This decision will be relevant for dental and orthodontic practices, dental laboratories, and any other businesses that supply orthodontic appliances or equipment to patients.
Align Technology Switzerland GmbH (Align) supplied clear aligners under the brand ‘Invisalign’. Aligners are removable orthodontic appliances used by dentists to reposition a patient’s teeth to correct misalignment. Each aligner is bespoke and specially designed by Align for an individual patient, based on a scan of the patient’s mouth.
The first-tier tribunal findings
The First-tier Tribunal had found that Invisalign clear aligners did qualify for the VAT medical exemption as they were dental prostheses within the meaning of Group 7 of Schedule 9 to the Value Added Tax Act 1994. HMRC's position was that aligners are not dental prostheses and so did not fall within the VAT exemption which applies to supplies of dental prostheses by dentists and other persons registered on the Dental Care Professional Register and so should be subject to VAT at 20%.
The First-tier Tribunal found that the term "dental prostheses" was not defined in the UK and so the Tribunal used specialist dental dictionaries to come to the conclusion that the orthodontic appliances were included in the definition of dental prostheses and that dental aligners could meet the definition and qualify for VAT exemption.
The upper-tier decision
The Upper Tribunal reconsidered the construction of the exemption, reviewing dictionary definitions, the EU VAT Committee Guidelines and Working Paper, and relevant case law. The Tribunal concluded that dental prostheses, in the context of the exemption, means artificial items which replace missing or damaged teeth, such as crowns, bridges and dentures. The Tribunal held that the Invisalign aligners did not replace missing or damaged teeth but instead worked by repositioning natural teeth through a course of corrective treatment, and so were not prostheses.
The decision draws a clear line between "replacement" dental devices (within the exemption) and "corrective" or "repositioning" devices (outside it). Importantly, it does not affect the separate VAT exemption for the provision of medical care by suitably qualified healthcare professionals, which means that a dentist's own clinical treatment fees for orthodontic work remain exempt. However, the cost of purchasing aligners and similar appliances will continue to attract irrecoverable VAT, increasing the cost to practices of providing these services. Businesses supplying items such as bite splints, retainers, or other appliances that do not substitute for missing teeth should review their VAT position.
The practical implication of this decision is that any business supplying orthodontic appliances, including clear aligners, fixed braces and retainers, should review whether it has been treating those supplies as exempt. If supplies have been treated as exempt when they should have been standard-rated, there is potential exposure to retrospective VAT assessments, together with interest and possible penalties. The cash flow impact for affected businesses could be significant: businesses will need to account for output VAT at 20% on relevant supplies going forward, and those which have under-declared VAT in previous periods may face lump-sum assessments. We would encourage any affected businesses to review their VAT returns promptly and, where necessary, make a voluntary disclosure to HMRC. Proactive disclosure is likely to result in more favourable treatment from HMRC in terms of any penalties imposed, compared with waiting for HMRC to raise an assessment.
