Northumbria Healthcare NHS Foundation Trust v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 05 June 2019 |
| Neutral Citation | [2019] UKUT 170 (TCC) |
| Date | 05 June 2019 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2019] UKUT 170 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Mr Justice Henry Carr, Judge Greg Sinfield
Andrew Young, instructed by Lexlaw Solicitors appeared for the appellant
Charles Bradley, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Judicial review – Whether leasing of cars to employees under salary sacrifice scheme is de-supplied by Value Added Tax (Treatment of Transactions) Order 1992 (SI 1992/630) – Whether it would otherwise be economic activity – Whether cars supplied under special legal regime – Whether claim partially time barred.
The UT ruled that an NHS Foundation Trust could recover VAT incurred on cars which it leased to employees under a salary sacrifice scheme. The leasing of cars was de-supplied by the VAT (Treatment of Transactions) Order 1992 and NHS Foundations are entitled to recover VAT incurred on non-business activities under VATA 1994, s. 41(3).
In addition to providing NHS healthcare, the Foundation leased cars through the “NHS Fleet Solution” brand. Cars were leased to other NHS Trusts and to its own employees. This appeal concerned the recoverability of VAT incurred by the Foundation on cars leased to its employees.
The Foundation is permitted to recover VAT incurred on non-business activities under VATA 1994, s. 41(3). As directed by the Treasury in the Contracted Out Services Direction (“COSD”) such claims must be submitted in the “time, form and manner” specified by HMRC.
Regulation 2 of the VAT (Treatment of Transactions) Order 1992 (SI 1992/630), specifies that when an employer leases a car to an employee under a salary sacrifice arrangement this is not a supply for VAT purposes. The Foundation argued that the effect of this de-supply order is that the provision of cars to its employees was a non-business activity and therefore VAT incurred on those cars was recoverable under s. 41(3).
HMRC argued that even though the transactions had been de-supplied they were still part of an economic activity. HMRC further argued that input tax recovery on the purchase and leasing of cars is restricted by reg. 7 of the VAT (Input Tax) Order 1992 (SI 1992/3222).
The UT quoted art. 9(1) of the Principle VAT Directive which states that “any activity … of persons supplying services shall be regarded as “economic activity”” (para. 34). The effect of the de-supply order was therefore that the Foundation was not engaged in business activities when it leased cars to its employees and the VAT was thus recoverable under s. 41(3).
In response to HMRC's argument regarding the inconsistency between the treatment of the Foundation and private businesses which are subject to the Blocking Order, the UT stated that the remedy is not “a strained interpretation of the legislation but an amendment to the De-Supply Order” (para. 37).
The UT thus found in favour of the Foundation and upheld its appeal (subject to consideration of the time-bar, see below). The UT also considered the supplementary points as to whether the leasing of the cars would be an economic activity if its were not for the De-Supply Order (it would be economic activity) and whether the Foundation's leasing of cars was undertaken under a “special legal regime” as referred to in art. 13 of the Principle VAT Directive. The UT agreed with HMRC that, in respect of car leasing, the Foundation was not working under a “special legal regime”.
Finally, the UT had to consider whether any part of the claim was time-barred. The normal four-year cap contained in s. 80(4) VATA 1994 does not apply to claims made under s. 41(3). s. 41(3) and the COSD give HMRC direction to apply time-limits and the effect of HMRC guidance as published was that claims could not be made before 1 October 2012. The Trust challenged the way in which HMRC had exercised its discretion and had made a claim back to 1 January 2012. The UT ruled that HMRC's time limit was reasonable and the early part of the Foundation's claim was therefore time-barred.
HMRC's position was, in essence, that the input tax block which applies to motor cars should apply to both the private and the public sector. However, as the UT pointed out, if the law permits a claim to be made by a public sector body which would not be available to a private sector body, the answer to this inequity is to amend the law.
The case had not been heard by the FTT before the UT because the Foundation requested a judicial review of HMRC's refusal to refund VAT, it did not appeal the decision to the FTT. Claims made by Government Departments under VATA 1994, s. 41(3) are not included in the appealable matters listed in VATA 1994, s. 83.
