No VAT Exemption for Supply of Freelance Consultants to the NHS


Exemptions from VAT are unsurprisingly subject to narrow interpretation and proving entitlement to them can be an uphill struggle. That was certainly so in a guideline case concerning the provision of freelance doctors’ services to the NHS.

A company provided medical consultants to an agency which, in turn, contracted with NHS trusts that made ultimate use of their services. The company asserted that it was in the business of providing services of medical care, within the meaning of the Value Added Tax Act 1994, and that its activities were thus exempt from VAT.

HM Revenue and Customs (HMRC), however, raised a VAT assessment in excess of £160,000 against the company on the basis that the services it provided over a four-year period were subject to standard rate VAT. HMRC took the view that the essence of its business was the provision of staff, rather than medical care. The company’s challenge to that decision was rejected by the First-tier Tribunal and subsequently by the Upper Tribunal.

In dismissing the company’s appeal against that outcome, the Court of Appeal found that the tribunals’ conclusions were soundly based on commercial and economic reality. The doctors worked under the control, direction and supervision of the NHS trusts and, for the duration of their assignments, effectively became part and parcel of the trusts, which themselves provided medical care to patients.

The company provided staff to the agency, which supplied their services onwards to the trusts. It was not a case in which it could be said that medical care was provided at each stage of the chain of supplies, culminating in the delivery of care to patients. The company’s arguments that HMRC’s approach offended against the principle of fiscal neutrality and would ultimately lead to an increase in the costs of healthcare also fell on fallow ground.

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