General Healthcare Group Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 19 July 2016 |
| Neutral Citation | [2016] UKUT 315 (TCC) |
| Date | 19 July 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
The Hon Mr Justice Henderson, Judge Sinfield
Sam Grodzinski QC, counsel, instructed by Deloitte LLP, appeared for the appellant
Owain Thomas QC and Matthew Donmall, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Fitting of prostheses with medical care – Whether single composite supply or multiple separate supplies – Company's appeal dismissed.
The Upper Tribunal (UT) dismissed the company's appeal against the decision of the First-tier Tribunal (FTT) ([2014] TC 04176) that the supply of prostheses formed part of a single exempt supply of medical care.
The Appellant (“GHG”) ran hospitals. The dispute concerned GHG's supplies to patients of appliances, such as artificial hips and pacemakers (“prostheses”), and other supplies directly attributable to the fitting or implanting of those prostheses. Supplies of such prostheses were zero-rated at the time (under the then Value Added Tax Act 1983, Sch. 5, Grp. 14). However, supplies of medical care in a hospital and, in connection with it, the supply of any goods, were (and remain) exempt. The classification of GHG's supplies determined whether it may recover input tax incurred between 1 April 1973 and 31 March 1987 in relation to the purchase and implanting of prostheses.
GHG contended that it made separate zero-rated supplies of prostheses, so that the input tax was recoverable. HMRC contended that GHG made exempt supplies of medical care, of which the supply of prostheses was a component element, so that the input tax was not recoverable.
GHG's claim had been stayed behind the lead case Nuffield Health TAX[2013] TC 02697, where the First-tier Tribunal (FTT) had held that Nuffield Health had made a single supply of medical care. Nuffield Health did not appeal against the FTT's decision. Thus, GHG applied not to be bound by that decision. The FTT refused that application because, in the absence of any distinguishing facts, the decision in Nuffield bound GHG ([2014] TC 03488 and [2014] TC 04176). This case concerns GHG's appeal from the FTT to the UT.
GHG argued that the FTT in Nuffield had erred in holding that the supply of prostheses formed part of a single exempt supply of medical care, rather than an independent zero-rated supply.
HMRC argued that subsequent case law meant that GHG could not rely on C & E Commrs v Wellington Private Hospital Ltd VAT[1997] BVC 251, where the Court of Appeal held that the supply of installing prostheses, as well as the services necessary for that installation, was zero-rated.
The UT decided to consider the facts of GHG's case and not be confined to the facts found by the FTT in Nuffield.
The UT suggested that it may no longer be necessary to consider cases that were decided before Levob Verzekeringen BV v Staatssecretaris van Financiën ECASVAT(Case C-41/04) [2007] BVC 155, which restates and explains the principle in Card Protection Plan Ltd v C & E Commrs ECASVAT(Case C-349/96) [1999] BVC 155 (“CPP”). Such earlier cases can be considered, but only in the light of Levob (para. 34 of the decision).
In Wellington, Millett LJ concluded that, where the elements of a transaction are not in a principal/ancillary relationship with each other, then each is a separate supply. The UT rejected that conclusion following Levob, where different elements of a transaction were found to be equally important and essential, i.e. they were principal elements, but were nevertheless components of a single supply. The principal/ancillary test is merely one example of a transaction where the elements are so closely linked that they form, objectively, a single, indivisible economic supply which it would be artificial to split (para. 59 of the decision).
The UT held that the FTT in Nuffield had correctly concluded that Millett LJ's approach in Wellington was no longer correct after Levob, because it was based on the incorrect premise that the different elements must be in a principal/ancillary relationship to form a single supply (para. 60 of the decision).
The UT held that, when determining whether a transaction should be regarded as several distinct supplies or a single supply, the court must consider the essential features of the transaction from the viewpoint of a typical consumer. The ability of the customer to choose whether to be supplied with an element is an important factor in determining whether there is a single supply, or several independent supplies (para. 71 of the decision).
