Mainpay Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Lady Justice Whipple,Lord Justice Nugee,Lord Justice Green |
| Judgment Date | 09 December 2022 |
| Neutral Citation | [2022] EWCA Civ 1620 |
| Docket Number | Case No: CA-2022-000323 |
| Court | Court of Appeal (Civil Division) |
| Year | 2022 |
[2022] EWCA Civ 1620
Lord Justice Green
Lord Justice Nugee
and
Lady Justice Whipple
Case No: CA-2022-000323
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL
(TAX AND CHANCERY CHAMBER)
MR JUSTICE MELLOR AND JUDGE GUY BRANNAN
Royal Courts of Justice
Strand, London, WC2A 2LL
Michael Firth (instructed by direct access) for the Appellant
Sarabjit Singh KC and Jennifer Newstead Taylor (instructed by the Solicitor for HMRC) for the Respondents
Hearing date: 17 November 2022
Approved Judgment
This judgment was handed down remotely at 10am on 9 November 2022 by circulation to the parties or their representatives by e-mail and by release to the National Archives.
Introduction
This is an appeal brought by Mainpay Ltd (“Mainpay”) from the decision of the Upper Tribunal (Mellor J and Judge Guy Brannan) ( [2021] UKUT 0270 (TCC)) dismissing Mainpay's appeal from the First Tier Tribunal (Judge Jonathan Cannan and Mr Julian Stafford) (TC/2016/03030).
The UT determined that Mainpay was liable to VAT at the standard rate when it provided doctors to Accident and Emergency Agency Ltd (“A&E”), an agency which in turn contracted with NHS Trusts. The doctors worked in hospitals run by the NHS Trusts. The relevant supplies were made in the period 1 November 2010 to 31 January 2014, and the amount of VAT in dispute for that period was £164,866.
The issue in the appeal is whether the supplies by Mainpay to A&E were exempt from VAT, as Mainpay argues, as services of medical care falling within the exemption at Article 132(1)(c) of the Principal VAT Directive (2006/112/EC) (“PVD”), implemented into domestic law by Group 7 of Schedule 9 to the Value Added Tax Act 1994 (“ VATA”). HMRC disputes that analysis and seeks to uphold the UT and the FTT who concluded that the services were taxable at the standard rate, as supplies by Mainpay to A&E of staff, not of exempt medical care.
The UT granted Mainpay permission to appeal on all grounds.
Legal Framework
The Directive
The PVD replaced the Sixth VAT Directive (77/388/EC) (“Sixth Directive”). Article 132(1) of the PVD (previously Article 13A(1) of the Sixth Directive) provides for exemption from VAT of certain supplies. Mainpay no longer seeks to rely on limb (b) of Article 132(1), which relates to medical services provided in a hospital setting by a body governed by public law (which it is not). Mainpay now relies only on limb (c) of Article 132(1), which relates to non-hospital medical services:
“1. Member States shall exempt the following transactions:
…
(c) the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned….”
Also relevant is Article 10 of the PVD (previously Article 4(4) of the Sixth Directive) which provides as follows:
“The condition in Article 9(1) that the economic activity be conducted ‘independently’ shall exclude employed and other persons from VAT in so far as they are bound to an employer by a contract of employment or by any other legal ties creating the relationship of employer and employee as regards work conditions, remuneration and employer's liability.”
Domestic Legislation
Section 4(1) VATA provides that VAT is charged on any supply made in the United Kingdom which is a taxable supply. Section 4(2) provides that a taxable supply is any supply which is not an exempt supply.
Effect is given to the exemptions at Article 132(1) by Group 7, Schedule 9 to VATA. Although there was discussion of Item 4 of Group 7 at earlier stages, it is now accepted that Item 4 adds nothing and that this appeal hinges on Item 1 which exempts from VAT supplies which fall within the following description:
“1. The supply of services consisting in the provision of medical care by a person registered or enrolled in any of the following—
(a) the register of medical practitioners; …”.
In this judgment, references to the ‘medical exemption’ are to Article 132(1)(c) read with Item 1(a) of Group 7, Schedule 9 VATA.
Facts
General
The FTT's findings of fact are set out at [24]–[99] of its Decision. In summary, Mainpay employed, or treated as employed, various doctors. 80% of the doctors were consultants and the remaining 20% were GP specialists. All the doctors were registered and regulated as medical practitioners.
