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Dentists win case for VAT exemption from HMRC

31 July 2015

Dentists win case for VAT exemption from HMRC

Two dentists have been successful in their appeal to remain exempt from VAT after they set up an alternative entity to supply their dental services to the Wolverhampton Clinical Commissioning Group, a provider of NHS Dental Services.

According to, the pair set up City Fresh Services as an alternative to their existing City Dental Practice (CDP). Due to issues with changing the existing contract between CDP and the NHS Trust, rather than use the new company to supply the services direct to the NHS Trust, the services were provided via the existing partnership, CDP.

CDP were thus able to retain their contract with the NHS Trust, but subcontracted its dental services to City Fresh. City Fresh then invoiced CDP for the supply of ‘dental services’ for a monthly fee of £30,000.

No contract existed between City Fresh and CDP as City Fresh’s only registered directors and employees were the exact same people who ran CDP. In practice, all of the dentistry work of CDP was carried out by the partners in their roles as directors of City Fresh through the sub-contracting agreement.

HMRC objected to the nature of this agreement and decided that City Fresh must be subject to VAT, something which the two dentists in question vehemently disagreed with this as it claimed to be of exempt medical services.

HMRC seemed happy to accept that there would not have been a problem if either one of CDP or City Fresh had directly provided dental services to the NHS Trust but objected to a chain of supply with more than one entity behind the NHS Trust on the basis only one entity can provide the (same) service of the provision of medical care.

The FTT noted that this approach would make outsourcing of medical services of any nature difficult to manage from a VAT perspective and said it is not supported by the authorities or the EU Directive.

The judge stated: “As a sub-contractor CDP was not providing its services directly to patients, it was providing its services to the NHS Trust so that it could provide dental services to patients. In practice of course, the CDP dentists were  looking in the mouths of NHS patients, but the legal and VAT analysis of what has occurred is that there are two supplies; one from CDP to the NHS Trust and another from the NHS Trust to patients.”

Thus, the court found that the supply of City Fresh was of exempt medical services, so its appeal succeeded. You can find the full judgement here

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