The UT held that the test, as set out in Levob, is not whether the element is closely linked to a supply by another person, i.e. the consultant, but whether there is a single indivisible economic supply of the different elements by the first supplier, i.e. GHG (para. 72 of the decision).
The UT held that every supply must normally be regarded as distinct and independent, although a supply which comprises a single transaction from an economic point of view should not be artificially split. The transaction between GHG and a typical patient was a single transaction from an economic point of view, because the evidence showed that, whether payment was by the patient or an insurer, GHG charged for the supply of the prostheses and associated hospital care together in one invoice, or series of invoices. The fact that GHG's invoices to the patients itemised the cost of the prosthesis, as well as other items, was not significant (para. 73 of the decision).
The UT held that the supply of the prosthesis and other services and goods supplied by GHG to the typical patient were so closely linked that they formed a single, indivisible economic supply, which it would be artificial split (para. 74 of the decision).
The UT held that the supply of the medical care and the prosthesis by GHG were inseparable and indispensable, because each was necessary for the other and meaningless without the other. In reality, the patient could not choose to be supplied with medical care, but not a prosthesis or vice versa. The prosthesis was chosen by the consultant and the patient's choice was limited to deciding whether to have it implanted, and possibly in which hospital to have the surgery. Once that choice had been made, the patient could not choose to have the prosthesis without the hospital and medical care, nor could the patient choose to receive the care without having the prosthesis (para. 76 of the decision).
In dismissing GHG's appeal, the UT held that GHG made a single supply of hospital and medical care, which included providing the prosthesis to be fitted (para. 77 of the decision).
This dispute concerned a transaction, which comprised several elements, and whether it was a single supply or multiple supplies for VAT purposes. Although the principles are established and have been considered in a wide range of cases, their application to particular facts continues to be disputed where the VAT at stake is significant. A typical patient, who needs an artificial hip, does not wish to purchase only a prosthesis, but wants both a new hip and the related services. The UT's decision may be appealed, but the chances of success seem limited.
[1] This is another appeal on the subject of whether a transaction which comprises several different elements should be regarded as a single supply or several distinct and independent supplies. Although the principles are now well established and have been restated in a number of decisions, their application to particular facts continues to bring appeals before the tax tribunals and courts.
[2] This case concerns the VAT treatment of supplies made by the Appellant (“GHG”) to patients of medical or surgical appliances such as artificial hips and pacemakers, referred to below as “prostheses”, and other supplies directly attributable to the fitting or implanting of those prostheses. Supplies of such prostheses were zero-rated for VAT at the relevant time, whereas supplies of medical care in a hospital and, in connection with it, the supply of any goods, were (and remain) exempt. The significance of the classification of GHG's supplies is that it determines whether GHG is entitled to recover (in principle, and subject to quantification issues which are yet to be determined) input tax of £3,279,582 said to have been incurred between 1 April 1973 and 31 March 1987 in relation to the purchase and implanting of prostheses. GHG contends that it made separate zero rated supplies of prostheses so that the input tax is recoverable, whereas HMRC contend that GHG made exempt supplies of medical care of which the supply of prostheses was merely a component element so that the input tax is not recoverable.
[3] GHG's claim was one of 215 materially identical claims made in reliance on the decision of the Court of Appeal in C & E Commrs v Wellington Private Hospital Ltd VAT[1997] BVC 251 (“Wellington”), which decided that the provision of prostheses to in-patients in private hospitals were zero-rated supplies for VAT, rather than a component element of a single exempt supply of hospital and medical care services. HMRC refused these claims on the basis that, in light of subsequent European and domestic jurisprudence, Wellington was wrongly decided. As all the appeals raised common issues of law, one of the appeals, an appeal by Nuffield Health, was designated as the lead case under rule 18 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the FTT Rules”). The other cases, including GHG's appeal, were stayed behind Nuffield Health's appeal. On 8 May 2013, the FTT issued a decision, Nuffield Health TAX[2013] TC 02697 (“Nuffield”), holding that Nuffield Health had made a single supply of medical care and dismissing the appeal.
[4] Nuffield Health did not appeal against the FTT's decision. GHG applied under...
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