Milton Keynes Hospitals NHS Foundation Trust v R & C Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 July 2020 |
| Neutral Citation | [2020] UKUT 231 (TCC) |
| Date | 23 July 2020 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2020] UKUT 231 (TCC)
Mr Justice Zacaroli, Judge Thomas Scott
David Southern QC, instructed by X-vat Ltd, appeared for the appellant
Valentina Sloane QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
The Upper Tribunal confirmed an FTT decision that HMRC could assess the Trust under s. 73(2) of VATA for VAT overclaimed on contracted out services. The Trust was entitled to claim VAT incurred on non-business activities under s. 41 of VATA and it argued that s. 73(2) applied only to input tax incurred by a taxable person, not to s. 41 claims.
The Trust claimed a refund of VAT incurred on IT expenditure. It considered that the VAT was claimable under s. 41 of VATA which enables government departments (including NHS Trusts) to recover VAT incurred on what are known colloquially as Contracted Out Services (“COS”). The Trust was registered for VAT (as well as non-business NHS activities it had business activities) and claimed VAT on COS on its VAT return.
HMRC considered that The Trust had overclaimed VAT on the IT expenditure and issued an assessment under s. 73(2) of VATA, which reads as follows:
In any case where, for any prescribed accounting period, there has been paid or credited to any person–
- as being a repayment or refund of VAT, or
- as being due to him as a VAT credit,
an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly
The Trust argued that s. 73(2) only applies to input tax incurred by taxable persons and, as the VAT incurred by the Trust on COS was not input tax, it could not apply in this case.
Like the FTT before it, the UT dismissed the Trusts arguments. It held that the question before it was one of statutory construction (see e.g. para. 19). The UT reviewed the wording of s. 73(2) and concluded that The Trust had, on its VAT return (and therefore for a “prescribed accounting period”) claimed a repayment of VAT. Therefore, if HMRC considered that the Trust was not entitled to the reclaim, s. 73(2) provided the necessary statutory authority to issue an assessment.
The UT's decision ends with the following, “We agree with the FTT that the words of the statute are clear and unambiguous, and no amount of contextualisation would warrant the rewriting of those plain words” (para. 29).
The question before the UT was whether or not HMRC could issue an assessment to recover VAT overclaimed under s. 41 of VATA. The question of whether or not the Trust had overclaimed VAT will be the subject of a separate hearing.
[1] With the permission of the First-tier Tribunal (the “FTT”), Milton Keynes Hospitals NHS Foundation Trust (“MKH”) appeals against the decision of the FTT reported at [2019] TC 07158.
[2] MKH is an NHS trust which is entitled, pursuant to regulations made under section 41 Value Added Tax Act 1994 (“VATA”), to make claims to recover from HMRC certain VAT charged on supplies to the trust which were not for business purposes. It claimed and recovered VAT under the regulations in respect of expenditure on IT equipment. HMRC subsequently took the view that MKH was not fully entitled to that refund, and assessed it under section 73(2) VATA for the amount which (according to HMRC) had been overclaimed.
[3] In addition to appealing to the FTT against that assessment, MKH argued that, in any event, HMRC were not entitled to recover any over-payment which may have been made by way of an assessment under section 73. That issue was set down for determination by the FTT as a preliminary issue. The FTT concluded that HMRC did have power to make such an assessment under section 73(2), and MKH appeals against that decision.
[4] Under the EU's Principal VAT Directive, only taxable persons have a right to recover VAT which they incur. A public body such as a Government department, acting in its capacity as a public body, does not have that right (subject to certain exceptions in the Directive which are not relevant here) because it is not acting as a taxable person.
[5] This might cause public bodies to undertake activities in-house which in business terms could most sensibly have been outsourced, simply to avoid the VAT charged by external contractors. In order to avoid such a bias, the UK, in common with some EU Member States, has enacted a regime which permits the reclaim of some such VAT on certain terms. The Directive does not provide for this, but nor does it prohibit it.
[6] The statutory basis for the regime, referred to colloquially as the Contracted Out Services or COS system, is section 41(3) and (4) VATA, which provides as follows:
(3) Where VAT is chargeable on the supply of goods or services to a Government department, on the acquisition of any goods by a Government department from another member State or on the importation of any goods by a Government department from a place outside the member States and the supply, acquisition or importation is not for the purpose–
- of any business carried on by the department, or
- of a supply by the department which, by virtue of section 41A, is treated as a supply in the course or furtherance of a business,
then, if and to the extent that the Treasury so direct and subject to subsection (4) below, the Commissioners shall, on a claim made by the department at such time and in such form and manner as the Commissioners may determine, refund to it the amount of the VAT so chargeable.
(4) The Commissioners may make the refunding of...
To continue reading
Request your trial
-
Milton Keynes Hospitals NHS Foundation Trust v The Commissioners for HM Revenue and Customs
...[2020] UKUT 0231 (TCC) Appeal number: UT/2019/0102 VALUE ADDED TAX – whether HMRC are entitled to make an assessment under section 73(2) VATA to recover an amount of VAT which has been incorrectly refunded under the Contracted Out Services Directions made under section 41 VATA - yes - appea......