A legal ruling on VAT on aligners may have significant implications for dentists. Peter Ingle considers whether it may lead to increased expenses
GDPUK has reported on the recent legal tussle between HMRC and Align technology. This could have implications that go not just beyond the users of one brand of aligner, or even be restricted to all of these types of devices. In a worst case scenario the effects could go beyond orthodontic treatment. First, a little background into why the judgement has come at this time, long after the arrival of aligner based treatments.
The legal basis is that the Upper Tribunal (Tax and Chancery Chamber) has upheld an HMRC appeal against the earlier decision of the First-tier Tribunal concerning the VAT situation in regard of Invisalign clear aligners.
Align had sought to have the supply of aligners classified as supplies of dental prostheses which are exempt from VAT. When HMRC decided that supplies of the Aligners were chargeable to VAT, Align appealed to the First Tier Tribunal (FTT) which allowed the appeal. In response HMRC sought and were granted permission to appeal that the FTT had erred in its interpretation of the phrase ‘dental prostheses.’ It is this definition that is critical.
While there was no dispute that aligners are dental, it was their categorisation as prostheses which was argued over. The FTT was referred to various definitions of both ‘prosthesis’ and ‘dental prosthesis.’
The FTT’s conclusion was that ‘dental prostheses’ includes orthodontic appliances, and that including aligners in the term ‘dental prostheses’ was consistent with the purpose of the VAT Exemption. This went against the guidelines of the EU VAT Committee that ‘dental devices’ are not the same as ‘dental prostheses.’
In its successful appeal, HMRC’s position was that the ordinary meaning of a ‘dental prosthesis’ was as an artificial item used to replace missing or damaged teeth, and did not extend to any appliance for straightening the teeth.
The case saw the legal representatives of Align and HMRC arguing over the varying definitions available in different dictionaries.
For Align the argument was that a prosthesis, as defined for example in the Oxford Concise Medical Dictionary, was not limited to replacements for body parts since it included any device, ‘attached to the body as an aid’, and expressly includes ‘hearing aids and cochlear implants’.
HMRC for their part maintained that a prosthesis was as defined in The Oxford English Dictionary: ‘An artificial replacement for a part of the body.’
Indeed, the court was taken to a variety of both general and medical dictionaries by HMRC and Align. Both parties did agree that the court should not just count how many dictionaries supported each side’s interpretation.
Ultimately the court took the view that whilst dictionaries may be consulted in order to assist with the meaning of terms, ‘the court is always free to depart from a dictionary definition.’
The court’s opinion is revealed in a key line of the judgement: ‘We are not persuaded that prosthesis is generally understood to include something external to the body which may provide some support or assistance, or which may operate as a course of corrective treatment to a particular part of the body.’
The court went on to consider relevant case law, and the EU guidelines and a working paper regarding VAT. The working paper had agreed that: ‘A prosthesis is a replacement made of exogenous, inanimate material aiming at the best possible substitution of a body part in form and/or function. A dental prosthesis is an intraoral prosthesis used to restore (reconstruct) intraoral defects such as missing teeth, missing parts of teeth, and missing soft or hard structures of the jaw.’ In a blow to Align’s case, the same paper went on to say: ‘Questionable is the VAT treatment of the supply of braces, titanium girders and the material that is used to manufacture dental prostheses.’
After all of the argument and counter argument, the courts conclusion was brief: ‘For the reasons set out above, we have concluded that “dental prostheses”, as used in the Exemption, means artificial items which replace missing or damaged teeth. They do not include the Aligners. The FTT therefore made an error of law in concluding that the Aligners are “dental prostheses” within the Exemption.’
As a result, the Upper Tribunal set aside the FTT Decision and remade it to dismiss Align’s appeal against the decision of HMRC that the Aligners are chargeable to VAT.
In the short term, the addition of VAT to the cost of aligners would seem to land with practices. Private fees can be raised, and the imposition of VAT is likely to loom large in orthodontist’s evidence to the Competition and Markets Authority, as they investigate private dental fees.
The effect on NHS orthodontic provision could be even more dramatic. The nature of NHS payments, in particular both the delay and difficulty in them properly reflecting changes in the costs of delivering care, could tip orthodontic contracts over the edge as they become financially unsustainable.
Of course, much orthodontic treatment is delivered without the use of aligners. The problem here is the arguments used did not distinguish between the various appliances available for moving teeth, and potentially other forms of orthodontic appliances might be affected. The working paper opinion about materials used to make prostheses may also attract HMRC attention.
While not directly related there has been discussion about adding VAT to private health care, something that may appeal to a government eager to raise money and make a political point.
With the exception of the brief and voluntary ‘toothbrush’ scheme many years ago, registering for VAT has been one administrative burden that dental practices have been spared. How enthusiastically HMRC follow up this judgement, along with the wider political background, might lead to changes in an arrangement that has lasted since 1973.