Charity funded equipment for medical, veterinary etc uses – VAT zero rating
This relief is designed to remove the VAT cost of certain medical goods or equipment purchased for use mainly in medical or veterinary research, training, diagnosis or treatment.
Zero rating can apply to the supply of ‘relevant goods’ (defined in detail in detail in HMRC’s VAT Notice 701/6) to any person or organisation when those goods are to be donated to a nominated ‘eligible body’ (provided that the criteria detailed below are met).
CTG and BUFDG have held productive discussions with HMRC on possible updates and improvements to VAT Notice 701/6 and guidance regarding charity funded equipment for medical and veterinary uses. HMRC does not have the capacity to make the changes to the guidance at present, but have agreed that members can follow the guidance in this note.
In addition, the supply (including hire) of ‘relevant goods’ directly to an ‘eligible body’ may be zero-rated if that body pays for them with funds provided by a charity or from voluntary contributions. Where the eligible body is not a charity, it must not have contributed, wholly or in part, to the purchase (or hiring) of the goods.
Zero rating also applies to the supply of ‘relevant goods’ to an ‘eligible body’ which is itself a charitable institution providing care or medical or surgical treatment for ‘handicapped’ persons. ‘Handicapped’, in this context, means ‘chronically sick or disabled’.
Where the ‘eligible body’ is a charitable institution it is not regarded as providing care or medical or surgical treatment for handicapped persons unless the supply is made in a ‘relevant establishment’ and the majority of the recipients are ‘handicapped’. A ‘relevant establishment’ is:
- a day centre other than a day centre which exists primarily as a place for activities that are social or recreational or both or
- an institution which is approved, licensed or registered under the relevant social legislation or which is exempted from those obligations by that legislation.
A supply will qualify for zero rating where an ‘eligible body’ provides medical care to handicapped persons in their own homes, and the ‘relevant goods’ are used in or in connection with the provision of that care.
By concession, where ‘relevant goods’ are supplied to a charity: whose sole purpose and function is to provide a range of care services to meet the needs of handicapped people (of which transport might form part); or which provides transport services predominantly to handicapped people; the supply of those goods will be zero-rated, as will the repair and maintenance of those goods and the supply of any further goods in connection with such repair or maintenance.
In order to demonstrate eligibility for this concession, a charity must be able to show that it meets either of the principal conditions through its charitable aims and objectives, its publicity and advertising material, its day-to-day operations, any documents which it has issued for the purpose of obtaining funding from a third party such as a local authority and any other evidence that may be relevant.
The repair and maintenance of ‘relevant goods’ are zero-rated provided they are owned or possessed by an ‘eligible body’ and the services are paid for by a charity or from voluntary contributions. It does not matter how the goods themselves were bought in the first place. Spare parts etc supplied in connection with the repairs and maintenance are also relieved. If the owner or hirer of the goods repaired or maintained is not a charity it must not have contributed, wholly or in part, to the cost of the repairs or spares.
The goods and services can only be zero-rated if the supplier is registered for VAT and is given a declaration in a prescribed form that the goods are either being purchased by an ‘eligible body’ or are to be donated to an ‘eligible body’.
‘Relevant goods’ includes (see HMRC VAT Manual VCHAR14000 for further guidance on the definitions of medical and scientific equipment):
- medical equipment
- scientific equipment
- computer equipment
- video equipment
- sterilising equipment
- laboratory or refrigeration equipment for use in medical or veterinary research, training, diagnosis or treatment
- parts or accessories for use in connection with the above
- rescue equipment solely for the purpose of rescue or first aid services undertaken by a charity
- providing such services
- unadapted motor vehicles with between seven and 50 seats used by an ‘eligible body’ that provides care for blind, deaf, mentally handicapped or terminally ill people mainly for their transportation
- vehicles designed or adapted for transporting the sick or handicapped, including minibuses adapted for the carriage of handicapped persons in wheelchairs.
In the last case there are minimum statutory limits to the number of wheelchair spaces required in such as vehicle based on its seating capacity: for example a 27 seat vehicle requires a minimum of three spaces to attract the zero rating. The vehicle must be fitted with an electric or hydraulic lift or, for vehicles with fewer than 17 seats, an access ramp can be used instead.
An ‘eligible body’ includes all health authorities and NHS trusts in England and Wales and their equivalents in Scotland and Northern Ireland. It also includes hospitals and research institutions whose activities are not carried on for a profit and charitable institutions providing care, medical or surgical treatment for handicapped persons, rescue or first-aid services.
HMRC may challenge the use of this relief in respect of items which are claimed to be parts or accessories. ‘Parts’ are integral components without which the relevant equipment is incomplete while ‘accessories’ are optional extras that are not necessary for the equipment to operate but are used to improve or better enable the equipment to operate in particular circumstances. Not included will be items which have an independent use (eg televisions), or are accessories to accessories, or are generic bulk substances (eg liquids, powders, sheets, pellets and granules).