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VAT Information Sheet 6/97, December 1997

This information sheet explains the effect of the VAT (Drugs, Medicines and Aids for the Handicapped) Order, SI 1997/2744. It is particularly relevant to hospitals, nursing homes, chemists and suppliers of drugs, medical and surgical appliances and aids for the handicapped. The Order is effective from 1 January 1998.

1 Background

Private hospitals and residential and nursing homes make VAT exempt supplies of care. This means that they do not charge VAT to their in-patients and residents and correspondingly are not entitled to recover any VAT on related purchases. NHS hospitals are in a similar position, but they are funded by Government to take account of this non-recoverable VAT. Healthcare is therefore VAT free to the patient.

Both private and NHS hospitals and institutions have been involved in schemes to enable them to either recover VAT on purchases or to avoid the payment of VAT altogether. Two court decisions—Mölnlycke Ltd v C & E Comrs (1996) VAT Decision