Pearl Chemist Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 April 2019 |
| Neutral Citation | [2019] UKFTT 264 (TC) |
| Date | 23 April 2019 |
| Court | First Tier Tribunal (Tax Chamber) |
[2019] UKFTT 264 (TC)
Judge Marilyn McKeever, Mr John Adrain
Mr Tarlochan Lall Counsel, instructed by MHA MacIntyre Hudson, appeared for the appellant
Mr Peter Mantle, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Zero rating – Dispensing of medicines – Prescriptions written by UK registered and non-UK registered doctors – Different VAT treatment – Interpretation of registered medical practitioner – UK and EU approaches to construction – Application of EU principle of fiscal neutrality – Marleasing confirming construction.
The FTT considered whether a pharmacy could zero rate prescription drugs if the prescriptions were written by an EU doctor who was not registered with the UK General Medical Council (“GMC”).
Pearl runs a small chain of high street pharmacies. It also has contracts with two online health companies specialising in hair loss, weight loss and erectile dysfunction treatments. Patients were subject to online screening and the results were reviewed by a doctor who would then prescribe drugs as appropriate. The prescriptions were sent electronically to Pearl and, after the prescription had been reviewed by a pharmacist, the drugs were dispatched to the customer.
Pearl zero rated the sale of the prescribed drugs but, following a VAT inspection, HMRC noted that some prescriptions were written by doctors from other EU countries. HMRC issued a VAT assessment on these sales on the basis that zero rating only applied if the prescription was written by a doctor registered with the GMC.
VATA 1994, Sch. 8, Grp. 12, item 1 permits prescription drugs to be zero rated when they are prescribed by an “appropriate practitioner”. Note 2B, ibid, defines an “appropriate practitioner”, inter alia, as a “registered medical practitioner”. “Registered medical practitioner” is defined in the Interpretation Act 1978 as someone who is registered to practice with the GMC.
Pearl argued that the legislation is “always speaking” and should be interpreted constructively. The intention of the legislation was that only lawful prescriptions could qualify for zero rating and the term “registered medical practitioner” should be interpreted in this light. There was no debate that the EU doctors writing prescriptions were lawfully prescribing drugs. HMRC's counter argument was that the law, as written, restricted zero rating to doctors registered with the GMC.
The FTT considered both views and the decision contains a useful review of case law concerning statutory interpretation. The FTT's conclusion was that HMRC's argument was preferable, “registered medical practitioner” is a technical term defined by statute so there is no room to apply the “always speaking” principle. Therefore, under UK law, zero rating did not apply to prescriptions written by doctors who were not registered with the GMC.
Pearl's secondary argument was that this conclusion resulted in a breach of fiscal neutrality which requires that “two supplies that are similar in the eyes of the consumer [should be] taxed in the same way” (para. 107). The FTT considered this point and reviewed EU case law concerning the principle of fiscal neutrality and when similar supplies can and cannot be taxed differently.
The FTT concluded that, in this case, “the supplies of medicine dispensed on the prescriptions of [the UK and EU doctors] were similar or identical from the customers' perspective and met the same needs”. There was, therefore, “a prima facie breach of fiscal neutrality” (para. 148) for which there was “no objective justification” (para. 159).
The FTT reviewed case law how to construe UK legislation in a way that is compatible with EU law. The FTT was reminded that one condition of construction is that it must not “make a decision for which it is not equipped or which gives rise to practical repercussions it is not equipped to evaluate” (para. 187).
The FTT concluded that it could neither impose a different meaning on the statutory definition of “registered medical practitioner” or insert additional categories to cover non UK registered doctors. Although there was a breach of fiscal neutrality, there were constraints which prevented it interpreting the zero rating provisions in a way which avoided this breach. As a result, the FTT “was unable to provide an effective remedy” (para. 193) and Pearl's appeal was dismissed.
Pearl will be, justifiably, extremely disappointed in this decision. The FTT agreed that it should be able to zero rate all its supplies of prescription drugs but found itself unable to put this agreement into practice. We wait to see whether this decision will have further repercussions.
There has been significant growth in the “online healthcare sector” and consumers commonly obtain medical advice, screening and prescriptions from doctors based outside their own country. Like the zero rating for prescriptions, the VAT exemption for healthcare is restricted to the services of statutorily registered professionals. There are many UK businesses who would benefit if zero rating and exemption were extended to non-UK registered medical practitioners.
