Do I have to register for VAT if most of my income is exempt?

Registration is based on taxable turnover, not total turnover. Exempt treatment income does not count towards the £90,000 threshold, but standard-rated product sales do, so a practice can be almost entirely exempt and still cross the threshold on supplements and retail alone.

Are health treatments VAT-exempt in the UK?

Only where two tests are met. The service has to constitute medical care, meaning it is principally for protecting, maintaining or restoring health rather than cosmetic or purely for wellbeing, and it has to be provided by a person enrolled on a relevant statutory register, or by staff whose work is wholly performed or directly supervised by such a person.

When do I have to tell HMRC I have crossed the threshold?

Within thirty days of the end of the month in which rolling twelve-month taxable turnover exceeded £90,000, with registration taking effect from the first day of the second month after the threshold was crossed. A separate forward-look test applies if you expect to exceed £90,000 in the next thirty days alone, and that one registers you from the start of those thirty days.

What is partial exemption and will it apply to my practice?

Partial exemption applies to any VAT-registered business making both taxable and exempt supplies. VAT on costs used only for products is recoverable, VAT on costs used only for exempt treatment is not, and overhead VAT is apportioned between them. Where exempt input tax falls under the de minimis limits of £625 a month on average and no more than half of total input tax, it is recoverable in full.

What happens if we should have registered months ago?

You register with effect from the date registration was due and account for VAT on taxable sales made since then, whether or not you charged it at the time. HMRC may also apply a penalty and interest for late notification, so the size of the position is worth quantifying before deciding how to approach it, with the practice's accountant involved.

Can we split treatments and products into two businesses?

Separating a business specifically to stay under the threshold carries real risk, because HMRC can treat artificially separated businesses as a single taxable person. The workable answer is usually one business with clean separation at the till, so taxable turnover is measurable rather than estimated.

Health & wellness · 🇬🇧 United KingdomScenario

VAT when treatment income is exempt and product sales are not

The UK VAT registration threshold is measured on taxable turnover rather than total turnover, so a practice whose treatment income is largely exempt can still be required to register on its retail product sales alone. This is an illustrative example set in a health and wellness practice running both streams through one till.

Ask how we'd handle this

Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.

The business shape it describes: UK health & wellness practice, mixed exempt and taxable income.

Scenario covers: Bookkeeping, VAT registration and partial exemption calculations
Software it assumes: Xero · Dext
Jurisdiction: United Kingdom
Sector: Health & wellness

The setup

The practice provides treatments and also sells supplements, supports and skincare products at reception.
Treatment income is treated as VAT-exempt. Product sales go through the same till and the same bank account and are treated the same way.
Nobody monitors a registration threshold, because the working assumption is that no threshold applies.

What usually turns out to be wrong

Product sales are standard-rated. They count towards the VAT registration threshold; exempt treatment income does not.
The threshold is £90,000 of taxable turnover, tested on a rolling twelve months and separately on a forward look at the next thirty days on their own.
Exemption for medical care depends on two tests: that the service is principally aimed at protecting, maintaining or restoring health, and that it is provided by a person enrolled on a relevant statutory register. Treatments delivered by unregistered staff do not qualify automatically.
Cosmetic and wellbeing services that are not principally about health fall outside the exemption even where a registered professional delivers them.
Once registered, VAT on shared overheads is only partly recoverable. That is a partial exemption calculation the practice has never had to run.

How this would be worked

Taxable and exempt income would be separated at the till first. Product lines get their own item codes in the point-of-sale system, mapped to separate revenue accounts in Xero, so taxable turnover becomes a report rather than a monthly reconstruction.
Each treatment type would be assessed against both exemption tests and the answer written down, including who delivers it and under whose supervision.
Rolling twelve-month taxable turnover would be rebuilt month by month to establish when the threshold was first crossed.
HMRC would be notified. Registration is required within thirty days of the end of the month in which the rolling twelve-month test was breached, and it takes effect from the first day of the second month after that.
Outstanding periods would be prepared and filed under Making Tax Digital, with digital links running from the till through to the return.
A partial exemption method would be set up: input tax attributable to product sales recovered in full, input tax attributable to exempt treatment not recovered, and residual overhead input tax apportioned. The de minimis test would be run each period, because a practice under both limits recovers its exempt input tax in full.

Why we'd be the right fit

A practice with both exempt and taxable income is exactly where the threshold test goes wrong, because the figure that matters is taxable turnover and exemption can turn on who delivered the treatment rather than what it was.
Splitting the two streams at the point of sale matters more than the registration itself. Without it, the threshold has to be reconstructed by hand every month, and it will not be.
Salt prepares the return and the records underneath it. A disclosure, a ruling request or a correspondence position with HMRC goes through the practice's own accountant or agent.

What the business would be able to do

The practice would be able to read taxable turnover off a report each month and see the threshold approaching before it is crossed.
Each treatment would carry a recorded exemption position with a reason attached, so a change in staff or in service mix triggers a review rather than an assumption.
Partial exemption recovery on overheads would be calculated every period, with the de minimis test deciding whether exempt input tax is recoverable in full.

What we'd flag

VAT on past product sales was never charged to customers, so it comes out of margin. Registering late does not create a right to go back and collect it, and the practice should price for that before deciding what to do about the historic position.

Answers

VAT when treatment income is exempt and product sales are not

Where this applies

BookkeepingService Sales Tax · VAT · GSTService All services in United KingdomFRS 102 / UK GAAP More scenarios42 illustrative, labelled examples

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