPs) typically spend working on medical reports, certificates and blood testing for the purposes of insurance or benefit assessments, or legal proceedings?
No comments
Question 8
How much income do you or your practice (if on a practice basis, please state how many GPs) typically get at the moment from working on medical reports, certificates, blood testing as above? (Please state whether any figures given are weekly, annual etc).
No comment
Question 9
What other supplies do you make which do not involve “direct” medical/palliative care of your patients – for example, do you conduct paternity tests, forensic-type tests, do you offer expert medical opinion in court or for court cases?
No Comment
Question 10
What is your income from the supplies noted in response to question 9? (Please state whether any figures given are weekly, annual etc, and if on a practice basis, how many GPs are included in the answer given).
No Comment
Question 11
Do individual GPs predominantly account for private work on an individual or practice basis?
No Comment
Question 12
If they account for it on a practice basis will GPs change how they account for private work as a result of the judgment?
No Comment
Question 13
As a result of the judgment will GPs reduce the amount of the private work they do so that they do not have to register for VAT?
No Comment
Question 14
If possible, please estimate the typical existing level of annual taxable turnover for GPs. (Please state whether this is at the individual GP or whole practice level; if at the practice level, please state how many GPs are included within any figures given. We appreciate that this is a very hard question to answer, but would be grateful for any estimates or indications it might be possible to provide).
No Comment
Question 15
As a registered health professional, would you consider applying for voluntary VAT registration because you undertake work which will become taxable as a result of this ECJ decision?
No Comment
Question 16
At present we have been using the working assumption that consultants are generally already registered for VAT. Is this the case? If so, is this because taxable turnover is generally above the current VAT registration threshold of £60,000 per annum, or is it generally a voluntary registration?
No Comment
Question 17
Will you incur significant administrative costs (one-off or continuing) as a direct consequence of the proposed changes and/or having to register for VAT for the first time? If so, please explain and provide an estimate of the additional cost likely to be incurred.
No Comment
Question 18
Do you have any further comments on the partial RIA?
A more detailed RIA is required before there can be a full understanding of the costs of the proposals. This should be carried out once responses to the consultation document are received
Question 19
What would be the impact of implementing any VAT change from 1 April 2006?
Without clear guidance and time to amend insurers and medical practitioners systems a change to the VAT regime is likely to result in confusion and errors. Any change should be deferred until all the issues have been fully understood and solutions identified so that clear guidance can be produced for medical practitioners and others. Only then can systems be changed in advance of implementation.
Question 20
When would be the optimum date for such a change during the financial year?
We believe that the earliest possible date for change would be April 2007. This assumes that by then the scope of the new regime is fully understood and detailed guidance is available to allow systems to be updated.
Question 21
What is the number and value of long running contracts (i.e. greater than 3 months) as at the current date (or latest figures available)?
No comment
Question 22
What type of transitional provisions would be beneficial for ongoing contractual arrangements and how do these relate to the difficulties faced?
Provided sufficient time is allowed before implementation we do not think there is a need for special transitional arrangements.
ANNEX 1
Summary of main uses of medical reports by insurers
PRIVATE MEDICAL INSURANCE
Underwriting
Any medical examination required for underwriting PMI would normally not have a therapeutic aim and would be liable to VAT in future.
Claims
Policyholder’s claims would have a therapeutic aim and would therefore remain exempt.
Other Services
Often private medical insurers will also offer screening and similar services. These types of preventative services were referred to in the ECJ judgment as falling within the exemption.
INCOME PROTECTION INSURANCE
Underwriting
Most applications for income protection policies do not require medicals. On the rare occasion where a medical is required for underwriting the cover, for example where something has been reported on the application form would not have a therapeutic aim and would therefore be liable to VAT.
Claims
Medical services to assist the individual return to a normal life will be exempt. Medical reports prepared specifically for an insurer in order to assess whether a claim is valid would be subject to VAT.
LONG TERM SAVINGS PRODUCTS
Underwriting
Any medical examination undertaken specifically to provide information to underwrite a life insurance policy would become liable to VAT.
Claims
Medical would not be required in respect of standard life policies.
TRAVEL
Underwriting
Where an individual notifies the insurer of certain conditions the insurer might ask for a medical examination. The medical will inform the individual whether it is safe for them to travel as well as providing the insurer with information to assist it assessing the underwriting risk.
Claims
Medical services provided under a travel policy would normally have a therapeutic aim and would therefore be exempt. However any medical fee only to ascertain the level of a claim this would be taxable.
PENSIONS
Underwriting
It is unlikely that a medical examination would be required for underwriting.
Claims
Medical reports would only be required if the insured claimed early retirement due to illness. This would be taxable.
ANNUITIES
Underwriting
Medical examinations for underwriting annuities are rare and would normally only apply where there was an impaired life. Such an examination would be liable to VAT.
Claims
Medicals would only be required if a claimant was entitled to start the annuity early due to ill health.
MOTOR/LIABILITY
Underwriting
In rare circumstances, insurers might ask for a medical before underwriting an individual i.e. someone who declares that he has a disability. Again, in these circumstances, such an examination would be liable to VAT.
Claims
Medical services might be offered to claimants to return them back to health quicker. This would appear to continue to be exempt. Where a medical examination is required purely for the purposes of calculating the amount of a claim for personal injuries this would now become liable to VAT.
CRITICAL ILLNESS
Underwriting
Where an individual notifies the insurer of a pre-existing condition the insurer might ask for a medical examination. In these circumstances, VAT would be chargeable on that service.
Claims
Medical reports to assess the entitlement of a claim would be taxable.
[N030912A*FRT*LFRA*NOTES
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