THE VAT MAN COMMETH. BY BY MATT EVERATT F.O.T.A. EDITOR & AUTHOR Leave a comment

On the 21st of February 2022 all DLA Members received an email highlighting that the HMRC had come about a ruling that VAT must be charged on bleaching trays.

I will begin by saying that I am no VAT expert and each lab should speak with their accountant or VAT specialist in regards to their own circumstances.

£85k Threshold

It was pointed out by the DLA that the majority of labs are not likely to be effected by this new ruling. There is a threshold of £85,000 of sales before VAT needs to be applied. The assumption would be that this would be specifically £85,000 worth of bleaching trays as (for now) all other custom made dental appliances are VAT exempt or zero VAT rated.

In my role as Technical Director at S4S Dental Lab we’ve been in a similar discussion before with the HMRC, on more than one occasion I may add. Back in 2005, when we opened our lab, we predominantly made Mandibular Advancement Splints for Snoring and Sleep Apnoea. The HMRC ruling at the time, and on at least two other occasions, confirmed that such appliances are subject to VAT and if sales exceed £85,000 per year, VAT must be charged. So we are relatively ‘seasoned pros’ when it comes to VAT. We charge VAT already and it is now just a matter of changing our accounting system to add VAT to all bleaching tray sales. What it does mean though, any lab that has sales above the threshold of £85,000 per year in sales of Bleaching Trays and Snoring Appliances for that matter, must register for VAT and begin charging VAT.

Is this the start of things to come?

Now, here is the question. Is this the start of things to come? I personally think it is. I can’t help but feel we’ve been a little hidden, almost invisible profession and so far we have been left untouched by the HMRC. In some ways this is good, in other ways it is to our detriment. I foresee that once HMRC begins looking at our sector, they will come about rulings for other products we provide. For example, take mouthguards or sportsgaurds. We have been told and it has been discussed recently, a sports guard is classed as PPE (Personal Protective Equipment). All other forms of PPE are Vatable. Surely it is a matter of time before HMRC dump this on us too? It is not deemed essential dental treatment, it’s not provided on the NHS, will this be next?

Then we get into the realms of cosmetic treatments. Could the HMRC decide that only essential dental treatments can be exempt from VAT?  What would be deemed as ‘non-essential’? Would anything that has any cosmetic element come into question? Any orthodontic treatment that isn’t seen at complex enough for NHS funding, would that be classed as cosmetic and become Vatable?

What does it mean for our profession?

Again, these are just my own personal opinions and thoughts on what the reaction will be.

I think the HMRC will begin asking questions directly to lab owners and sole traders. Particularly if they have already had some big wins with some of the larger labs, they will see these new VAT rules as easy wins. If you do get a letter asking for information, you may wish to speak to the DLA if you are a member, and you should certainly speak to your accountant or Tax advisor.

In terms of the physical application of adding VAT to those Vatable products, it should be relatively straight forward if you use an accounting system. As a suggestion, having been in many discussions with Dentists, they hate being quoted prices excluding VAT. If you can, show them an invoice that includes the VAT. It is unlikely they will be able to claim the VAT back and will generally pass the costs onto the patient.

My thoughts are that most dentists won’t particularly care too much for this exact reason. Will they choose a different lab for their lab products based on whether the lab charges VAT or not? Of course, this does mean that the labs that are now having to charge VAT will be 20% more expensive, unless they swallow up the 20% price difference, I cannot see why any lab would do this though. This does pose as an opportunity for other labs that sit under the threshold to increase their prices in line with those of us in the industry who have to add 20% VAT. I doubt many will do this either.

Do remember, if you are charging VAT to products, you can claim back the VAT on the items you buy to manufacture those products. Again, do check with your accountant as to what you can and cannot claim for.

What if you have done over £85,000 threshold?

If you are over the £85,000 threshold or getting very close to it, the first thing to do would be to have a chat with your accountant or a VAT specialist. Yes, there are such a thing as VAT specialists. A dear friend of mine is one. He helps individuals or businesses that have fallen fowl of the HMRC and their, often ambiguous’ rules. I immediately called him when we received the letter from the DLA. He confirmed much the same as the DLA did. He did say that the HMRC will most likely perform a blanket exercise across the profession by writing to all and ask how much revenue you receive from bleaching trays. It is then likely they would seek to backdate any VAT claims, they have the power to do this and they can go back many years.

Do you keep an account of types of different appliances and devices sold?

It never occurred to me that some labs do not break down the type of sales into categories and will simply invoice an amount on a monthly statement. It was only when a colleague said they simply invoice by patient or number as a reference and the amount charged that it dawned on me that he would have no way of being able to produce a comprehensive report of how many bleaching trays he had done over the year. The only way he could do this, would be to go back through piles of prescriptions and add them all up. I guess this may be an isolated case and most of us are able to produce sales reports via our accounting software or spreadsheets.

Have you already had a query from HMRC?

I would be keen to hear from any labs or individuals that have already been contacted by the HMRC on this subject. Together we may all be able to help each other and defend any potential back dated claims the HMRC may try to enforce. I must say the DLA have been very helpful so far and they have acted quickly in letting all members know what information they had.

If you think you may be exceeding this threshold, or may have previously, I would suggest you get professional advice from your account and a VAT specialist.