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

The statutory basis for the Trust’s COS VAT reclaim and the condition that the supply is “non-business” is found in s41 VATA. The term “non-business” is a short-hand for a supply which is “not for the purpose…of any business” carried on by the public body as emphasised in the extract from s41 below:

“…

(3)

Where VAT is chargeable on the supply of goods or services to a Government department…and the supply… is not for the purpose—

(a)

of any business carried on by the department

…

then, if and to the extent that the Treasury so direct and subject to subsection (4) below, the Commissioners shall, on a claim made by the department at such time and in such form and manner as the Commissioners may determine, refund to it the amount of the VAT so chargeable.

…”

So far as s41 VATA is concerned, NHS foundation trusts, such as the Trust, are included within the definition of Government Department pursuant to the definitions in sub paragraph 6 and 7(c). The Treasury Direction contemplated by s41 was made by the Treasury in a Direction of 2 December 2002. Pursuant to Paragraph 2 of that Direction, the government department may claim a refund of tax charged on specified supplies. That is however subject to a condition in 3a) of the Direction which states, relevantly, that the tax refund will only be paid if “the supply of those services…is not for the purpose of …any business carried on by the department”.

The parties agree that the principles governing the scope and principal terms pertaining to COS VAT are the same as those found in EU law. The term “business” in 3(a) of s41 VATA and in 3(a) of the Direction has the same meaning as “economic activity (Article 9 PVD). As explained in the case-law to which we will come later, it is also clear that, for a supply to constitute “economic activity”, it is a necessary, but not sufficient, condition that the supply be “for consideration” (Article 2 PVD). Those two Articles provide as follows:

Article 2 PVD:

“The following transactions shall be subject to VAT:

(a)

supply of goods for consideration…by a taxable person acting as such…”

Article 9 PVD:

“Taxable person’ shall mean any person who, independently, carries out in any place” any economic activity, whatever the purpose or results of that activity.”

Finally, the Trust further argues that, even if it is engaged in “economic activity” under Article 9, if it is acting “as a public authority” when doing so pursuant to s41A VATA 1994, the relevant supply will not be treated as “in the course or furtherance of a business”. Under that section, no VAT would be chargeable on the supply (unless not charging VAT would lead to significant distortion of competition). Section 41A reflects Article 13 PVD. Under the principles developed by the CJEU in relation to Article 13, a body governed by public law (which it is accepted the Trust is) will be acting as such when it is subject to a “special legal regime”. We also address Article 13 and the related body of domestic and CJEU jurisprudence later in this decision.