UT/2023/000122 - [2025] UKUT 00341 (TCC)

It is convenient to consider Grounds 1 and 2 together. These grounds essentially allege that the FTT applied the wrong legal test in deciding whether the Appellant’s services consisted of the provision of medical care. There are two aspects to the Appellant’s case on this point which we shall consider in the following order:

Did the FTT apply the wrong test?

In considering the test to be applied it is important to note the following matters which are common ground:

The FTT clearly had regard to the legal principles summarised by the Upper Tribunal in Mainpay at [89] which were endorsed by the Court of Appeal in that case. In particular, the Upper Tribunal stated at [89(8)] that if the principal purpose for which the medical service is effected is not the protection, maintenance or restoration of health but rather the provision of advice required prior to taking a decision with legal consequences, then the exemption does not apply. D’Ambrumenil was cited in support of that principle.

The FTT stated as follows at [78] in the context of its observations on the documentary evidence:

It is clear therefore that the FTT was looking for the primary or principal purpose for which the supplies were effected. Hence, at [105] the FTT held that the treatments were “not being provided essentially for medical purposes, but are for non-medical – cosmetic-purposes” and at [113] the FTT agreed with HMRC’s submission “that clients sought the clinics services primarily for aesthetic reasons, and in order to improve their appearance”.

The Appellant says that the FTT was wrong in looking for the principal purpose of the supply and that identifying the principal purpose had not been its “core position”. It is said that the FTT not only applied the wrong test but that it also failed to deal with the Appellant’s submissions as to the right test.

Those submissions were recorded in the Appellant’s skeleton argument for the FTT and are based on the CJEU decision in PFC. It is only if a supply of cosmetic treatment is made for purely cosmetic reasons that it will fall outside the exemption. The submission was made at various points in the Appellant’s skeleton argument in the FTT, including at [21] and [42]:

“21.

… So far as material to this appeal, it is not a condition of exemption that the relevant purpose must be the primary or the principal purpose.

42.

… if the doctors engaged by the Appellant provide cosmetic treatments for a purpose which they consider to be a medical purpose, the only question that remains is whether the doctors were treating a health disorder.”

In other words, and this was the submission before us, where there is an underlying health disorder that is being treated, then the exemption is available even if the client also has a cosmetic purpose. The point can be illustrated by the diagnoses identified in the Appellant’s initial consultation documents and referred to at [87] of the Decision. One diagnosis identified is a filamentous wart, which it is common ground is a medical condition. The client may wish to have the wart removed for the sake of their appearance. If the Appellant conducts a procedure to remove the wart then it says that it is treating a medical condition and the services are exempt.

The Appellant submitted that identifying the principal or essential purpose of a supply is the wrong approach in cases concerning cosmetic care.

In support of this proposition in its skeleton argument at [43] it submitted that because all cosmetic treatments are provided at least in part for cosmetic reasons, a principal purpose test would lead to a conclusion that all cosmetic treatments fall outside the scope of the exemption – and such a conclusion would be contrary to the position accepted by HMRC that plastic surgery or cosmetic treatment may fall within the concept of the provision of medical care where its purpose or principal purpose is to treat or provide care for persons who, because of illness, injury, or a congenital physical impairment, need such treatment.

We see no logic to this submission. In a case where both a cosmetic aim and a therapeutic aim can be identified, there are three ways the law could seek to apply the exemption:

The Appellant’s submission that the identification of any therapeutic purpose alongside a cosmetic purpose is essentially based on references in PFC to the exemption not being available where the purposes are “purely cosmetic”. In particular the Appellant relies on PFC at [29] (reproduced at [30] above) and argues that cosmetic services will fall within the scope of the exemption if any part of their purpose is therapeutic, in the sense that it is for the purpose of diagnosing, treating or so far as possible, curing health diseases or disorders, including psychological disorders, or protecting, maintaining or restoring human health.

At the heart of the Appellant’s submissions is that the CJEU did not adopt a principal purpose test in PFC, and that test has only been applied in a particular line of cases including d’Ambrumenil. That line of cases concerns the provision of expert medical reports where the principal purpose of the supply was not to protect, maintain or restore health but to provide advice or evidence in connection with a commercial decision or court proceedings. Any contribution to the protection of health was indirect. When the Court of Appeal in Mainpay considered the term “medical care”, it was not looking to set out a comprehensive description of the medical care exemption or for an exhaustive definition of medical care by reference to D v W. It was looking to understand what the CJEU meant in Kügler at [27] that “medical services must be involved”.