The sole shareholder of Mainpay was Simon Harker. He has an accountancy background and is resident in Sark in the Channel Islands. At the relevant time, he was responsible for the day to day running of Mainpay. Various matters were outsourced by Mainpay to UK-based companies, including the operation of Mainpay's payroll (including processing timesheets, invoicing and book-keeping), sales support (day to day employee matters such as maternity pay and pension payments) and sales generation (signing workers up to Mainpay's services). Consultants were generally introduced to Mainpay by a recruitment agency such as A&E, in response to direct marketing or by word of mouth. Mainpay funded its payments to employees from charges to A&E. Those charges comprised the costs of employing the consultants plus a 4% margin. Typically, an agency such as A&E would identify an assignment in an NHS Trust. The agency would introduce a consultant registered with them to that assignment. Rates of pay were generally standard. If the consultant was agreeable to the assignment, A&E would inform Mainpay about it and provide an “Assignment Schedule” to Mainpay, as part of its agreement with Mainpay. The NHS Trust and A&E together determined which consultant would fulfil the assignment, prior to the involvement of Mainpay; the FTT rejected the contrary evidence of Mr Harker who maintained that Mainpay dictated which consultant would provide medical care. The consultant's rate of pay was negotiated between A&E and the NHS Trust; the FTT rejected the contrary evidence of Mr Harker who maintained that Mainpay set the consultant's pay. The FTT found that the only contact Mainpay had with the consultant was in relation to payroll matters. There was no contact between the consultant and Mainpay in relation to medical matters. Mainpay did not arrange professional indemnity insurance either for itself or for its consultants.
The consultants were provided with a Mainpay Employee Handbook. The FTT worked from the 2015 version, earlier versions not being available. That provided at paragraph 1.1:
“Mainpay specialises in providing temporary workers (contractors) to recruitment agencies and end clients … and every year we employ thousands of temporary workers throughout the UK.
We maximise your income, save you time and effort, and provide you with full employment rights.”
Based on the Mainpay Employee Handbook and on two notes of interviews conducted by HMRC with individuals who had been employed by Mainpay in the relevant period, the perception of consultants would have been that Mainpay was providing a tax efficient payroll function in relation to assignments negotiated between the consultants, A&E and the NHS Trusts.
The Mainpay / A&E Contract
A contract between A&E and Mainpay dated 13 March 2012 was in evidence before the FTT (the “A&E Agreement”). No earlier contract was provided, even though the relevant period went back to 2010. By clause 2.1 of the A&E Agreement, Mainpay was obliged to:
“(a) throughout the term of the Assignment supply the Services in accordance with Good Industry Practice at all times taking responsibility for the way in which the Services are performed;
…
(c) comply with all health and safety, site and security regulations applicable at the Locations(s) to the extent that they apply to the type of work required for the provision of the Services.
(d) comply with all the Client's reasonable requirements, regulations, policies and protocols…
(e) comply with the Client's IT security policies…
…
(h) be covered by appropriate professional indemnity insurance in connection with the Services…
(i) supply to [A&E] copies of any relevant qualifications or authorisations that the Supplier and/or the Consultant is required by the Client or by law or any professional body to have in order to provide the Services to the Client.
(j) where necessary, provide at its own cost all such equipment and training for the Consultant as is reasonable for the adequate performance of the Services…”
“Good industry practice” in clause 2.1(a) was defined as the “skill, diligence, prudence, foresight and judgment which would be expected from a suitably skilled and experienced person engaged in the same type of services”.
Clause 2.1(b) provided that Mainpay would provide weekly timesheets to the NHS Trust for approval and return those timesheets to A&E. Subject to that approval, Mainpay would issue invoices for the Services in accordance with the Assignment Schedule.
The Assignment Schedule was included in the A&E Agreement as a blank form. No completed copy was provided to the FTT. There was provision in the blank form for the following details to be entered:
(1) Details of each assignment including start and end date, normal working hours, payment rate and a description of the services to be provided by the consultant.
(2) Details of the client (ie. the NHS Trust) including name, address, contact details and the location at which the services were to be performed.
(3) Details of the consultant, including name, address, contact details and the experience, training and qualifications required.
By clause 6.2 of the A&E Agreement, the agreement could be terminated with immediate effect if the NHS Trust terminated its agreement with A&E or if the NHS Trust cancelled its requirement for the Services prior to...
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