St George's Healthcare NHS Trust
| Jurisdiction | UK Non-devolved |
| Judgment Date | 06 February 2014 |
| Neutral Citation | [2014] UKFTT 170 (TC) |
| Date | 06 February 2014 |
| Court | First Tier Tribunal (Tax Chamber) |
[2014] UKFTT 170 (TC)
Judge Richard Barlow, Mark Buffery
Mr David Southern of counsel for the Appellant
Mr Richard Mansell of the office of the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
VAT - Input tax - Fleming claim
The First-tier Tribunal assisted the parties to reach agreement in respect of a claim for input tax not previously deducted by the taxpayer NHS Trust. Following amendments to the proposed method and a finding that the input tax had not been previously claimed, the Tribunal endorsed the method and invited the parties to reach agreement on any outstanding issues.
The appeal concerned a claim by the taxpayer for input tax not previously deducted. The claim, in the sum of £179,191.95, covered the period between 1 April 1973, when VAT was introduced in the UK, and 31 March 1997. It related to supplies of drugs, medicines and prosthetics made to private outpatients in the relevant period and was described as a "'Fleming'" claim, which meant it depended upon FA 2008, section 121s. 121 and SI 1995/2518 subsec-or-para 1 regulation 29reg. 29(1) of the Value Added Tax Regulations 1995 (SI 1995/2518) to avoid being out of time. The opportunity to make Fleming claims arose because of misunderstandings about recoverable input tax and enabled taxpayers' claims to be admitted for the whole period in which VAT applied, rather than for the limited statutory period now applicable. The Tribunal was asked to make some preliminary findings to assist the parties in reaching agreement on the actual sums recoverable, if any.
The taxpayer was a National Health Service Trust and had been since 1993 when the property, rights and liabilities of a predecessor Health Authority were transferred to it. The Tribunal held that the right to claim input tax was also transferred at that time. Since 1973 there had been several re-constitutions and, initially, HMRC had refused the claim for the period 1 April 1973 to 31 March 1982 because of a lack of formal evidence of transfer of rights between predecessor bodies, but they conceded at the hearing that all relevant rights and liabilities had been transferred where necessary.
The background to this appeal was the changing understanding of the treatment of supplies of medicines and drugs since the introduction of VAT, culminating in the present interpretation that medicines and drugs are zero-rated if they are supplied to outpatients by hospitals and the patients are paying for them. The disputed claim related to the zero-rated supply of medicines, drugs and prosthetics to private outpatients where input tax was not deducted at the relevant time because the purchases were not considered to relate to taxable (zero-rated) onward supplies. One of the issues was whether the appellant had been able to show that the amounts being claimed had not previously been claimed. The Tribunal concluded from the evidence that there was no duplicated claim.
The Tribunal observed that there were three steps to making a valid claim: first, to identify what input tax could have been claimed; second, to identify how much, if any, had been claimed; and third, to compare the two and calculate the difference. For a sample period of three consecutive years, the records of the Trust showed that 0.97 per cent of drugs had been supplied to private outpatients. For each year of the claim, the private patient income was calculated as a proportion of the estimated total income. The total drugs expenditure was identified and the cost of the drugs for private outpatients was established. The Tribunal examined the methodology and directed changes to the formulas applied by the Trust, including the application of a weighted average of the three sample years rather than a mathematical average and adjustment of the percentage of private outpatient drug use to 0.84 per cent of the total drugs figure. Following these amendments, the Tribunal endorsed the method used by the Trust as appropriate and justifiable.
In addition to the claim for input tax not previously deducted on purchases of drugs supplied to private outpatients, the taxpayer also made a claim based on its contention that the amount of input tax it could have deducted under a partial exemption calculation was now higher than the amount claimed, because of the increased proportion of taxable supplies made. HMRC accepted the claim in principle, but its agreement was to be subject to discussions between the parties to enable HMRC to be satisfied regarding the eligibility of the items of expenditure within the claim. The Tribunal, therefore, released part of its decision and gave the parties leave to seek a further hearing to resolve any issues that remain undecided.
Following findings by the Tribunal that the taxpayer's claim was valid, in principle, and that there was no duplicated input tax deduction, the claim was endorsed, subject to minor adjustments. It only remained for the parties to reach agreement on the quantum of the claim and on revision of the taxpayer's partial exemption calculations to take account of the increased value of taxable supplies.
For commentary on "Fleming" and the capping of late repayment claims see the CCH VAT Reporter at 55-421.
[1]This appeal concerns claims made by the appellant for input tax it contends it did not claim in the period 1 April 1973 to 31 March 1997. The claims relate to the supplies of drugs, medicines and prosthetics the appellant claims to have made to private out patients in that period. The claims total £179,191.95 and are what are called "Fleming claims" which means they depend upon section 121section 121 of the Finance Act 2008 and regulation 29(1) of the VAT General Regulations 1995 because, were it not for those provisions, the claims would have been out of time.
[2]The parties have asked us to make some preliminary findings at this stage which it is hoped may enable them to agree the actual sums recoverable, if any.
[3]In fact, during the hearing HMRC indicated a good many points on which they now agree the appellant has produced sufficient evidence to recover some of the amount claimed. However, as we are being asked, in effect, to endorse the methodology of the claim we think it appropriate to record our findings in full even where the Commissioners have agreed with the appellant's contentions.
[4]The appellant is now a National Health Service Trust and has been since 5 March 1993 when the property, rights and liabilities of a predecessor body, which had been a Health Authority, were transferred to it by the Secretary of State. We hold that the right to claim input tax was transferred at that time. The case of Midlands Co-operative Society Ltd v R & C CommrsVAT[2008] BVC 414 is authority for the proposition that an assignment under a statutory scheme can pass such rights to a successor. In the period since 1973 the hospital had been the subject of several such re-constitutions.
[5]Initially, HMRC had denied the claim for the period 1 April 1973 to 31 March 1982 because of a lack of formal evidence of transfer of rights between predecessor bodies. We find that the hospital had been operated without interruption throughout the period in question. Several witnesses were called who were able to confirm that the hospital had been operated continuously and indeed HMRC do not dispute that fact. It is overwhelmingly likely that proper formal steps would have been taken and overseen by the Government to transfer the rights and liabilities such that we can make a presumption of regularity and hold that the rights and liabilities were transferred at each stage when that became necessary. At the hearing HMRC agreed that was the case.
[6]The background to this appeal is the changing...
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