PFC was concerned with two types of supplies which were described at [18] (reproduced at [28] above). Firstly, interventions where the purpose was to treat patients who, as a result of an illness, injury or a congenital physical impairment, were in need of plastic surgery. Secondly, interventions carried out “more as a result solely of the patient’s wishes to alter or improve his physical appearance”. It is the second type of supply which the CJEU described at [29] as surgery “for purely cosmetic reasons”. There is something of a contradiction between the use of the word “more” and the word “solely”. The word “solely” suggests that the CJEU was considering circumstances where the patient’s cosmetic purpose was the sole purpose to be considered whereas the word “more” suggests that the CJEU was considering circumstances where there might be some degree of medical purpose but this was subsidiary to the patient’s wish for a cosmetic improvement. Whilst the opinion perhaps could have been expressed more clearly, in our view the use of the word “more” can be seen as supporting the view that where there is both a medical purpose and a therapeutic purpose, a principal purpose test does apply. Clearly if there is only a cosmetic purpose, there is no medical purpose and the supply does not fall within the exemption. However, in our view PFC is not authority that where both a medical and a cosmetic purpose can be discerned the exemption applies even if the medical purpose is clearly subsidiary to the cosmetic purpose.

We can see that the Appellant placed considerable reliance on PFC before the FTT. It is not clear why the FTT did not cite the case or address the Appellant’s submissions to the effect that it is only purely cosmetic procedures which are excluded from exemption. Be that as it may, we can now address those submissions to see whether the FTT applied the right test.

The Appellant submitted that in PFC, the CJEU concluded that the first category of supply may fall within the concept of the provision of medical care. It did not decide that the exemption required the supply to meet a condition of “need”. We accept that submission. Indeed HMRC did not suggest that there was any requirement that the medical treatment was “needed” for the supply to be exempt, although at least one recent FTT decision has suggested that is a requirement. In our view, a consideration of whether the supply is “needed” is unhelpful to the analysis. It begs the question - needed for what end? It would be a very high standard indeed if this would be taken to mean “needed” in the sense of being necessary to cure a medical condition, since many interventions seek to manage symptoms rather than curing a medical condition and many medical conditions may over time be cured without medical intervention. If “need” is to be taken as meaning necessary to cure or manage an ailment, it still would be too narrow a test since it would exclude many medical interventions that were useful, proper and/or usual as a response to medical conditions since there might often be an argument that the intervention was not necessary as there were alternatives. If the concept of “need” is watered down any more than that then it really does not add anything to what should be the relevant question: is the treatment for a therapeutic purpose.

The Appellant submitted that if a doctor makes a clinical assessment that a client has a health disorder, and makes a further clinical assessment to treat that health disorder, then the treatment cannot be described as purely cosmetic. Such a supply would have a therapeutic aim and would be exempt. Whilst PFC did not say this in terms, the Appellant submitted that there is no principled basis to treat such a supply differently to the first type of supply described in PFC.

We note that in D v W at [18] the CJEU referred to the purpose of a supply, but not to the principal purpose. It excluded from exemption “medical interventions” carried out for a purpose other than that of diagnosing and treating diseases or health disorders. It therefore contemplated that a medical intervention might have a different purpose. In that case the context was a doctor carrying out genetic testing for court proceedings, but [18] contains a broad statement of principle which has been quoted numerous times in subsequent cases.

Ms Hall KC submitted that one cannot “flip the fact the principal purpose test is embedded in an exclusionary class and put it in the class that is included”. We understood this to mean that d’Ambrumenil was concerned with what would otherwise be an excluded class of cases, which were saved by the existence of a principal purpose which was therapeutic. It is not a test of what supplies would be included in the meaning of medical care.

The Appellant submits that a principal purpose test is inapt for cases of cosmetic care. A purely cosmetic purpose test is more apt because it is consistent with the objective of the exemption and more straightforward to apply in practice, which is a requirement of Article 131 PVD. Any procedure with a therapeutic purpose would be exempt but the following procedures would be purely cosmetic and fall outside the exemption:

We agree that these procedures would fall outside the exemption because there is no therapeutic purpose or because the supplier condition in Item 1 would not be satisfied. However, identifying what falls outside the exemption does not help us to identify what falls within the meaning of medical care and therefore within the exemption. In particular, is it sufficient to have a therapeutic purpose, in the opinion of a medical practitioner and/or as viewed objectively, even though the client is more concerned, perhaps exclusively concerned, with improving her or his appearance rather than with having treatment for a health disorder?

