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Health services exempt from VAT

Health professionals providing medical services may be exempt from VAT if their work falls within their registered profession and primarily protects, maintains, or restores health. HMRC outlines specific exempt services, including diagnosis and treatment.

The VAT liability of goods and services provided by registered health, medical, and paramedical professionals, can be a complex area of tax law. HMRC’s guidance provides clarification on the definition of medical services and outlines the specific health services performed by registered professionals that are exempt from VAT.

If a health professional, as defined by HMRC, provides services, those services are generally exempt from VAT, provided that both of the following conditions are satisfied:

  1. The services fall within the profession in which you are registered to practice.
  2. The primary purpose of the services is the protection, maintenance, or restoration of the health of the individual concerned.

For VAT purposes, the definition of medical services (including medical care and treatment) is limited to those that meet the second condition outlined above. This includes services such as the diagnosis of illnesses, the provision of analyses of scans or samples, and assisting a health professional, hospital, or similar institution in making a diagnosis.

HMRC provides examples of services that are considered to meet the primary purpose of protecting, maintaining, or restoring a person’s health. These include:

  • Health services provided under General Medical Services (GMS), Personal Medical Services, Alternative Provider Medical Services, General Dental Services, and Personal Dental Services contracts
  • Sight testing and prescribing by opticians (limited to England, Wales, and Northern Ireland)
  • Primary and secondary eye examinations (limited to Scotland)
  • Enhanced eye health services
  • Laser eye surgery
  • Hearing tests
  • Treatment provided by osteopaths and chiropractors
  • Nursing care provided in a patient’s own home
  • Pharmaceutical advice
  • Services involving the diagnosis of an illness or the provision of analyses of samples that are a key part of a diagnosis

Additionally, certain insurance or education-related services may also be exempt from VAT, regardless of their primary purpose, as they could qualify under other independent exemptions.

Cut in interest rates

The Bank of England’s Monetary Policy Committee (MPC) met on 5 February and in a 7-2 vote decided to reduce interest rates by 25 basis points to 4.5%. The two remaining members voted to reduce the rate further to 4.25%. This was the third interest rate cut since August 2024.

This means that the late payment interest rate applied to the main taxes and duties that HMRC charges interest will be reduced to from 7.25% to 7%.

These changes will come into effect on:

  • 17 February 2025 for quarterly instalment payments
  • 25 February 2025 for non-quarterly instalments payments

The repayment interest rates applied to the main taxes and duties that HMRC pays interest on will also decrease by 0.25% to 3.50% from 25 February 2025. The repayment rate is set at the Bank Rate minus 1%, with a 0.5% lower limit.

Tax when transferring assets during divorce proceedings

Separation and divorce can create tax implications, particularly Capital Gains Tax (CGT) on asset transfers. New rules from April 2023 extend the ‘no gain/no loss’ period, helping spouses manage tax efficiently. Private Residence Relief may also apply.

When a couple separate or divorce, their focus is typically directed towards the emotional and practical aspects of the process. However, it is essential to recognise that alongside the emotional challenges, there are significant tax considerations that can arise from the transfer of assets. These tax implications, if not properly managed, can lead to unintended financial consequences for one or both parties involved.

One of the key tax issues that arises during separation or divorce pertains to the application of Capital Gains Tax (CGT) on the transfer of assets between spouses or civil partners. Notably, the CGT rules that govern disposals of assets during separation and divorce underwent significant amendments for transactions occurring on or after 6 April 2023. Under the revised regulations, the period within which separating spouses and civil partners can transfer assets on a 'no gain/no loss' basis was extended to up to three years from the date they cease living together. An unlimited period for making such transfers is allowed if the assets in question are covered by a formal divorce agreement, ensuring that no immediate CGT liabilities arise.

In addition to the revised CGT provisions, there are specific rules that apply to individuals who continue to hold a financial interest in the family home following separation. These rules are particularly relevant when the home is eventually sold. In such instances, individuals may be eligible to claim Private Residence Relief (PRR), which can exempt them from paying CGT on the sale of the property, provided it meets certain qualifying criteria.

In the midst of divorce proceedings, it is also crucial for both parties to consider reaching a financial settlement that is as mutually agreeable as possible. In situations where the couple is unable to reach an amicable financial agreement, the court may intervene to issue a 'financial order.' This legal order will outline the distribution of assets, financial support, and any other relevant arrangements.

Jointly owned property – no partnership

Tax on rental income from jointly owned property depends on ownership shares, unless part of a partnership. Married couples default to a 50/50 split unless they notify HMRC of a different income allocation based on actual ownership proportions.

When property is jointly owned with one or more individuals, the taxation of rental income depends on whether the rental activity is considered a partnership. Simply owning property together does not automatically qualify the arrangement as a partnership.

If the jointly owned property is not part of a partnership, the allocation of any profit or loss from the jointly owned property is typically based on each person's ownership share in the property. However, the co-owners can agree to divide the profits and losses differently than their ownership proportions, so it’s possible for one person to receive a larger or smaller share of the profits or losses than their share in the property itself. For tax purposes, the profit and loss share must reflect the actual agreement made by the owners.

In cases where the joint owners are married or in a civil partnership, the profits and losses are generally treated as being divided equally between them, unless:

  • The entitlement to the income and the ownership of the property are split unequally between the spouses or civil partners, and
  • Both parties must inform HMRC that they wish the division of profits and losses to align with their respective ownership shares in the property.

If these conditions are met, the profit and loss distribution will follow the agreed-upon ownership percentages, rather than the default equal split for married couples or civil partners.

Check or update company car tax details

If you use a company car for private travel, it's taxed as a Benefit in Kind (BIK). The tax rate depends on the car’s list price and CO2 emissions—low-emission vehicles get tax breaks. Use HMRC’s online tool to check and update your company car tax details.

If you are provided with a company car that has private use (including commuting), it is considered a "benefit in kind" (BIK) and is subject to taxation. This means that the employee or director using the car must pay tax on the value of the benefit they receive from the car’s private use.

The amount of tax payable is based on the car’s list price, including optional extras and VAT. It also takes into account the CO2 emissions of the car, as cars with lower emissions usually have a lower benefit-in-kind (BIK) tax rate. The more polluting the car, the higher the tax rate will be, and conversely electric and low-emission cars are taxed more favourably.

HMRC’s ‘Check or update your company car tax’ service can be used to:

  • check your company car’s details
  • tell HMRC about any changes to your car since 6 April
  • update your fuel benefit, if your employer pays for fuel

In order to use this service, you will need to know:

  • the car’s list price (including VAT and accessories)
  • to check if your diesel car meets Euro 6d standard
  • CO2 emissions information
  • the zero emission mileage figure or ‘electric range’ – if your hybrid car has a CO2 emission figure of 1 to 50g/km

The service is not available if:

  • you’re part of a car averaging or car sharing scheme
  • your employer is managing benefits and expenses through the company payroll (known as ‘payrolling’)
  • you want to make updates for a company commercial vehicle, such as a van