[1] The Claimant, Northumbria Healthcare NHS Foundation Trust (“the Trust”) seeks judicial review of the refusal by the Defendants (“HMRC”) to refund an amount of VAT on a claim (“the Claim”) made by the Trust under s41(3) of the Value Added Tax Act 1994 (“VATA94”).
[2] The Trust made the Claim by a letter dated 31 March 2017, signed by its executive director of finance, Mr Paul Dunn. The VAT claimed had been incurred by the Trust in respect of leased and maintained cars. The Trust acquired the cars for the purpose of providing them to its employees and to employees of other NHS Trusts in the same divisional VAT registration (akin to VAT grouping) under a salary sacrifice scheme (“the Car Scheme”). The Claim was for VAT of £14,066,191 incurred on the supply of leased and maintained cars between 1 January 2012 and 31 January 2017. During that period, HMRC had refunded VAT incurred by the Trust on the supply of the cars but restricted the Trust's recovery to 50% of the VAT incurred. The Claim sought a refund of the remaining 50% of the VAT incurred.
[3] In a decision dated 19 January 2018 (“the Decision”), Mr Kevin Gair of HMRC rejected the Claim. The entitlement to a refund of VAT under s41(3) VATA94 is subject to the condition that the VAT has not been incurred for the purpose of any business carried on by the body claiming it. HMRC considered that the Trust was not entitled to a refund under s41(3) because the Car Scheme was a business carried on by the Trust.
[4] HMRC also contended that, if the Trust were entitled to any refund, the amount payable would be subject to a four year time limit. It was agreed that the four year period had been extended by HMRC guidance which had permitted claims back to 1 October 2012. HMRC maintained that, even if the Trust's arguments were upheld, the amount claimed for the period from 1 January 2012 to 30 September 2012 would be time barred.
[5] This is the type of issue that one might expect to be dealt with at first instance by the First-tier Tribunal (Tax Chamber). However, it was common ground that a claim under s41(3) did not fall within the scope of s83(1) VATA94 or any other provision conferring a right to appeal. In the absence of a statutory right of appeal, the Trust applied for permission to apply for judicial review of the Decision. On 25 July 2018, Whipple J granted the Trust permission for judicial review on the following grounds:
- HMRC erred in law in concluding that the Car Scheme constituted a business activity of the Trust such that s41(3) VATA94 was not engaged (the Business or Economic Activity Issue);
- the Decision breached the Trust's legitimate expectations (the Legitimate Expectation Issue); and
- HMRC erred in law in imposing a four-year cap, as extended by the HMRC guidance, on the Trust's Claim (the Time Bar Issue).
[6] If the Trust succeeds on the Business or Economic Activity Issue, there is no need for us to consider the Legitimate Expectation Issue as the Trust will have succeeded in its claim. The Time Bar Issue only arises if the Trust succeeds on either Issue 1 or Issue 2.
[7] Article 2(1)(c) of Council Directive 2006/112/EC (the Principal VAT Directive or “PVD”) provides that supplies of services for consideration within the territory of a Member State by a taxable person acting as such are subject to VAT. Article 9(1) of the PVD defines “taxable person” as any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity. The same article provides that “any activity of … persons supplying services shall be regarded as “economic activity”.”Article 24(1) states that any transaction which is not a supply of goods is a supply of services.
[8] Article 13(1) of the PVD provides, so far as is relevant:
States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.
However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.
…
[9] The provisions of the PVD have been implemented in UK law by the VATA94 and regulations made under it.
[10] Under powers now contained in s5(3) VATA94, the Treasury is able to provide by order that, among other things, any transaction described in the order is to be treated as neither a supply of goods nor a supply of services. The Treasury used its power to make the Value Added Tax (Treatment of Transactions) Order 1992 (“the De-Supply Order”). Article 2 of the De-Supply Order provides:
Where an employer gives an employee a choice between:
- a particular rate of wages, salary or emoluments, or
- in the alternative, a lower rate of wages, salary or emoluments and, in addition, the right to the private use of a motor car...
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