First Alternative Medical Staffing Ltd and another v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judgment Date | 04 March 2022 |
| Neutral Citation | [2022] EWCA Civ 249 |
| Year | 2022 |
| Court | Court of Appeal (Civil Division) |
Lady Justice Asplin, Lord Justice William Davis, Mr Justice Zacaroli
Court of Appeal (Civil Division)
Value added tax – nursing agency concession – can it be applied retrospectively – no – appeal dismissed.
The Court of Appeal unanimously confirmed a decision of the High Court that the nursing agency concession could not be applied retrospectively.
This case concerned two appellants who were seeking judicial review of a decision by HMRC not to allow them to use the nursing agency concession retrospectively. The appellants had been assessed for underdeclared output tax in various VAT periods over 2013–2016.
The appellants are employment businesses supplying nurses and other medical staff to clients. During the periods covered by the assessments they had accounted for VAT on the basis that they were supplying staff as agents, i.e. they had only accounted for VAT on the commission element of the charge made to the clients.
In 2004 HMRC had accepted the appellant's agency status but, by 2013, policy in this area had evolved and HMRC considered that they were supplying staff as principle. It was accepted that if the appellants were supplying staff as principle the whole of the charge made to the clients was subject to VAT (i.e. the appellants were not making a VAT exempt supply of medical services).
The appellants appealed the VAT assessments on the grounds that they should be allowed to, retrospectively, take advantage of the nursing agency concession (“NAC”).
The NAC, originally announced in HMRC Brief 40/2010 (published 22 September 2010) and now contained in VAT Notice 701/57 para. 6.6, allows employment businesses supplying medical staff as principle to treat their supplies as VAT exempt. Use of the NAC is subject to conditions, whether or not the appellants met those conditions was disputed, but, as the court's decision did not depend on whether or not they were met, it proceeded on the assumption that they were (para. 11).
The court referred to R (on the application of ELS Group Ltd) v R & C Commrs [2016] BVC 26 which concerned use of the (now withdrawn) staff hire concession. It agreed with the Court of Appeal's decision in that case that “because extra-statutory concessions operate as a decision by HMRC not to collect tax that is statutorily due in respect of supplies actually made, there would need to be clear words for a concession to be given retrospective effect” (para. 44 of this decision, para. 35 of ELS Group).
The NAC contains no express statement that its use can be retrospective and therefore the appellants' case was dismissed.
This decision is a salutary reminder to all taxpayers that they should proactively review all rulings from HMRC on which they rely. The appellants were assessed for just over £2million VAT underpaid in the years 2013–2016. Part of the appellants' argument was that a 2004 letter received from HMRC confirming their agency status gave them a legitimate expectation that VAT was due on a small element of their invoices. The court dismissed this on the grounds that HMRC's subsequent change of policy in relation to employment businesses had been well publicised, e.g. by Briefs published in 2010.
If the appellants had, at a much earlier stage, realised that HMRC's policy had changed, they could have adopted the NAC prospectively rather than trying, and failing, to take advantage of it retrospectively.
Michael Firth (instructed by Morrisons Solicitors LLP) appeared for the appellants
Eleni Mitrophanous QC (instructed by HMRC) appeared for the respondents
[1] The question in this appeal is whether the Appellants can apply an extra-statutory concession made by HMRC, referred to as the “Nursing Agencies Concession” (the “NAC”), retrospectively so as to exempt past supplies from VAT. It arises in the context of assessments relating to the period September 2014 to end of April 2016 in the sum of £221,325 in the case of the first Appellant, 1st Alternative Medical Staffing Ltd (“1st Alternative”), and to the period March 2013 to end of September 2016 in the sum of £1,865,246 in the case of the second Appellant, Delta Nursing Agency (“Delta”) (together, the “Assessments”).
[2] The background is fully set out in the careful judgment of Jason Coppel QC, sitting as a deputy judge of the High Court. The following is a summary sufficient for the purposes of the sole issue raised by this appeal.
[3] The Appellants are employment bureaux which provide nurses and other medical staff (for convenience, “nurses”) on a temporary basis to hospitals and care homes.
