TC09640 - [2025] UKFTT 01114 (TC)

The Appellant’s case is simply put: the supply of a Locum falls squarely within the terms of Item 5 as it is the “provision of a deputy for a person in the register of medical practitioners”. There is no complexity to the interpretation of Item 5 which plainly provides for what is exempt.

The starting point for the Appellant’s case is the FTT judgment in Rapid Sequence Limited v HMRC [2014] UKFTT 432 (TC) (Rapid). That case concerned precisely the same issue as in this appeal. The appeal was brought by a Locum provider. HMRC had determined that in order to benefit from the exemption under Item 5 the provider needed to make supplies of medical care whereas a Locum provider was a supplier of staff to a customer making exempt supplies of medical care. As such the Locum provider was not supplying medical care.

Having considered the domestic and EU case law, the Tribunal made certain observations as to the approach it was required to adopt when interpreting Item 5; we summarise those pertinent to the Appellant’s case as follows:

The Tribunal considered the evidence before it as to the nature of Rapid Sequence’s services and concluded:

“ 44. … we have no doubt that the business of Rapid Sequence, in the manner in which we have found it operates, consists of the provision of deputies for registered medical practitioners, whether that provision amounts to the provision of medical care or the provision of staff in the manner of an employment agency. The activity of arranging, as a principal, the placement of doctors seeking locum positions with NHS Trusts who Rapid Sequence have engaged themselves as principal, in the manner described in paragraphs 32 to 38 above, clearly falls within the plain meaning of Item 5.

45.

Were Item 5 purely domestic legislation not enacted in order to meet one of the UK’s obligations under an EU Directive we would have no hesitation in determining the appeal in favour of Rapid Sequence. As Mr Hayes submits, Item 5 is written in plain English and lends itself to no other interpretation when construed in isolation. It is in clear contrast to the wording of Items 1(a) and 4 which refer to the direct supply of services of medical care; it is clear that those items relate to the direct supplies of medical services, such as by an NHS Trust who employs the doctor concerned, either under an employment contract or a contract for services, whereas on its face Item 5 goes further and extends the exemption to the provision of the person who supplies the medical services.

46.

Without that extension it is hard to see why Item 5 would be necessary; the provision of the services of the deputising doctor, assuming he was a registered medical practitioner, would be covered by Item 1(a). It is also the fact, as we have observed, that Item 5 does not restrict the services provided by the deputy to those constituting medical care, as Item 1(a) does.”

The Tribunal went on to consider whether the provision of the Locums by Rapid Sequence represented the provision of medical care and, applying the same reasoning as had been applied in Moher concluded that Rapid Sequence was not providing medical care. It concluded that it was possible to construe Item 5 consistently only with the provision of medical care by inserting words to that effect. The Tribunal observed that doing so meant that Item 5 was unnecessary because such services would also meet the terms of Item 1(a) but considered that a matter for Parliament.

The Appellant contends that the Tribunal in Rapid was correct on its plain interpretation of the terms of Item 5 and incorrect to consider that it was capable of a conforming construction.

The Appellant supports the plain reading of Item 5 in Rapid as adopting the approach required by the House of Lords in Spath Holme as it:

“… is an exercise which requires the court to identify the meaning borne by the words in question in the particular context. The task of the court is often said to be to ascertain the intention of Parliament expressed in the language under consideration. This is correct and may be helpful, so long as it is remembered that the “intention of Parliament” is an objective concept, not subjective, the phrase is a shorthand reference to the intention which the court reasonably imputes to Parliament in respect of the language used. It is not the subjective intention of the Minister or other persons who promoted the legislation. Nor is it the subjective intention of the draughtsman, or of the individual members or even of a majority of individual members of either House. ... As Lord Reid said in Black-ClawsonInternational Ltd v Papierwerke Waldhof-Aschaffenburg AG [1975] AC 591, 613: “We often say that we are looking for the intention of Parliament but that is not quite accurate. We are seeking the meaning of the words which Parliament used.”

In identifying the meaning of the words used, the courts employ accepted principles of interpretation as useful guides. For instance, an appropriate starting point is that language is to be taken to bear its ordinary meaning in the general context of the statute.

