UT/2023/000009 - [2024] UKUT 00162 (TCC)

As we develop below, in determining the single/multiple supply question, it is necessary to view the transaction from the perspective of the typical consumer. Spectrum contends that the FTT erred in regarding NHSE as the typical consumer, and did so because it wrongly regarded the fact that NHSE contracted with Spectrum as relevant to that question.

Spectrum contends that legally relevant consumers on the facts here were the patients. The FTT rejected that contention, explaining at FTT [60]:

Ms Hall accepts a contractual analysis is relevant to identifying who makes and receives the supply. She contends, however, that it is not relevant in determining the question of single vs multiple supplies.

The viewpoint of the typical consumer features both with respect to CPP composite supplies and Levob composite supplies. In CPP, which concerned whether an exempt insurance supply and a taxable card registration service comprised a single supply or were separate supplies, the CJEU explained (at [28]) (by reference to Faaborg-Gelting (Case C-231/94)) that “where a transaction in question comprises a bundle of features and acts, regard must first be had to all the circumstances in which the transaction takes place”. The CJEU continued:

The first paragraph in the excerpt above corresponds to a Levob “artificial to split” type supply, the second to the CPP “principal /ancillary” type single composite supply. Both the passages lay the foundation for the typical consumer or customer’s perspective being the relevant one to consider. The fact this consumer perspective is relevant to the question of single or multiple supplies more generally is also consistent with how the CJEU viewed this paragraph in CPP in Everything Everywhere Ltd v HMRC (Case C-276/09). That case concerned handling charges invoiced by a mobile phone provider when the customer used certain payment methods. It raised the question of whether there was a single supply or separate supply of payment handling and telecoms services. The CJEU explained (at [26]):

This suggests the typical consumer perspective is relevant whether one is talking about a CPP or Levob supply. The extracts also suggest that the typical consumer is the customer who is being supplied; in other words the recipient of the supply.

That was also how the term consumer was understood by the Advocate General in Frenetikexitowhere the question was whether there were separate supplies of fitness and nutrition advice or a single complex supply that was exempt.

In paragraph 22 of her opinion, when discussing a single complex supply which it would be artificial to split (i.e. Levob) the Advocate General explained:

While Ms Hall’s submissions in reply invited us to ignore those emphasised words as merely “loose language” we consider that the Advocate General, recognising that there could be ambiguity in the term, specifically sought to address that with more precise language. The Advocate General’s formulation is also consistent with the CJEU’s earlier references to the typical consumer being the customer – in other words the recipient of the supply under consideration.

Spectrum relies on paragraph 19 of the Advocate General’s opinion in Frenetikexito to support its argument that the contractual position is irrelevant. Under the heading “1 Principle: every supply is independent” (and which preceded the discussion of the three exceptions to supplies being separate and distinct (being CPP, Levob, and “closely-related” – see [7] above)) the Advocate General said this:

The words “likewise irrelevant” refer to the Advocate General’s preceding point that the fact the supplies were linked “because they pursued a single economic aim” did not stop the principle that every supply was independent.

This paragraph, when read in its proper context, does not support Spectrum’s argument. The Advocate General was simply making the point that the fact that under national law there was a single contract or multiple contracts was not relevant to the single vs multiple supply analysis. The proposition that the existence of a single contract will not rule out there being multiple separate supplies for VAT purposes is not in dispute. (The FTT did not reason that just because there was a single contract the supply was a single supply).

Moreover, the Advocate General was not addressing here the question of either 1) how to identify the recipient of the supply or 2) whose perspective of the various possibilities one might need to have regard to. On the facts of Frenetikexito there could be no doubt the recipient of the supply was the person to have regard to; it was not a case where the customer of the supply and the beneficiary of the supply were different persons. For similar reasons, we consider there is no support for Spectrum’s case in paragraphs 26, 48 and 52 of the Advocate General’s opinion, on which Ms Hall placed reliance.

The Court in that case, referring to the Advocate General’s opinion, reiterated the importance of the “average consumer”. There is nothing in its decision, however, which assists on the issue of whose perspective is relevant where the recipient of a supply, and the beneficiary of the services constituting that supply, are different.

Although the specific situation present here was not in issue in the above cases they are all clear in our view that the relevant person’s perspective is the customer or recipient of the supply. Standing back that seems correct as a matter of general principle. The question, who is the relevant consumer begs the question “consumer of what?” In the case of VAT, which as Articles 1 and 2 PVD explain, is a tax on consumption charged on supplies of goods and services, it appears entirely consistent that the correct perspective to be taken is that of the person who receives the supply.

On the facts here the recipient of the supply is NHSE (Spectrum did not argue the prisoners are the recipients of the supply and that NHSE’s payments are third party consideration). We therefore consider the FTT was correct to look at matters from NHSE’s perspective.

In the following paragraphs, we address a number of other authorities, on which Spectrum relied in support of its case that the patient is the typical consumer whose perspective is relevant in determining whether the supplies were single or multiple. None, in our view, take Spectrum’s case on this ground further.

d’Ambrumenil and another v CCE (Case C-307/01) concerned medical expert reports conducted in the context of litigation. The checks were carried out on employees/insured persons at the request of the employer/insurer. The court held that the fact such checks took place at the third party’s request and might also serve the third party’s interests did not preclude health protection being regarded as the principal aim of such checks. Spectrum highlighted that the UK in that case submitted that the identity of the person requesting the examination or diagnosis could not be the determining factor.