[4] When a nurse is placed with a client by the Appellants, the client pays the Appellants a charge per hour which includes both a wage element and a commission element by way of agency fee. The Appellants pay the wage element to the nurse.
[5] Employment bureaux such as the Appellants can choose to adopt one of two business modELS. They can either act as principal in the supply of workers, or as agent making supplies of intermediary services. If the bureau acts as principal, it essentially buys-in the services of the worker and makes their own supply of staff to the client. If the bureau acts as agent, it simply introduces the worker to the client, and it is the worker that provides their services to the client.
[6] At all material times, the Appellants charged and accounted for VAT on the basis that they were acting as agent. The Appellants therefore charged and accounted for VAT on the commission element only of the amounts paid to them by clients. A helpful illustration was provided in the Appellants' skeleton argument:
- Assume that the Appellants charged their client £20 for providing a nurse, of which £12 represents the amount paid to the nurse and £8 represents the Appellants' commission.
- The Appellants charged the client VAT in the sum of £1.60 on the commission element of £8 and accounted to HMRC for that £1.60 of VAT.
[7] The Assessments sought payment of additional VAT on the basis that the Appellants were at all material times acting as principal. It is common ground that the Appellants were in fact acting as principal. Absent any concession by HMRC, and subject to any applicable statutory exemption, an employment bureau acting as principal is liable to account for VAT on the whole of the amount paid to it by its client (in the example above, the whole of the £20 fee charged to the client, resulting in a VAT charge of £4).
[8] Delta had received a letter from HMRC dated 14 January 2004 (the “2004 Letter”) which confirmed that it was correct to charge and account for VAT on the commission element, primarily because Delta was acting as agent for the employment of temporary staff rather than as principal.
[9] The Appellants sought judicial review of HMRC's decisions to assess them to additional VAT, contending among other things that they had a legitimate expectation they would be treated as agents, not principals, arising from the 2004 Letter. The judge held that, while the 2004 Letter was capable of giving rise to such a legitimate expectation, by 2013, as a result of subsequent HMRC public statements, the Appellants could no longer rely on that legitimate expectation. Popplewell LJ refused the Appellants permission to appeal against that aspect of the judge's decision.
[10] The NAC at the heart of this appeal was first set out in HMRC Brief 12/10 on 18 March 2010. The relevant part of it reads as follows:
By concession (HMRC regularly reviews these), nursing agencies (or employment businesses that provide nurses and midwives, as well as other health professionals) may exempt the supply of nursing staff and nursing auxiliaries supplied as a principal to a third party, if the supply is of …
[11] There then follows a list of specific requirements as to the nature of the staff that fall within the concession and further matters with which the agency must comply to qualify for the concession. The judge noted, at [19] of his judgment, that HMRC does not dispute that the Appellants at all material times satisfied those requirements. HMRC say that is wrong, and they have never accepted that the Appellants satisfy the substantive requirements of the NAC. The Appellants contend that HMRC are not now permitted to dispute that those requirements are satisfied. Given my conclusion on the issue raised by the appeal, it is unnecessary to determine this dispute, and I proceed on the assumption that the Appellants do satisfy the substantive terms of the NAC.
[12] The judge concluded that the Appellants could not now rely on the NAC, because it cannot be invoked retrospectively. The Appellants appeal against that aspect of the judge's decision with the permission of Popplewell LJ.
[13] For completeness, the Appellants also contend that their services were exempted from VAT as supplies of medical care, pursuant to the VAT Act 1994 (“VATA”), Schedule 9, Group 7, item 1. HMRC disagree and there is a pending appeal to the First-tier Tribunal on that issue, currently stayed pending the outcome of these judicial review proceedings.
[14] The judge dealt with the NAC issue at [44] to [66] of his judgment. The essential question was one of construction of the NAC: should it be interpreted as enabling a taxpayer to apply it with retrospective effect?
[15] He regarded it as implicit in the purpose and function of the NAC that a trader had a choice whether or not to rely upon it. The NAC could not be construed as requiring HMRC to apply the concession wherever the various conditions for its application were present since, in that situation, there would be two conflicting positions, one of which (by statute) applies by default.
[16] The question was then whether that choice had to be made prior to the relevant supply or may be made retrospectively.
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