Case Law Analysis: VAT Exemption Denied for Online Contact Lens Service Due to Lack of Medical Care and Qualified Supervision

Citation: [2023] UKFTT 991 (TC)
Judgment on

Introduction

The recent case of Vision Dispensing Limited v The Commissioners for HMRC presents a comprehensive examination of the tax implications regarding the supply of services connected to the online sale of prescription contact lenses. The case scrutinizes whether the services provided by Vision Dispensing Limited (VDL) qualify as ‘medical care’ that would render them VAT-exempt under UK tax law, specifically referencing Item 1(b) of Group 7 of Schedule 9 to the Value Added Tax Act 1994 (VATA). Additionally, it addresses if these services are ‘wholly performed or directly supervised’ by appropriately qualified persons, as required by Note (2) to Group 7.

Key Facts

VDL offers services pertaining to the online sale of contact lenses. HMRC contented that the services rendered by VDL attract standard rate VAT, contrary to VDL’s stance that they are exempt under the VATA. The First-tier Tribunal (FTT) considered factors such as the operation and content of VDL’s website, the contractual relationships governing VDL’s services, and various regulatory aspects surrounding the dispensing of contact lenses.

VDL operates in conjunction with Vision Direct BV (VDBV), which sells the contact lenses while VDL is supposed to provide the dispensing services. However, VDL primarily manages orders and customer service queries, with only a minuscule fraction of customers requesting prescription validation.

The FTT based its analysis on several core legal principles:

  1. VAT Exemption for Medical Care: Central to the case was whether VDL’s operations constituted ‘medical care’ under VATA, which should be ‘strictly construed’ and yet not ‘narrowly construed’. Furthermore, the tribunal considered whether services that form part of the overall therapeutic process could be treated individually as ‘medical care’.

  2. Supply and Consideration: The FTT examined whether there is a ‘direct link’ between the service provided and the consideration received, which is essential to qualify as a ‘supply’ for VAT purposes.

  3. Fiscal Neutrality: The principle mandates that similar goods and services should be VAT-treated equitably to prevent market distortion. The tribunal evaluated whether the services from VDL were qualitatively similar to those on the high street to engage the principle of fiscal neutrality.

  4. Qualified Supervision: For services to benefit from the exemption, they must be ‘wholly performed or directly supervised’ by registered medical personnel. The extent of supervision and how it is executed played a crucial role in the tribunal’s consideration.

The tribunal referenced cases like Leightons, Prescription Eyewear, and EU directives, such as Belgisch Syndicaat van Chriopraxie to draw parallels and obtain guidance for interpretation.

Outcomes

The tribunal found the following:

  1. VDL’s Services Not Medical Care: VDL’s primary service—answering customer queries and managing orders—did not solely constitute medical care, as it includes non-clinical elements like facilitating sales and deliveries.

  2. Website Content Not a VAT Supply: The website content, albeit clinical in nature, was freely accessible to all users and thus, not considered for VAT as a supply by VDL, considering lack of direct consideration.

  3. Non-Compliance with Note (2): VDL’s services were not ‘wholly performed or directly supervised’ by registered or appropriately qualified individuals under OA89, as required by Note (2) to Group 7.

  4. Fiscal Neutrality Not Engaged: Due to the lack of qualitative similarity between VDL’s services and exempt high street services (owing to absence of prescription/specification validation and oversight), the principle of fiscal neutrality was not engaged.

Conclusion

In summary, Vision Dispensing Limited v The Commissioners for HMRC has reaffirmed that not all services related to the healthcare sector will automatically qualify as ‘medical care’ for VAT exemption purposes. This case enunciated that there must be a concrete and direct link between the service provided and the consideration received for it to be regarded as a supply under VATA. Additionally, the principle of fiscal neutrality does not apply when services differ in quality and compliance with regulatory requirements, emphasizing the crucial role of professional oversight in medical care service exemption.

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