However, as Mr Henderson rightly pointed out, the case was not about single or multiple supplies but about the scope of exemption c). In reply, Ms Hall sought to persuade us that it was wrong to consider the principles concerning whether there were single/multiple supplies and the characterisation of the supply as inhabiting separate silos. Underlying both sets of principles was the idea that one should establish what the essential economic aim was or as Ms Hall put it “what is going on in the real world”. But it does not follow that because similar analytical themes arise in both tests, the questions they seek to answer are not discrete. (A similar point arises in relation to Gambro Hospal below – see [92] which we reject for similar reasons).

In any case, we place little reliance on the position the UK adopted in a particular case in seeking to ascertain the correct legal principles.

In contrast the next authority Ms Hall relies on, Dr Beynon and Partners v CCE [2004] UKHL 53 (“Dr Beynon”) did consider the question of single and multiple supplies. That case involved doctors who could both dispense and administer pharmaceutical services to patients (in contrast to the normal division between doctors prescribing medicine and pharmacists dispensing/administering it) because the patients did not have a pharmacy nearby. The doctors argued that when administering drugs to such patients e.g. injecting a vaccine, that was a separate supply of medical care and a separate supply of goods (drugs), whereas Customs argued that the supply of drugs was ancillary to the single exempt supply of medical services. The House of Lords allowed Customs’ appeal. Lord Hoffmann (which whom the other Law Lords agreed) considered the CJEU principles in CPP and Faaborg-Gelting. In his opinion (at [31]):

Ms Hall argued this case shows that it is the patient’s perspective, as the typical consumer of the service, whose perspective was relevant. We disagree. Lord Hoffman was not considering the question of whose perspective as between the patient and the commissioning authority was relevant. There was no discussion of this point, nor any analysis of the particular contractual framework under which the services were provided (as opposed to the contractual provisions regarding reimbursement for payment of the drugs).

All Lord Hoffmann was setting out at [31] was an application of the approach that he had summarised earlier in his speech at [20] from CPP. That required one to look at the circumstances in which the transaction took place. He was heeding the warning given there that a supply “which from an economic point of view” comprised a single service should not be “artificially split into separate services” together with his observation that what mattered was the “essential features of the transaction”. The reasoning at [31] was also by way of contrast to Lord Hoffmann’s discussion in the preceding analysis of the Court of Appeal’s approach. The Court of Appeal had divided the transaction into various different stages such as consultation, diagnosis, drug dispensing and administration. Lord Hoffmann considered that involved just “the kind of artificial dissection” of the transaction which the European Court had warned against in CPP.

Gambro Hospal Limited v CCE VAT Tribunal decision 18588 (2004) (“Gambro Hospal”) concerned whether kidney dialysis services the taxpayer company provided to patients pursuant to an agreement with an NHS trust were exempt, as HMRC ruled, or standard rated as the taxpayer argued. Spectrum relied in particular on [28] and [29]:

These passages do not assist Spectrum. The tribunal was considering the nature of the supply (which it was common ground – see [27] was to the NHS trust). All that it concluded was that, in considering whether the supply fell within the exemption, it was relevant to have regard to the fact that the supply (to a legal person, the trust) consisted of medical services provided to natural persons (the patients). The case did not concern the question of who was the typical consumer for the purposes of the single/multiple supplies principles, and the tribunal said nothing about that.

For the same reason, Spectrum’s reliance on the guidance HMRC issued in its HMRC VAT Health Manual VATHLT 3030 based on Gambro Hospal does not assist. That guidance similarly makes the point that the health exemption was not worded to make the identity of the recipient of the supply of the essence. That guidance does not preclude the recipient of the supply being viewed as the typical consumer of the supply.

Ms Hall also argued that the Advocate General’s emphasis at [48] of Klinikum (see above) on the patient having a choice whether to accept administration of the drugs supported the fact it was the patient’s perspective which was relevant. We disagree. In this passage, the Advocate General, following her discussion of the Levob test (i.e. on the topic of single or multiple supplies) reasoned that the fact that neither the doctor nor the health insurance company could dictate to the patient whether or not to accept administration of the drugs made it necessary to proceed on the basis the patient received more than one supply. In that passage, it is clear the Advocate General’s analysis was addressing the question of who was making the supply. In her view the patient’s choice made it “impossible to consider that the doctor passe[d] on the supply of the drugs to the patient, as part and parcel of the medical care provided”. The Advocate General was simply ruling out that the drugs were supplied by the doctor. Rather, the drugs were supplied by someone else, the hospital pharmacy. That then led to the Advocate General’s point in the subsequent paragraph that where separate supplies were made by separate persons it seemed inevitable that those supplies could not form a Levob supply or be “physically and economically dissociable” (per the test in EC v UK). The Advocate General was not saying anything about whose perspective should be taken when determining the question of single or multiple supplies.

Finally, Spectrum suggested that a special approach applied in the case of health exemptions. Ms Hall submitted that the principles in CPP and Levob are focussed on commercial cases and have limited application in relation to health exemptions. We do not accept this. Frenetikexito and Dr Beynon are both examples of cases concerning the health exemptions but where the CJEU and House of Lords respectively mentioned the conventional jurisprudence on single/multiple supplies. More generally, and as we have already discussed under Ground 1, as a matter of principle, the question of the scope of an exemption is logically second to the prior question of whether there are single or multiple supplies. In that light it would be odd if the principles on single/multiple supplies were to vary according to the exemption in contemplation. We also do not agree that a contractually based analysis is inappropriate on the basis that it would run counter to protection of the well-being of patients (because the availability of the exemption could then be “gamed” by the parties’ chosen contractual structure). The authorities are clear that a contractual analysis is not the end of the story if it does not accord with economic and social reality.

In conclusion, we reject Spectrum’s ground of appeal that the FTT erred in its approach by looking to the contractual situation, and in regarding NHSE as the relevant typical consumer in analysing the issue of whether there was a single composite supply under exemption c) or multiple supplies.