The First-tier Tax Tribunal (FTT) has issued its decision in this case relating to the VAT treatment of supplies of locum doctors. Rapid Sequence Ltd (the company) was an employment business supplying locum doctors to National Health Service (NHS) hospitals as a principal. The Company paid the locum doctors an agreed hourly rate, and, in turn, it received a payment from the NHS for the provision of these services. The FTT was required to determine whether the Company was providing an exempt supply of medical services, or, as HMRC argued, a taxable supply of staff.
The FTT considered that although the services provided by the Company came within the plain meaning of the relevant UK legal provisions – which allows for the exemption of the supply of a deputy for registered medical practitioners – that law must be considered in conjunction with the EU’s Principal VAT Directive. The Directive provides that Member States shall exempt “the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned”. The FTT found that the Company was not providing “medical care” as it had no control over the locums, who were supervised by the NHS hospitals.
Therefore, it deemed the supply by the Company to the NHS to be a supply of staff and not medical care.
The FTT concluded that the provisions of UK VAT Law go beyond the scope of the exemption for medical care permitted by the Directive. To be consistent with EU law it therefore decided that UK law must be interpreted as meaning exemption should only apply to “the provision of [medical care services provided by] a deputy for a person registered in the register of medical practitioners”. Following this revised wording, the FTT concluded that the Company was not providing medical care services, but supplying staff, and therefore rejected the Company’s appeal.
Comment – Despite the loss for the tax payer, this decision may represent an opportunity for the NHS Trusts and other users of locum doctors. The FTT decision highlights that HMRCs previous interpretation of the UK law was overly restrictive. In addition, the Tribunal’s conclusion around conforming interpretation from EU Directive to local legislation appears open to challenge. In light of the sums involved, it is likely that the underlying arguments will not rest here. We suggest that all users of locum staff review their position with a view to submitting protective claims where appropriate.