We consider that the CJEU’s reply to the questions referred in PFC was framed by the specific facts of the questions referred. The CJEU was not called upon to consider supplies which might be said to have both a therapeutic purpose and a cosmetic purpose, although it did appear to regard the supplies of plastic surgery as being a “cosmetic treatment”. Hence, it referred at various points to “plastic surgery and other cosmetic supplies”. However, in answering the questions referred at [39] (reproduced at [32] above), it made no reference to “purely cosmetic supplies”. We agree with HMRC’s submission that if the CJEU considered that only purely cosmetic supplies were excluded from exemption then one would expect that to be stated in the answer.

Following the hearing, the parties considered whether we might be assisted by the French language version of PFC. In the event, we do not consider that any assistance can be gained from that version.

The Appellant submitted in its skeleton argument that the client’s understanding of the procedure was irrelevant to the question of whether a procedure amounted to a supply of medical care. However, that submission is inconsistent with PFC. The third question referred to the CJEU was whether, in order to determine the existence of a therapeutic purpose, the subjective understanding of the client must be taken into consideration. The CJEU’s answer to that question at [33] and [34] was not that it was irrelevant, but that it was not in itself decisive. We infer that the CJEU considered that the subjective understanding of the client is at least relevant in determining whether a treatment has a therapeutic purpose. It does not appear that this was limited to cases where a cosmetic procedure was being performed as a response to a psychological disorder. The CJEU also considered at [35] and [36] that the purpose of the service determined by the medical professional may be a relevant factor.

Ms Hall later accepted that the subjective understanding of the client could be used to help determine the purpose of the services. It was part of the evidential matrix together with the status and purpose of the supplier, the intrinsic characteristics of the supply and the nature of the underlying health disorder.

We accept Ms Hall’s later submission on this point. It is difficult to see on the facts of PFC why the subjective understanding of the person who undergoes the procedure would be relevant in identifying a supply of medical care if a therapeutic purpose is all that is required for exemption.

Even if, as the Appellant submitted, the CJEU in PFC was simply saying that it is necessary to exercise caution when taking into account the client’s subjective understanding of the treatment, that understanding remains relevant to the question. Whilst the CJEU did not say in terms that it was necessary to exercise caution, we acknowledge that at [35] the CJEU said that since identifying a therapeutic purpose is “a medical assessment, it must be based on findings of a medical nature which are made by a person qualified for that purpose”. Having said that, the CJEU went on to say at [36] that the fact the services are undertaken by a medical practitioner or that their purpose is determined by that practitioner “may influence the assessment of whether interventions … fall within the concepts of ‘medical care’…”. It did not say that those facts are determinative.

Whilst the reasoning in PFC is not easy to understand, in our view it is tolerably clear that the subjective understanding of the client as to the purpose of the procedure is relevant, but a more significant factor in determining whether a procedure has a therapeutic purpose may be a medical assessment by an appropriately qualified person.

This analysis of the CJEU judgment in PFC is entirely consistent with the approach described in d’Ambrumenil which requires consideration of the principal purpose of a supply. It is also consistent with the requirement to give the exemption a strict construction. However, it is inconsistent with the Appellant’s case that any therapeutic purpose is sufficient, without regard to the purpose or understanding of the client.

The Advocate General in d’Ambrumenil made clear at [66] – [68] in general terms, endorsed by the CJEU at [60], that the “crucial issue” in determining exemption is “the aim of the medical intervention”:

“66.

As regards the question whether a medical procedure is exempt from VAT, then, neither the nature of the medical intervention nor its centrality in terms of the functions of the medical profession is decisive; as the court’s case law on the words ‘provision of medical care’ and art 13A(1)(c) to date makes clear, the crucial issue is, rather, the aim of the medical intervention

67.

In its decision in the case of D v W the Court found, on the basis of a comparison of the various language versions of Article 13A(1)(c), that the term –

‘does not lend itself to an interpretation which includes medical interventions carried out for a purpose other than that of diagnosing, treating and, in so far as possible, curing diseases or health disorders'.

Therefore services 'not having a therapeutic aim' must, in view of the principle that any provision establishing an exemption from VAT is to be interpreted strictly, be excluded from the scope of Article 13A(1)(c) of the Sixth Directive. The Court of Justice has confirmed that case-law in its judgments in the cases of Commission v France and Kügler.

68.

