The Isle of Wight NHS Trust vs HMRC judgment provides a most comprehensive analysis on how the tensions arising between UK and Community VAT law are to be resolved when the UK enactment of EC law goes further than the ‘parent’ legislation allows.
On the face of it, this was a straightforward issue. Was the supply of a locum to an NHS trust an exempt supply.
Item 5, Group 7, Sch 9 of VATA 1994 (the UK legislation) exempts:
the provision of a deputy for a person registered in the register of medical practitioners or the register of medical practitioners with limited registration.
The problem – the EC VAT directive, which the UK legislation is meant to enact, does not have a corresponding provision. Articles 132 (b) & (c) of the EC directive frame the exemption in terms of the provision of ‘hospital’ or ‘medical care’.
Note, however, that the UK provision (item 5) does not mention medical care.
In the UK, HMRC has triumphed in a number of cases (e.g. Mainpay, Rapid Sequence) on the basis that the supply of a locum is a taxable supply of staff rather than an exempt supply of healthcare. HMRC had argued n these cases that item 5 must be interpreted as referring to medical care.
The reality is that item 5, as drafted, clearly refers to situations involving a supply of medical staff.
In a somewhat bad tempered hearing that sought to ascertain contemporaneous HMRC policy and the intention of the lawmakers when this particular provision was introduced in the late 1970s we were subsequently treated to some highly technical arguments about how UK legislation, which is unambiguous in meaning, is to be interpreted when it doesn’t accurately reflect the EC directive it is meant to be enacting.
The tribunal allowed the NHS’s appeal holding that UK taxpayers were able to rely on legislation which is clear in its intent even where it conflicts with the EC VAT directive.
HMRC had some alternative arguments: that item 5 only applied in cases where a locum was deputising for a GP or for a named individual. The Tribunal rejected these arguments on the basis that if that was the intention of the lawmakers the wording of the provision would have been different.
HMRC is likely to appeal.
