TC09678 - [2025] UKFTT 01320 (TC)

It is undisputed in these proceedings that 1st Alternative Medical Staffing Ltd (Appellant) is an employment business as defined in section 13 Employment Agencies Act 1973 i.e. a business supplying persons (either contracted under a contract of or for services) to act for and under the control of others. In the course of that business, it is agreed that the Appellant supplied nurses and care assistants to NHS and private hospitals and care homes. The consideration for such services was calculated by reference to the pay, taxes and other employment costs (Employment Costs) payable to the staff plus a commission to the Appellant. The Appellant accounted for VAT on the commission charged but treated the reimbursement of the Employment Costs as exempt from VAT. In this appeal we must determine whether the Appellant correctly treated the Employment Costs reimbursed in prescribed accounting periods 09/14 to 04/16 (Relevant Period) as exempt from VAT. If the Appellant correctly so treated the reimbursed Employment Costs it will have over accounted for VAT on the commission it charged.

HM Revenue & Customs (HMRC) planned to visit the Appellant in February 2016 to check that VAT and pay as you earn had been correctly accounted for by the Appellant. The visit was cancelled by the Appellant and HMRC requested certain information be provided. Absent the requested information HMRC determined that all consideration received by the Appellant from their client hospitals and care homes was properly taxable. On 29 July 2016 HMRC issued VAT assessments for the Relevant Period in the total sum £265,590 (Assessments). The Appellant challenged the Assessments and requested a review of them on a variety of grounds including that the supplies were properly exempt as the provision of medical care or welfare services, that the Assessments were unreasonably made and/or that the Appellant was entitled to apply the terms of Notice 701/57, the Nursing Agencies Concession (NAC). HMRC reviewed the Assessments amending its calculation of the sums due ensuring that the Appellant was assessed on the basis that the consideration received was treated as VAT inclusive. The revised amount due was calculated as £221,325.

The Assessments were appealed to this Tribunal on 10 July 2017. At that time the grounds of appeal (GoA)specified that the Appellant contended that its services were exempt from VAT generally under Group 7 Schedule 9 Value Added Tax Act 1994 (VATA) and that it was entitled to apply the NAC. The GoA were subsequently amended to include grounds that the Appellant had a legitimate expectation that it was entitled to rely on the NAC retrospectively particularly in the context of a letter from HMRC sent on 14 January 2004 to a company under common ownership (Delta Nursing Agency (Delta)).

In parallel to the present proceedings the Appellant lodged a judicial review claim to litigate those aspects of the appeal in which it was asserted that the Assessments were contrary to the Appellant’s legitimate expectations. The judicial review was unsuccessful with both the High Court and Court of Appeal determining that no legitimate expectation arose from either the NAC or the letter of 14 January 2004 to the related company.

The judicial review claim having failed, the Appellant was directed to confirm the basis, if any, on which this appeal was to be maintained. Revised GoA were served reframing the substantive liability challenge and introducing an argument that the Assessments had not been raised to best judgment. The Tribunal refused to admit the best judgment challenge directing that the GoA be limited to the following ground only:

“… 3 The Appellant maintains that its supplies were exempt under VATA 1994, Schedule 9, Group 7.

…

5.

VATA 1994, Schedule 9, Group 7, Item 4 exempts:

“The Provision of care or medical or surgical treatment and, in connection with it, the supply of any goods, in any hospital or state-regulated institution.”

6.

This must be interpreted consistently with Article 132(1)(b) of the VAT Directive, which exempts:

“hospital and medical care and closely related activities undertaken by bodies governed by public law all, under social conditions comparable with those applicable to bodies governed by public law, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar nature;”

7.

The exemption is not, therefore, limited to “goods” but exempt any supply/activity that is closely related to medical care.

8.

On the meaning of “closely related”, the CJEU has held:

“[29] The Court has held, as regards medical services, that, in view of the objective pursued by the exemption provided for in [Article 132(1)(b)] it follows that only the supply of services which are logically part of the provision of hospital and medical care services, and which constitute an indispensable stage in the process of the supply of those services to achieve their therapeutic objectives, is capable of amounting to ‘closely related activities’, within the meaning of that provision, given that only such services are of a nature to influence the cost of healthcare which is made accessible to individuals by the exemption in question (see judgment in Ygeia C-394/04 and C-395/04 paragraph 25)” (De Fruytier C-334/14).

9.

Engaging medical professionals, such as nurses, is an indispensable stage in the supply of medical care to individuals and the cost of such services will, logically, influence the cost of healthcare which is made accessible to the individuals.

10.

It is clear from the Court’s case law that exemption is not limited to the final stage of supplies to the patient, but includes prior stages in the supply chain.

…

13.

Accordingly, the appellant’s supply is closely related to the supply of medical care. Further, the appellant is a state registered institution. It is licensed by the local authority to make its supplies or services, as an approved supplier to the NHS under the terms of a framework agreement and was registered and regulated by the CQC.”

In this appeal therefore we must determine whether the supplies made by the Appellant should have been treated as exempt on the basis that they were closely related to supplies of medical care. Unfortunately, when the Appellant prepared its skeleton argument, it did not address the legal or factual basis on which that argument was pursued. The skeleton argument contended what had been conceded in the revised GoA and/or on which it had failed in the judicial review proceedings (i.e. that the supplies were in and of themselves medical care and/or that the Appellant should have been entitled to rely on the NAC).