It may therefore be concluded from the case law that, when determining whether a medical procedure is to be exempted from VAT, it is the purpose of the procedure that is decisive. Not all activities carried out by a doctor are exempt – only those having a therapeutic aim.”

It is no answer to say, as the Appellant submitted, that a principal purpose test would be unworkable in the context of a medical practitioner consulting with a client. We do not see why that should be the case. Records can easily be maintained as to the circumstances in which the client consulted the medical practitioner and as to the diagnosis and reasons for the treatment being supplied. The CJEU in PFC rejected objections to a purpose test on the basis that it would be difficult to identify the purpose of a supply. We agree with Ms Black’s submission that supplies potentially falling within the exemption are on a spectrum. At one end of the spectrum are supplies with no cosmetic purpose at all. At the other end of the spectrum are purely cosmetic supplies with no therapeutic purpose. There is nothing objectionable in a principal purpose test which requires consideration of where on that spectrum a supply sits. In most cases the answer will be clear.

It is not the case that there must be a public interest in exempting supplies of medical care where there is a very minor therapeutic purpose in making the supply, but the principal purpose of the supply is cosmetic and the supply falls towards the purely cosmetic end of the spectrum.

In light of the authorities, we are satisfied that the FTT was right to consider that it should seek to identify the principal or primary purpose of the Appellant’s supplies. We do not consider that this aspect of Grounds 1 and 2 establishes any error of law by the FTT.

The discussion of the authorities above also illustrates the approach to be taken in identifying what is meant by the “purpose” or “principal purpose”. This is not determined decisively either by an examination of the motives of the client or the views of the medical professional providing the services, in each case ascertained by objective evidence. Both will be relevant, in particular the latter. This point is discussed further below under Ground 3.

The relevance of commercial and economic reality

Having identified the legal principles to be applied by reference to Mainpay, the FTT stated at [28]:

The Appellant says that the FTT was not bound by Mainpay or any other authority to look at the question of whether the Appellant was making supplies of medical care through the lens of commercial and economic reality. It is said that this led the FTT to disregard or misapply established principles. The Appellant submitted that the FTT should have distinguished the scope of the exemption from whether the particular taxpayer is actually making supplies which meet the requirements of the exemption. That distinction was also identified by the Court of Appeal in Mercy GlobalConsult Limited (in liquidation) v Adegbuyi-Jackson [2023] EWCA Civ 1073 at [28]. It is said that the appeal before the FTT was concerned with the first exercise whereas Mainpay was principally focussed on the latter exercise. That was why the Court of Appeal was concerned with the commercial and economic reality.

The Appellant says that it was the focus on commercial and economic reality that led the FTT to consider the nature of the supplies from the perspective of a typical consumer. Hence the FTT’s conclusions at [68], [69] and [104], quoted above, that clients of the Appellant wanted a cosmetic procedure rather than the diagnosis and treatment of a medical disorder.

The Appellant submitted that the perspective of a typical consumer was relevant in relation to taxable supplies where questions of fiscal neutrality arise and where the issue is single or multiple supplies. In those cases the actual purpose of the consumer in a specific transaction is irrelevant. The concept of a typical consumer cannot be applied to questions of whether a supply falls within an exemption. In relation to the exemption for medical care, it is the actual therapeutic purpose of specific supplies which is relevant.

We accept that it is the actual purpose in relation to a specific supply which is relevant to the principal purpose test. The perspective of a “typical consumer” is not relevant. However, we do not consider that the FTT did consider the perspective of a typical consumer. The FTT did not rely on the perspective of a typical consumer in its reasoning, although it is fair to say that at [35] it did refer to another decision of the FTT in Window to the Womb Limited v HM Revenue & Customs [2020] UKFTT 201 (TC) where it had been common ground that the FTT should seek to identify the principal purpose for which a typical consumer was purchasing the supply.

What the FTT was doing at [68], [69] and [104] was making findings as to the Appellant’s supplies as a whole and what the Appellant’s clients actually wanted by way of those supplies. It is notable that the FTT did not embark on an analysis of the circumstances of specific transactions to see whether those specific transactions consisted of supplies of medical care. It is not clear why that is the case, or whether the parties invited the FTT to make findings in relation to specific sample transactions. There was a suggestion before us that the FTT had been invited to deal with the appeal in principle, setting out a “guiding test”, although that would not explain the absence of any findings in relation to specific supplies.

The Appellant submits that there is no authority on the medical care exemption, either in the CJEU or elsewhere, which requires the scope of the exemption to be determined through the lens of commercial and economic reality.

