An NHS trust has succeeded in its judicial review against a HMRC decision to refuse it a VAT refund in respect of consumables provided to it as part of a contract for managed surgical theatre facility services. The review was conducted by the Upper Tribunal (The King (on the application of Gloucestershire Hospitals NHS Foundation Trust) v HMRC [2023] UKUT 28 (TCC)).
The Gloucestershire Hospitals NHS Foundation Trust (“the Trust”) entered into a contract with Genmed.Me Limited (“Genmed”). Genmed would provide the Trust with managed surgical theatre facility services. The Trust claimed relief under List 2, Heading 45 of the Contracted-Out Services Direction (COSD) for healthcare facilities as permitted by VATA 1994, s. 41(3), which allows for refunds of VAT on contracted-out expenditure relating to the operation of healthcare facilities and the provision of any related services. HMRC accepted the claim but denied the refund in respect of supplies of single use items (such as sutures, bandages and gauze) and prostheses supplied as part of the package (“consumables”), arguing that they were a separate supply not covered by COSD.
As there was no right of appeal against the decision, the Trust sought a judicial review on four separate grounds:
- Ground 1 – COSD was separate to the existing body of VAT law and, as such, recourse to established detailed law was not required – the claim should be considered simply in its entirety.
- Ground 2 – Title to the consumables did not pass to the Trust so there was no supply of goods. However, if there were deemed to be a supply of goods alongside a supply of services then this should be treated as a single supply and not a multiple supply, thus all VAT incurred should be refundable.
- Ground 3 – If there were judged to be a multiple supply then, per COSD, the provision of the consumables were “closely related” to the qualifying supply and as such should be allowed as part of the claim.
- Ground 4 – HMRC had adopted differential and inconsistent treatment for contracted out theatre services between different trusts, as such its treatment of the Trust was unfair, irrational and an abuse of power.
The UT judged as follows:
Ground 1
The concept of the supply of goods or services present in COSD was no different from the normal concept of supply of goods or services. Established VAT law and principles therefore applied.
Ground 2
The Trust did acquire legal title to the consumables and the right to dispose of them hence there was a supply of goods for the purposes of VAT alongside a supply of services.
However, application of case law principles established that there was a single and not a multiple supply. One significant factor was that the value to the Trust was the provision of the whole package of services, support and expertise that Genmed provided. The value to the Trust would be greatly diminished if the Trust were required to separately procure the consumables and equipment.
The claim therefore succeeded, HMRC’s position was held to be unlawful and as such all VAT was recoverable.
Ground 3
As the review had succeeded on Ground 2 there was no need for the UT to consider the exact degree of association required for supplies to be considered “closely related” per COSD. As the supply was held to be a single one then all the elements were clearly closely related.
Ground 4
Although now academic, HMRC sought clarification on this point. The Trust was aware from their advisers (KPMG) that a similar case had received a favourable outcome from HMRC and this had been drawn to HMRC’s attention. Despite this, HMRC had chosen to treat the Trust in a different and unfavourable way and this was therefore considered by the Trust to be irrational and unfair.
However, although HMRC had been alerted to the existence of the agreement, due to client confidentiality issues KPMG did not provide them with copies of the relevant documents. HMRC took reasonable efforts to locate them in their own records but were unable to do so.
As the HMRC officers concerned did not have conclusive proof that the cases were similar enough to be treated identically then they were not consciously aware that they were guilty of differential or unequal treatment. It was therefore reasonable for HMRC to decide the Trust’s case on its own merits and in doing so they had not acted in an irrational or unreasonable way.
https://www.bailii.org/uk/cases/UKUT/TCC/2023/28.pdf
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