…

… in Fothergill v Monarch Airlines Ltd [1981] AC 251, 279-80:

“The source to which Parliament must have intended the citizen to refer is the language of the Act itself. These are the words which Parliament has itself approved as accurately expressing its intentions. If the meaning of those words is clear and unambiguous and does not lead to a result that is manifestly absurd or unreasonable, it would be a confidence trick by Parliament and destructive of all legal certainty if the private citizen could not rely upon the meaning but was required to search through all that had happened before and in the course of the legislative process in order to see whether there was anything to be found from which it could be inferred that Parliament’s real intention had not been actually expressed by the actual words that Parliament had adopted to communicate it to those affected by the legislation.”

Whilst acknowledging that the House of Lords went on in Spath Holme to consider the relevance of the “mischief rule” i.e. the identification of “the mischief and defect for which the common-law did not provide” the Appellant contended that the mischief rule had moved on considerably since Spath Holme. It was submitted that as an “external aid” to construction (i.e. external to the Act itself) the mischief rule, alongside other external aids were of little utility where the language of the statute is clear and lends itself only to one interpretation.

We were taken by the Appellant to the following authorities concerning the principle of conforming construction:

Put another way the Appellant contends that to interpret Item 5 as requiring the provision of medical care is contra legem.

The contra legem principle is explained by the Court of Appeal in Ampleaward Ltd v HMRC [2021] EWCA Civ 1459 (Ampleaward). The case concerned the interpretation of section 18(3) VATA which, on its terms, provided that a supply of goods within a bonded warehouse was treated as made outside the UK and therefore outside the charge to duty and VAT. Section 18(3) had the effect of removing a supply from the charge to duty whether or not the warehouse was physically in the UK. By the time the case reached the Court of Appeal it was accepted that the provisions of section 18(3), as drafted, did not conform to, and provided a broader exemption than, the provisions of the PVD which they sought to implement. The Court confirmed that position (see paragraphs 54 and 77).

The issue for determination by the Court of Appeal was therefore whether the domestic legislation could be “read down” so as to conform with the PVD. The Court acknowledged its duty to apply a conforming interpretation so far as such interpretation was possible. The Court reviewed the case law concerning conforming interpretation and noted at paragraphs 86 – 93 the limits to such an interpretive tool. In particular, that as a matter of EU law a directive addressed to a member state does not create enforceable rights between citizens; a directive imposes no obligations on citizens and may not be relied upon by the state as against the citizen. This carries the consequence that the state cannot take advantage of its own failure to comply with community law as against a citizen even under the guise of conforming interpretation. As such (and by reference to the judgement of the CJEU in Criminal proceedings against Arcaro C-168/95 (paragraph 39 – 40) the Court considered:

“39.

… That rule of interpretation cannot, … be applied to undertake an actual redrafting of the provisions of national law. That would be tantamount to introducing the direct effect of provisions of a directive imposing obligations on individuals by the back door and contrary to Article 189 of the Treaty.

40.

In other words, if the wording of the national rule allows of several interpretations, the national court must apply, from amongst the various interpretations, the one which will bring the provision of national law into harmony with Community law. If on the other hand the wording of the law leaves no room for interpretation because for example the law clearly says A, the rule of interpretation cannot be used contrary to the wording of the law so as to say B, even though B (but not A) is in accordance with Community law.”

The Court of Appeal adopted the explanation of contra legem provided by Advocate General Bot in Dansk Industri v Estate of Rasmussen C-441/14 (se paragraph 95):

“The Latin expression “contra legem” literally means “against the law”. A contra legem interpretation must, to my mind, be understood as being an interpretation that contradicts the very wording of the national provision at issue. In other words, a national court is confronted by the obstacle of contra legem interpretation when the clear, unequivocal wording of the provision of national law appears to be irreconcilable with the wording of a Directive. The Court has acknowledged that contra legem interpretation represents a limit on the obligation of consistent interpretation, since it cannot require national courts to exercise their interpretive competence to such a point that they substitute for a legislative authority.”

When considering whether a conforming interpretation of section 18(3) VATA was possible, the Court reiterated that as conforming interpretation was a principle of “interpretation” a court was not entitled to cross the boundary to amending legislation enacted by Parliament particularly where there may have been several ways in which the legislation could have been made compliant, but which involve policy choices the court was ill-equipped to make. In the context of section 18(3) VATA the Court considered that it was not possible to apply an interpretation which did not have the effect of reading the provision as “B” when it said “A”. The UK had incorrectly widened the permissible scope of the exemption and conforming interpretation did not allow the error to be corrected.

