Milton Keynes Hospitals NHS Foundation Trust v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Neutral Citation | [2021] EWCA Civ 942 |
| Year | 2021 |
| Court | Court of Appeal (Civil Division) |
[2021] EWCA Civ 942
Lord Justice Lewison, Lady Justice Asplin and Sir Timothy Lloyd
Court of Appeal (Civil Division)
Value added tax – NHS Trust – New computer system – Refund under VATA 1994, s. 41 – Whether a taxable person – Whether HMRC entitled to assess under VATA 1994, s. 73(2) – Yes – Appeal dismissed.
The Court of Appeal upheld the previous decision of the Upper Tribunal (UT) that HMRC were entitled to assess the Trust, under VATA 1994, s. 73(2), for amounts wrongly refunded under VATA 1994, s. 41.
The Court of Appeal upheld the decision of the Upper Tribunal (UT) in Milton Keynes Hospitals NHS Foundation Trust v R & C Commrs [2020] BVC 540.
The principal activity of the Trust was the provision of free at the point of use medical services for the NHS. They were not supplies for consideration and, under the ordinary system of VAT accounting, the Trust was not entitled to deduct input tax on those supplies. The Trust also makes some supplies which come within the scope of VAT (for example, catering and parking) and is therefore registered for VAT as a taxable person.
The Court of Appeal noted that not being able to recover the VAT element of supplies charged by third parties for the purpose of their public functions was seen as a disincentive for public bodies to use outside contractors. To remove this disincentive, Parliament enacted VATA 1994,s. 41 which allowed the Treasury to make the Contracted Out Services Direction, effective from 2 December 2002.
The Direction provided for a refund of COS VAT to be paid subject to the requirements of HMRC. The relevant requirements were set out in HMRC's Guidance Notes for Government Departments and included the requirement to register for VAT to make a claim under s. 41. The claims were to be made on the monthly VAT100 returns, within certain time limits and using a special form attached to the VAT100.
The Trust had been refunded an amount related to a new computer system under s. 41. HMRC took the view it was incorrectly claimed and issued an assessment under VATA 1994, s. 73.
The Trust argued HMRC's power to assess under s. 73 did not apply since the effect of the Principle VAT Directive (EC Directive 2006/112) was to put a public body performing statutory (non-business) functions outside the scheme of VAT. In other words, s. 73 could only apply to VAT incurred by a person when acting as a taxable person and could not therefore apply to refunds of COS VAT.
Lord Lewison pointed out the public sector refund schemes were not part of the European framework. They were purely domestic provisions enacted to encourage public authorities to outsource the provision of services. It would not serve that policy to permit a public authority to retain an amount to which it was not properly entitled.
The purpose of s. 73(2) was to recover for the Exchequer money which had been wrongly paid away. He agreed with both the FTT and UT that s. 73(2) applied where a refund had been made to “any person”.
The Trust, however, was a taxable person and made a claim for a refund of COS VAT on the same form as the ordinary VAT return by reference to prescribed accounting periods. All those bodies who made claims for refunds of VAT under s. 41 were registered for VAT. They were outside the European framework for VAT but they were within the domestic framework and, at least for the purpose of participating in the refund scheme, were taxable persons.
The interpretation contended by the Trust would undermine the policy underlying both the scheme for refunding COS VAT and the policy of ensuring that a public sector body does not retain more than its fair share of public funds.
Appeal dismissed.
The Court of Appeal were not asked to consider if the Trust had, in fact, overclaimed a refund in relation to their new computer system. They were only concerned with whether or not HMRC were entitled to issue an assessment, under VATA 1994, s. 73(2) in relation to a refund made to the Trust under VATA 1994, s. 41 and they emphatically agreed with both the FTT and UT that was the case.
David Southern QC & Denis Edwards (instructed by Clyde & Co LLP) appeared for the appellant
Valentina Sloane QC (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents
[1] The issue on this appeal is whether HMRC are entitled to raise an assessment under section 73(2) of the Value Added Tax Act 1994 (“VATA”) on Milton Keynes Hospitals NHS Foundation Trust (“the Trust”) claiming repayment of amounts wrongly refunded to the Trust under section 41 of VATA. The amount in issue relates to VAT paid by the Trust in relation to a new computer system, which it reclaimed from HMRC. HMRC take the view that it was wrongly claimed and seek to recover the amount in question. Whether HMRC are right or wrong about that is not the question before us. The question is whether they are entitled to invoke section 73(2) at all. Both the FTT (Judge Mosedale) and the UT (Zacaroli J and Judge Scott) decided that they were. The decision of the UT is at [2020] BVC 540. Having heard argument on behalf of the Trust, we announced that we would dismiss the appeal with reasons to follow. These are my reasons for joining in that decision.
[2] As is well-known the origins of VAT lie in Europe. The scheme applicable is contained in Council Directive 2006/112/EC (“the Principal VAT Directive”). Article 2 defines the transactions that are subject to VAT. They include:
- (a) the supply of goods for consideration within the territory of a Member State by a taxable person acting as such
- (c) the supply of services for consideration within the territory of a Member State by a taxable person acting as such
[3] Another of the key concepts is a “taxable person”. That expression is defined...
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The King (on the Application of Gloucestershire Hospitals NHS Foundation Trust) v The Commissioners for HM Revenue and Customs [2023] UKUT 00028 (TCC)
...generally and COSD 45 in particular is helpfully set out by the Court of Appeal in Milton Keynes Hospitals NHS Foundation Trust v HMRC [2021] EWCA Civ 942, [2021] STC 1395 (‘Milton Keynes’) at [18] to “18. The important point, however, is that the public sector refund schemes are not part o......