[1] Pearl Chemist Limited (“Pearl”) carries on the business of a pharmacy and dispenses prescriptions including private prescriptions. This appeal concerns whether Pearl was entitled to zero rate certain of the supplies it made of prescription medicines which were dispensed on private prescriptions.
[2] HMRC assessed Pearl to VAT and interest in the sum of £156,782.41 by a notice dated 15 April 2016. The assessment relates to VAT periods from 1 May 2012 to 30 May 2014. HMRC initially made their decision in a letter dated 6 April 2016. Pearl applied for a review of that decision on 6 May 2016. The review was con-cluded some ten months later by a letter from HMRC of 13 March 2017 and Pearl appealed against that decision on 11 April 2017.
[3] The facts are not in dispute.
[4] Mr Vijay Patel, who gave evidence at the hearing, is a qualified pharmacist and started Pearl Chemist as a sole trader business in 2001. His brother is also a pharmacist and they merged their businesses. The business grew and was incorporated and became Pearl Chemist Limited in May 2012. Mr Patel and his brother are directors of the company which owns 11 retail pharmacies and employs 11 pharmacists in total.
[5] In 2007, during the sole trader period, Pearl Chemist entered into a contractual relationship with Hexpress Limited (“Hexpress”), a Guernsey company which continued, following incorporation, until 2013.
[6] Hexpress operated websites which offered medical screening and services, primarily for conditions such as erectile dysfunction, hair loss and obesity/weight loss. Hexpress contracted with a UK company, E-med Private Medical Services Limited (“E-med”) to carry out the medical screening services. E-med employed the doctors who actually carried out the screening.
[7] Customers of Hexpress could undertake an online consultation with E-med's doctors. If the doctor decided to issue a prescription, the written prescription would be sent to Pearl where it would be reviewed by a qualified pharmacist. Pearl would then despatch the medicine directly to the individual customer on behalf of Hexpress which would collect payment. Pearl issued an invoice at the end of each month in respect of all the online orders fulfilled that month which Hexpress would pay promptly.
[8] Pearl had a similar arrangement with a Mauritian company called Gloxinia (which was unrelated to Hexpress, but also used E-med to provide the medical services) between 2010 and 2013. In this case, Pearl collected payment from the customers on behalf of Gloxinia, retained an amount equal to its agreed fees and remitted the balance to Gloxinia.
[9] Pearl treated all these supplies as zero-rated.
[10] Initially, E-med employed only doctors registered in the UK with the General Medical Council (“GMC”). At that time, only GMC registered doctors could lawfully issue prescriptions which Pearl could dispense.
[11] The law changed in 2008. The Medicines for Human Use (Prescribed by EEA Practioners) Regulations 2008 (the “2008 Regulations”) provided that a UK pharmacy, like Pearl, would be authorised to dispense medicines on the prescription of a doctor who was lawfully engaged in medical practice in an EEA state, which includes Norway, Iceland and Liechtenstein. Mr Patel was aware of the change and assumed that the zero-rate would also apply to supplies made on the prescription of an EU doctor.
[12] The 2008 Regulations also allowed a doctor to issue prescriptions in electronic form.
[13] In June 2012 Hexpress introduced an electronic prescription service and E-med began to provide EU registered doctors to provide the medical services. Before the introduction of electronic prescriptions, it would not have been feasible to use EU doctors as it would not have been possible to meet Hexpress' next day service promise if prescriptions had to be sent by post.
[14] During the period to which the assessment relates, the relevant prescriptions were mostly written by two doctors. Dr Poupalos was a qualified doctor registered with the GMC in the UK. Dr El-Kharoubi was also a qualified doctor. He was not registered with the GMC, but was appropriately registered and licensed to prac-tice with the equivalent body in Romania. It appears from the copy prescriptions included in our bundles that he actually practised in the Czech Republic, but there was no suggestion that that affected the position.
[15] Both doctors lawfully wrote prescriptions for identical medicines which Pearl lawfully dispensed to customers of Hexpress and Gloxinia.
[16] Hexpress' customers were primarily based in the EU although there were a few non-EU sales. Mr Patel indicated that about 60% of Hexpress' customers were UK based and...
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