Commissioners of Customs and Excise v Reed Personnel Services Ltd
| Jurisdiction | England & Wales |
| Judgment Date | 13 April 1995 |
| Date | 13 April 1995 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Laws J.
Paul Lasok QC (instructed by the Solicitor for Customs and Excise) for the Crown.
David Milne QC and and Andrew Hitchmough (instructed by Reed Personnel Services) for Reed.
The following cases were referred to in the judgment:
Associated Provincial Picture Houses Ltd v Wednesbury CorpELR[1948] 1 KB 223
C & E Commrs v MacHenrys (Hairdressers) Ltd and MacHenrys II (a firm) VAT[1993] BVC 43
C & E Commrs v Music and Video Exchange LtdVAT[1992] BVC 30
Potter & Anor (t/a P & R Potter Wholesale) v C & E Commrs VAT(1984) 2 BVC 200,015
R v Spens WLR[1991] 1 WLR 624
Value added tax - Exempt or taxable supplies - Nursing agency - Temporary nurses provided to NHS - Whether agency supplied nursing services performed vicariously by the nurses or whether nurses were supplied to NHS by agency as intermediary - Whether exempt supply of nursing services - Value Added Tax Act 1983, Sch. 6, Grp. 7, item 1 (Value Added Tax Act 1994 schedule 9 group 7Value Added Tax Act 1994, Sch. 9, Grp. 7, item 1).
This was an appeal by Customs against a decision of the tribunal(LON/91/1035) No. 11,065; [1994] BVC 1432 that a nursing agency providing temporary nurses for National Health Service (NHS) hospitals made taxable supplies of administrative services rather than exempt supplies of nursing services.
Most of the nurses provided to hospitals by Reed were NHS employees coming to Reed for extra work. The documents comprising the contractual arrangements for the provision of nurses fell into two groups: the contract entered into between Reed and each nurse and the contract between Reed and the health authority.
The contract with the nurses was set out in the "Conditions of Work for Temporary Workers" which provided for a degree of control by Reed over the nurses' activities. It stated that the nurses were self-employed, although Reed was obliged to deduct PAYE and National Insurance contributions under the Income and Corporation Taxes Act 1988, s. 134. It was also stated that the nurse "shall be deemed to have accepted the normal common law duties of an employee as far as they are reasonably applicable" but did not specify who was the employer.
Under the contracts between Reed and the health authorities, the authority was to make payments of commission to Reed and was not to make payments directly to the nurses for their remuneration. Such payments were made separately to Reed. The rates of pay were calculated by reference to national agreements, not negotiable between Reed and the health authority.
Customs maintained that, on the facts, the supplies made by Reed to the hospitals were supplies of nursing services and were thus exempt supplies under the Value Added Tax Act 1983, Sch. 6, Grp. 7, item 1(d) or 4.
Reed took the view that it merely acted as a recruitment agency supplying an introductory service and other associated obligations which did not include the provision of nursing services as such. Such supplies would not be exempt, so that Reed would be entitled to deduct all associated input tax from its VAT bill.
The VAT tribunal, allowing Reed's appeal against assessment based on exempt supplies, held that the nursing services were supplied by the nurse and not by Reed. Reed supplied administrative services as agent for the health authority, the consideration for those supplies being the commission which it received.
Customs identified three archetypes of contractual relationships involving three parties: where A was contractually bound to provide services to B, but did so by means of the acts of a third party, C (the "vicarious performance" situation); where C as agent for A entered into a contract obliging A to provide services to B (the "agency situation"); and where A acted no more than as an intermediary between C and B, introducing the two so that C might enter into a contract by which he undertook to provide services to B (the "intermediary situation").
Customs contended that the tribunal had erroneously classified the relationships of the relevant parties as falling within the "intermediary" situation, whereas in truth, on the correct construction of the contractual documents, they fell within the "vicarious performance" situation. The case depended on the construction of the contractual documents, and that was a question of law which the court could determine.
Held, dismissing Customs' appeal:
1. The fact that income tax on the nurses' remuneration had to be accounted for by Reed under Sch. E by virtue of the Income and Corporation Taxes Act 1988, s. 134 did not assist Customs. That provision deemed the worker to be employed, and if the nurses were in fact employed by Reed, there would be no room for it to operate as the nurses would be assessable under Sch. E in any event. The intention was that the nurse should be treated de facto as an employee of the health authority while working on an assignment placed by Reed.
2. The obligations on Reed were to make available nurses, and therefore in common sense, nursing care to the hospitals. However, it did not follow that for the purposes of VAT, Reed, as opposed to the nurses themselves, supplied nursing care. The concept of "supply" for the purposes of VAT was not governed by private contractual obligations. There might be cases where three parties were concerned in which the contract's definition of their private law obligations neither catered for nor concluded the statutory question, what supplies were made to whom. Taken as a whole, the contractual documents indicated that Reed was supplying nurses, not nursing services.
3. The tribunal had relied on the documents but in the end their decision depended on an overall view of the facts, which could not be overturned by the court unless it was unreasonable. The tribunal's view of the facts that Reed supplied nurses, who in turn supplied their services to the hospitals, could not be regarded as unreasonable.
Customs appealed against a decision of the London VAT tribunal (chairman Mr R K Miller CB) released on 31 August 1993. The grounds of the appeal were that the tribunal had erred in law in holding that Reed Personnel Services Ltd provided exempt supplies of nursing services rather than taxable supplies of temporary nurses to NHS hospitals.
Laws J: This is statutory appeal brought by Customs against a decision of the VAT tribunal released on 31 August 1993. Before the tribunal were appeals by the respondents ("Reed") against:
(2) a ruling given by Customs on 8 January 1990 to the effect that Reed acted as principal in the supply of temporary nurses to hospitals, and
(3) a consequential notice of assessment.
Customs contended before the tribunal that as respects the provision of nurses to the hospitals Reed were making exempt supplies within the meaning of s. 17 and Sch. 6, Grp. 7, item 1(d) or 4 of the Value Added Tax Act 1983. If that contention was correct, it is common ground that Reed were not entitled to deduct input tax arising in relation to such supplies from their output tax. Customs had, in accordance with their view of the matter expressed in the ruling under appeal, declined to allow such...
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