VAT liability: the scope of the exemption for medical laboratory services

The ECJ decision in the recent German case of Finanzamt Kyritz v Peters (Case C-700/17) has vindicated HMRC’s policy of treating diagnostic pathology services as VAT-exempt. The case will not result in any change to UK law or HMRC practice, but serves as a reminder of the scope of the exemption for medical laboratory services. Essentially, such services supplied by a regulated laboratory will be VAT-exempt if they are supplied for the purposes of the diagnosis or treatment of human health disorders, but not, for example, if they are for research, autopsy or insurance claim purposes. 

The German tax authority had argued that such services were taxable because exemption should be conditional on the existence of a relationship of confidentiality between the supplier and the patient in question. The court rejected that proposition. Applying its own previous case law, it held that the laboratory services themselves constituted the provision of medical care, and that the principle of fiscal neutrality meant that VAT exemption should not depend on whether or not such services were supplied within a hospital or from some other location.

The decision is in line with HMRC’s Tribunal victory in the GSTS case (in which HMRC argued successfully in favour of exemption).