Agency fails to claim VAT exempt supply of medical services

In Mainpay v HMRC [2022] EWCA Civ 1620, the Court of Appeal found that the supply of temporary medical staff by an umbrella company was a standard-rated supply of staff and was not exempt as a supply of medical services.

Mainpay Ltd (Mainpay) was an umbrella company providing temporary medical staff. 

• It made supplies of medical staff to an intermediary agency company, which had separate contracts for supplies to NHS Trusts.
• Mainpay had separate contracts with medical consultants and GPs treating them as employees, taxing them under PAYE and paying National Insurance Contributions.
• Mainpay treated the supplies as VAT-exempt medical care within Group 7 Schedule 9 VATA 1994 on the basis they were providing medical care, not staff.
• HMRC raised assessments on the basis that Mainpay was making standard-rated supplies of staff.
• The First Tier Tribunal (FTT) and Upper Tribunal (UT) both dismissed Mainpay’s appeals. They concluded that:

• Mainpay did not play any part in the treatment given, did not supervise its medical practitioners or decide who worked where or what their rate of pay was, (this was done by the agency and NHS trusts), and did not have any relationship with the patients to whom medical care was provided. It was therefore not supplying medical care.

Mainpay appealed and the Court of Appeal also dismissed its appeal.

• The lower courts had correctly interpreted the term 'medical care' as requiring that the services have a therapeutic aim and that they consist of the diagnosis, treatment or cure of disease or ill-health.
• The FTT and UT had correctly applied a test of commercial and economic reality to the specific facts to determine whether Mainpay’s service fell within the meaning of medical care, concluding that it did not.
• Whilst the activities of the employee are treated as part of the economic activities of the employer for VAT purposes, so that supplies made by the employee in the course of the employment are treated as supplies made by the employer, that does not mean that every characteristic or attribute of the employee (such as control over clinical decision-making) is deemed to belong to the employer. As a matter of economic and commercial reality, it was impossible to say that Mainpay, an entity with no medical qualification, expertise or knowledge, exercised any degree of control over the clinical decision-making undertaken by the medical practitioners, and the legislation did not deem it to do so.
• Control over clinical decision-making was operated by the NHS trusts, not Mainpay.

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.

Supply of GPs was a service and VAT exemption upheld
In Archus Trading Limited v HMRC [2020] TC07557, the First Tier Tribunal (FTT) concluded that the supply of GPs were supplies of services, not staff, and qualified for VAT exemption.

External link

Mainpay v HMRC [2022] EWCA Civ 1620