The threshold between conforming interpretation and contra legem has also recently been considered by the Upper Tribunal in the matter of The Trustees of Panico Panayu Accumulation and Maintenance Settlements Numbers 1 to 4 and Redevco Properties UK Limited v HMRC [2024] UKUT 319 (TCC). The case concerned the “exit tax” that arises on a deemed disposal when the trustees of a settlement or a company ceased to be resident in the UK for the purposes of taxation and whether the relevant statutory provisions constituted an impermissible restriction on freedom of establishment and free movement of capital.

At paragraph 83, the Upper Tribunal sets out the observation of Lord Nicholls in Re S [2002] AC 291 on the boundary between interpretation and legislative amendment in which he states:

“40.

… This is not a novel problem. If anything, the problem is more acute today than in past times. Nowadays courts are more “liberal” in the interpretation of all manner of documents. The greater the latitude with which courts construe documents, the less readily defined is the boundary. What one person regards as sensible, if robust, interpretation, another regards as impermissibly creative. For present purposes it is sufficient to say that a meaning which departs substantially from a fundamental feature of an Act of Parliament is likely to have crossed the boundary between interpretation and amendment.”

In that context, the Appellant contends that the language of Item 5 plainly and clearly provides exemption for the provision of an individual registered in the register of medical practitioners, the deputy, who will perform the duties for, and in place of, another person registered in the register of medical practitioners. That is interpretation “A”. To seek to interpret Item 5 as applying to the provision of medical care through a deputising service is not permissible on the wording adopted by Parliament and represents an impermissible interpretation “B”.

That this position is clear was emphasised by the conclusion in Rapid that the interpretation adopted as conforming interpretation carried the consequence that supplies exempted under Item 5 were also, and simultaneously, exempted under Item 1, an anomaly or absurdity which rendered conforming interpretation inappropriate.

If there were any doubt, which the Appellant contends there is not, that Item 5 was intended to represent an additional head of exemption, it is said to be clear from the EN, that those laying the Order, and thereby those approving it by negative resolution, considered Item 5, together with note 2 which was introduced at the same time, to both represent “extensions” to the pre-existing exemption. The Appellant contends that there is no greater analysis of the EN required than its reference to extending the exemption. The interpretation advanced by HMRC and that adopted by the Tribunal in Rapid does not extend the exemption, it repeats it.

Further, the Appellant contends that HMRC seek to impermissibly construe the EN to impute a meaning which is different to the wording actually adopted in the statutory provision. The exemption applies to the “provision of a deputy”, the Order could have been drafted such that the extension applied to a “deputising service” providing a statutory definition and/or explicitly or implicitly importing the meaning of such term from the legislative infrastructure through which the personal obligation of a general practitioner to provide medical care could be deputised (see Schedule 1 paragraph 16 NHSGMPSR 1972). The Appellant points out however, that even if the definition of a deputising service under NHSGMPSR 1972 (see Schedule 1 paragraph 1(b)) were imported it would not support HMRC’s case in the present appeal because a “deputising service” references a provider and not the service provided.

Should the mischief rule be relevant in this appeal, the Appellant submits that it must be apparent from the stated desire to extend the exemption that it was considered that the existing exemption did not adequately provide for either indirect provision of medical care (thus requiring note 2) or the provision of a deputy through which medical care was then provided (thus requiring Item 5).

Responding to HMRC’s alternative limit on the application of Item 5, namely that Item 5 is limited to the provision of a deputy for a GP (and not a hospital doctor), the Appellant makes 2 contentions.

No assistance is said to be derived from the terms of HMRC’s guidance published at the time of the Order or since. As confirmed by the Court of Appeal in Leeds City Council v HMRC [2015] EWCA Civ 1293 (paragraph 4) published guidance is not law and represents “no more than HMRC’s interpretation of the law” which may be wrong.

The Appellant challenges HMRC’s further argument that “the provision of a deputy” requires the deputy to be deputising for a named and identifiable individual on the register of medical practitioners. The Appellant contends that such interpretation is not supported by the language adopted and would lead to absurd results. For example, a deputy deputising for a named individual on short-term sick leave would apparently be covered by the exemption but, if that same deputy continues to be provided following the resignation of the individual previously on short-term sick leave, the supply of the deputy would become taxable at the point of resignation. However, the provider of the deputy may have no knowledge as to the underlying circumstances in which the recipient receives the deputy, such that assessing the correct liability of the supply would be impossible and breach the principles of legal certainty.