The question of whether particular services are exempt from VAT is a perennial bone of contention which can have major financial and business consequences. That was certainly so in a case concerning the commercial provision of ultrasound scanning services to expectant mothers.
A company employed a franchising model in providing various scanning packages to pregnant women, ranging from viability and gender scans to 4D imaging. It and two of its franchisees appealed to the First-tier Tribunal (FTT) after HM Revenue and Customs (HMRC) decided that the services did not constitute exempt supplies of medical care and were thus subject to VAT at the standard rate.
Guests were permitted to attend franchisees' scanning sessions and customers were attracted by special offers and keepsakes, including photo frames, keyrings and 'heartbeat bears' which play recordings of foetal heartbeats at the press of a button. HMRC argued that the company's business model did not suggest that its primary purpose was the protection of health but rather to provide reassurance and baby-bonding experiences.
In upholding the appeal, however, the FTT noted that the most up-to-date scanning equipment is used and that all franchisees are required to engage fully qualified sonographers. Although the services they provided might not be considered clinically necessary, they were complementary to NHS scanning services. If the scans revealed foetal abnormalities, procedures were in place by which affected mothers were referred to NHS hospitals for further investigation.
The FTT acknowledged that simply providing reassurance is not sufficient to amount to medical care. However, scans provided by the franchisees had diagnostic value and their pregnant customers were typically interested in monitoring their medical condition. That was their choice and the availability of NHS scanning services, where clinically indicated, was nothing to the point. The FTT concluded that all the scanning packages offered by the company and its franchisees are exempt from VAT.