The FTT was concerned with both the scope of the exemption and whether the Appellant’s supplies fell within that scope. As far as the scope of the exemption is concerned, the principles set out by the Upper Tribunal in Mainpay at [89] were endorsed by the Court of Appeal. Those principles were not controversial in the Court of Appeal on the facts of that case. What was controversial was the question of control and the nature of the supplies. We agree with the Appellant that it was not necessary in the present case to look at the issues through the lens of commercial and economic reality. Commercial and economic reality had a particular role to play on the facts of Mainpay, where the issue concerned the question of control and the legal relationships between Mainpay, its agency clients and the NHS Trust end-users. That is the sort of situation envisaged in HM Revenue & Customs v Airtours Holidays Transport Ltd [2016] UKSC 21 where Lord Neuberger stated at [47] in the context of tri-partite contractual arrangements:

“[47] This approach [of looking at the economic realities of the transaction as a whole] appears to me to reflect the approach of the Supreme Court in the subsequent case of WHA Ltd v Revenue and Customs [2013] UKSC 24, [2013] STC 943, [2013] 2 All ER 907 where at [27], Lord Reed said that ‘[t]he contractual position is not conclusive of the taxable supplies being made as between the various participants in these arrangements, but it is the most useful starting point’. He then went on in paras [30]–[38] to analyse the series of transactions, and in para [39], he explained that the tribunal had concluded that ‘the reality is quite different’ from that which the contractual documentation suggested. Effectively, Lord Reed agreed with this, and assessed the VAT consequences by reference to the reality. In other words, as I said in Secret Hotels2 Ltd (formerly Med Hotels Ltd) v Revenue and Customs Comrs [2014] UKSC 16, [2014] STC 937, [2014] 2 All ER 685 (at [35]), when assessing the VAT consequences of a particular contractual arrangement, the court should, at least normally, characterise the relationships by reference to the contracts and then consider whether that characterisation is vitiated by [any relevant] facts.”

It was submitted that the FTT misunderstood the Appellant’s submissions on the relevance of Mainpay. We cannot see that the FTT did misunderstand those submissions. It appears that the FTT was encouraged to look at the facts through the lens of commercial and economic reality by the Appellant’s own written submissions on Mainpay following the hearing. In those submissions at [10] and [11], the Appellant expressly adopted what the Court of Appeal said at [76] and [78] (reproduced at [38] above):

“10.

The Court of Appeal accepted counsel for HMRC’s submission that whether or not Mainpay’s supplies fell within the scope of the medical care exemption fell to be determined on the facts of the case, judged through the lens of commercial and economic reality (CoA, §78).

11.

The Appellant respectfully agrees with and adopts paragraphs 76 and 78 of the Court of Appeal’s judgment. In particular, the Appellant agrees that the question of whether the medical care exemption is engaged in any given case will turn on the particular facts.”

In any event, whilst the FTT said that it was going to look at the facts through the lens of commercial and economic reality it seems to us that it meant nothing more than that it would take a realistic view of the evidence. That is something any fact-finding tribunal should do and is unobjectionable. It is notable that the FTT made no further reference in the Decision to commercial and economic reality. Further, if a tribunal is applying the correct test, we cannot see that looking at the facts through a lens of commercial and economic reality should make any difference. For the reasons given above we are satisfied that the FTT was not misleading itself in looking at the facts through a lens of commercial and economic reality.

The Appellant says that the lens of commercial and economic reality led the FTT to misapply established principles governing the scope of the exemption. We consider the Appellant’s specific criticisms in that regard under Ground 3. More generally, the Appellant says that in looking at the facts through a lens of commercial and economic reality the FTT wrongly analysed the services by reference to the client’s understanding of what was being provided. For the reasons given above, the FTT was entitled to take into account the client’s understanding of what was being supplied

The Appellant also says that the FTT overlooked the well-established principle that Item 1, in contrast to Item 4 concerning hospital and other care, covers relationships normally established in the consulting room of the person providing the care, and not via formal contractual structures. As we have said above, the question of commercial and economic reality is relevant when analysing contractual relationships. However, the FTT here was taking a realistic view of the evidence. Indeed it did not refer to the contractual relationships at all. It considered the circumstances in which the supplies were made, albeit looking at the supplies as a whole rather than individual supplies

In the circumstances, we do not consider that this aspect of Grounds 1 and 2 establishes any error of law by the FTT.