UT/2023/000021 - [2024] UKUT 00334 (TCC)

A further argument that the Trust made under Issue 3 was that, even if the legal regime applicable to the Trust does not constitute a special legal regime, Article 13 is satisfied because the Trust is a delegate of the local authority (which is, the Trust argues, accepted by HMRC, to be subject to a special legal regime when carrying out its public health functions pursuant to legislation).

The Trust argues that HMRC’s guidance VATGPB3240, which suggests that it is only local authorities which have had functions and duties transferred to them by another local authority that can benefit from a special legal regime, is wrong. In the Trust’s submission the guidance is incompatible with the PVD and relevant EU law, it is arbitrary and it breaches the principles of neutrality, equal treatment and proportionality.

VATGPB3240 (which appears in HMRC’s manual “VAT and Government and Public bodies”) states

“Non-business activities: whether provided as a public authority: delegation from one local authority

Sometimes one local authority may delegate an activity to another, but the legal regime governing the activity specifically covers the first authority. We accept that the activity of the second local authority is also governed by a special legal regime because of the wider application of local government legislation.”

In submission, Mr Mantle explained that the local government legislation referred to was s101 Local Government Act 1972 which provides that a local authority “may arrange for the discharge of any of their functions…b) by any other local authority.”

We agree with HMRC that the Trust’s case misinterprets the scope of the guidance. HMRC’s acceptance of a delegation of an activity by one local authority to another does not say anything one way or the other on the position regarding a delegation from a local authority to another public authority such that no question of breach of neutrality, equal treatment or proportionality arises. In other words, the guidance does not purport to be exhaustive or indicate an exclusionary effect with respect to the Trust in the way it suggests.

Moreover, in relation to the assumption in the Trust’s argument that HMRC have accepted that local authorities carrying out public health functions pursuant to the legislation do so under a special legal regime (see [118] above), Mr Mantle explained HMRC’s position that it had not reached such a view. He suggested that there could be various reasons (other than a conclusion that there was a special legal regime under Article 13 PVD) for why a health service provision made directly by local authorities (rather than with the benefit of services provided by NHS foundation trusts) would result in such provision being “non-business”. For instance, the provision of services made by local authorities might not be viewed as being for consideration under Article 2 PVD.

That submission (as to HMRC not having come to such a view) is consistent, again not only with the guidance (which applies if there is a special legal regime), but also with HMRC’s review letter of 24 March 2022 in relation to which the judicial review claim is brought, which explained in response to the Trust’s argument that the guidance should apply to it that:

“HMRC offers no opinion on the existence and application of a special legal regime in relation to local authorities, in so far as it relates to the specific issue set out here. By extension, HMRC offers no opinion on whether the services would be a non-business activity if provided directly by a local authority.”

However, even if we were to assume, as the Trust suggests, that HMRC do treat supplies of the services in issue here, when made by local authorities, as “non-business” on the basis the local authority is subject to a special legal regime for Article 13 purposes, we were not taken to any support for a general proposition that, if an arrangement could be regarded as a delegation to the Trust that would then mean there was no need to analyse whether the Trust was acting under a special legal regime applicable to it.

Mr Edwards referred us to Saudaçor (Case C-174/14)as an example of it being possible for a public authority to delegate to a private body (a company) and still be within Article 13. There, a company had been formed to plan and manage the regional health system within the framework of programme agreements entered into with the regional public authority. But there was no suggestion that the company was considered to benefit from Article 13 by virtue of being a delegate of the regional public authority. The focus remained on whether the company was subject to a special legal regime (the CJEU’s judgment (at [72]) referring to consideration of the public law “available to Saudaçor” and an instrument that “could be used by Saudaçor”).

Finally, lest it be suggested that we have accepted the Trust’s overarching premise that it was the ‘delegate’ of the relevant local authorities in relation to their functions, we should add that this was anything but clear to us. Although asserted, it was not properly explained. Indeed, the requirements of the agreements for the Trust to provide certain health care services to the local authorities seemed to fall short of the delegation or discharge of the latter’s duties or functions. Nor was it apparent to us how such delegation or discharge was, or legally could be, achieved through those agreements. We were not taken for instance to any equivalent to s101 Local Government Act 1972 permitting such contractual delegation of duties from the local authority to the Trust.

We accordingly agree with HMRC that the Trust is not subject to a special legal regime for the purposes of Article 13 and that the Trust’s case on Issue 3 fails.