In First Alternative Medical Staffing Ltd & Anor v HMRC [2022] EWCA Civ 249, the Court of Appeal (CoA) found that a VAT concession relating to nursing agencies supplying staff to third parties could not be relied on retrospectively. 

  • First Alternative Medical Staffing Ltd (First) and Delta Nursing Agency Ltd (Delta) (together, the companies) were Employment bureaux companies providing nurses and other medical staff on a temporary basis to hospitals and care homes.
  • The companies charged their clients an amount per hour which represented a wage element payable to the nurse and a commission element by way of agency fee.
  • VAT was charged and accounted for only on the commission element, on the basis that the companies were acting as Agents.
  • HMRC raised VAT assessments on the companies totalling £2.1m for periods between 2013 and 2016 on the grounds that the companies were in fact acting as Principals, meaning that VAT was due on the entire charge made to clients.
    • The companies subsequently agreed they were indeed acting as principals. 
  • Previously in January 2004, Delta received a letter from HMRC which had confirmed that it was correct to charge and account for VAT only on the commission element because it was acting as an agent.
  • The companies sought judicial review of HMRC’s decision to assess additional VAT, arguing that the 2004 letter gave rise to a Legitimate expectation.
    • It was found that while the 2004 letter was capable of giving rise to a legitimate expectation, by 2013, owing to subsequent public statements made by HMRC, the companies could no longer rely on that legitimate expectation.
  • In 2010, HMRC published Revenue and Customs Brief 12/10 which outlined its Nursing Agencies Concession (NAC).
    • This NAC allowed nursing agencies to exempt the supply of nursing staff to third parties where specific requirements were met.
  • In the previous judicial review, it was concluded that the companies could not now rely on the NAC because it cannot be invoked retrospectively.
  • The companies appealed.

The Court of Appeal dismissed the latest appeal by First and Delta, finding that:

  • The NAC could not be relied on retrospectively as a matter of domestic or European law.
    • For an extra-statutory concession to be capable of giving rise to a legitimate expectation on the part of a taxpayer, it must be clear and unambiguous.
    • The question was whether the ordinarily sophisticated taxpayer would understand that the NAC may be relied on retrospectively.
    • It was found that the NAC would be understood to require a choice to be made in relation to each supply. To exempt a supply would be a positive action to not charge VAT; that action must be made by the time the client is invoiced for the supply, at the latest.
  • The companies had not sufficiently exercised a choice to exempt supplies under the NAC.
    • No thought was given to the NAC by the companies as they thought it did not apply to them

First and Delta have also contended that their services were exempted from VAT as supplies of Medical care under Schedule 9, Group 7, item 1, VATA 1994. This point is pending appeal to the First Tier Tribunal, having been stayed awaiting the outcome of this judicial review.

Useful guides on this topic

Health and welfare: VAT
Reduced rating, zero-rating and VAT exemption can apply to various services relating to medical care, health and welfare. This guide looks at supplies of medicines, supplies of goods and building works to disabled persons and charities, medical care, and welfare services.

Staff, Bureaux or Agencies and VAT
What are the VAT issues when an employer supplies services to an employee or vice versa?

Agents and principals
Where someone is acting as an agent for a principal, it is possible that the income received by the agent on behalf of the principal is outside the scope of VAT for the agent. What is an agent for VAT purposes? When do these rules apply? 

Grounds for Appeal: Legitimate Expectation
What is a legitimate expectation and when is it a ground for appealing a tax penalty or HMRC decision?

External link

First Alternative Medical Staffing & Anor v HMRC [2022] EWCA CIV 249

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