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

Following changes in the Health and Social Care Act 2012 (“HSCA 2012”), local authorities in England assumed responsibility for a range of health-related services previously commissioned and provided by NHS bodies such as NHS clinical commissioning groups. This judicial review concerns the VAT treatment of arrangements by which such local authorities commissioned the Claimant NHS Foundation Health Trust (“the Trust”) to provide various, free at point of use health services to the public. Those free services comprised health visiting services for children, integrated sexual health services, and services relating to infection prevention and control (“IPC”).

The Trust’s case is that its provision of such services to the local authority were “non-business” supplies. They were not “for consideration” under Article 2 of the Principal VAT Directive (“PVD”) or, even if they were, they were not “economic activity” (under Article 9 PVD). As such, they were outside the scope of VAT and, accordingly, “COS” (Contracted Out Services) VAT under s41 Value Added Tax Act 1994 (“VATA”) such that the Trust can obtain a refund of input VAT on the supplies (Footnote: ¹).

The Trust also argues that, even if they are not “non-business” supplies, the Trust is not a taxable person under Article 13 PVD because they were made by the Trust as a public body pursuant to a special legal regime. HMRC rejected these arguments in its decision of 24 March 2022, which the Trust seeks to judicially review (there being no statutory right of appeal against that decision). HMRC’s position is that the provision of sexual health and health visiting services are exempt supplies (such that no deduction of input tax is available) and that the IPC services are business supplies and standard rated (such that the Trust is liable for output VAT but can deduct input tax).

On 16 January 2023, the Administrative Court (Ouseley J) granted permission for the judicial review claim. The claim was subsequently transferred to the Upper Tribunal. Although the claim before us relates to historic VAT amounting to £800,693 in the periods between 2016 and 2019, the Trust informs us that it also bears on some £2.5 million of subsequent supplies and has ongoing significant budgetary implications for both the Trust and other, similarly placed NHS bodies.