The changing VAT landscape for Dentists
The business aspects of dental practice have evolved a great deal in recent years, with numerous changes to dentists’ contracts, growing business requirements and patients’ expectations exerting an increasing influence on all aspects of the industry. This article highlights the VAT issues that accountants should be aware of when working with dentists.
Cosmetic dentistry is on the rise in Britain with many private dental practices pursuing this lucrative side to their business, but there are some VAT considerations to be aware of. For example, where cosmetic services are performed as part of a supply of dental treatment (note that the British Dental Association has advised that it is rare for dental work to be carried out purely for cosmetic reasons), then there is a single supply of exempt healthcare. In contrast, where cosmetic dentistry is performed outside of any healthcare, it is standard rated.
However, the issue of whether a procedure is purely cosmetic or health related is contentious and open to interpretation. What we can be sure of is that the UK law provides for the supply of the following, by registered dentists and auxiliaries, to be exempt:
• Health services where the principal purpose is to protect, maintain or restore the health of the person concerned and;
• Dental prostheses.
All dental work is deemed to be medical care, but will not be exempt unless it can be demonstrated that the intention is to maintain or restore health. Therefore, the health professional needs to determine with an accountant’s or tax adviser’s support whether they consider that the requirements for exemption have been met.
It is common for one dentist, or a number of dentists in partnership, to own the whole practice. The practice owner (often termed the principal) may then make all the facilities available to other dentists (or the associates). Each associate is likely to be self-employed and will, in fact, be a separate business for VAT purposes. The associate dentist is not, as many mistakenly believe, acting as an agent or sub-contractor for the principal doctor or dentist.
Under this arrangement, there will be supplies of goods and services by the practice owner to the dentist. Such supplies may consist of the use of a fully equipped surgery, the supply of materials and consumables necessary in the provision of treatment, laboratory services, accountancy services and the use of chair-side/reception staff. The practice owner may also provide guidance to the associates on specific medical or dental services. In return, the associate will pay the practice owner a retainer fee for the use of the services offered.
Over the years, the VAT liability in relation to this exchange has become somewhat problematic. Following protracted discussions with the Commissioners, it has been agreed that: “When there is more than one dentist within a practice there may be payments between the dentists in respect of shared facilities, equipment, prostheses and staff. Such charges are exempt, provided that they relate to services or facilities that are predominantly medical in nature and are necessary to allow the recipient to perform dentistry.” Despite this lenient treatment, some major limitations within the associate agreement arrangements remain. For example, supplies performed by a dentist who has ceased to practise are not covered by the exemption.
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