In NHS Lothian Health Board v HMRC [2018] UKUT 0218, the Upper Tribunal (UT) dismissed the health board’s appeal as the VAT reclaimed had not been quantified with sufficient precision.

  • The health board provided services via scientific laboratories.
  • Most of the labs’ works were carried out for clinical purposes of the health board itself.
  • Some of the services were provided to others, including local authorities and pharmaceutical companies.
  • The services to the health board were non-business and no VAT can be recovered.
  • The services to others were business activities and VAT on costs related to those activities could be recovered.
  • A Fleming claim was submitted for the period 1974 – 1997, totalling nearly £2.4 million. The claim used a sectorised method rate that had been used for a successful claim in 2006-07.
  • The claim was rejected by HMRC and the health board appealed.

The FTT found in favour of HMRC:

  • There was no formal written agreement agreeing the percentage for any period
  • The percentage used for the claim was used to calculate an agreed recoverable sum for the 2006/07 year, but was not the approval of the rate or the method.
  • The use of the 2006/07 rate did not produce a reasonable result
  • Applying the same percentage throughout the period was flawed. The levels of turnover, expenditure, and profit, are all likely to change.

The FTT also suggested that a claim period of some 25 years needed verifiable percentages calculated by reference to prime records at regular intervals, for example every 5 years. Assuming there were no significant variations, those figures could then be extrapolated for the other four years.

The health board appealed to the UT.

The UT found:

  • The FTT had identified the correct test, i.e. that the method of business/non-business apportionment had to be reasonable or acceptable.
  • The FTT was entitled to reach the decision it did, i.e. that the Fleming period was too long and too far removed in time from the 2006/07 year to extrapolate and produce an acceptably accurate result.
  • Although the FTT had referenced the Partial exemption methods, they had adequately separated this as a business/non-business case.
  • The appeal was dismissed.


Reclaims & unjust enrichment

Partial exemption

External links: NHS Lothian Health Board v HMRC [2018] UKUT 218

NHS Lothian Health Board v HMRC [2017] TC05971



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