In 1st Alternative Medical Staffing Ltd v HMRC [2025] TC09678, the First Tier Tribunal (FTT) found that reimbursed employment costs that related to the supply of medical staff were not exempt from VAT.
1st Alternative Medical Staffing Ltd (AMS), an employment agency, supplied qualified and registered medical staff, including nurses and care assistants to the NHS, private hospitals, and care homes.
- The workers provided were engaged in the provision of medical care, subject to the Direction, supervision and control of the clients.
- The consideration for the services provided by AMS was broken down into 'Employment Costs', which included pay, taxes, and other staff-related costs, and 'Commission', representing the commission paid to AMS.
- AMS accounted for VAT on the commission but treated the reimbursed employment costs as VAT exempt.
- HMRC had planned to visit AMS to check that VAT had been correctly accounted for, but the visit was subsequently cancelled by AMS.
- HMRC sought further information from AMS and determined that all of the consideration received (i.e. both the employment costs and the commission) was taxable.
- VAT assessments of £265,590 were issued for the relevant period.
- AMS challenged the assessments, requesting a review on the grounds that the supplies were exempt under the provision of medical care or welfare services rules.
- A Judicial review was submitted by AMS to litigate the aspects of the appeal in which AMS believed that the assessments raised were 'contrary to their Legitimate expectation'. The judicial review was unsuccessful.
- AMS appealed to the First Tier Tribunal (FTT), arguing that its supply of medical staff to its clients was VAT exempt.
The FTT found that:
- AMS was not regulated under any statutory licence, approval or registration in connection with the provision of medical care.
- For supplies which were not medical supplies themselves, the legislation states they must be 'closely related to medical care and supplied by an entity meeting the requirements of Note 8'.
- AMS did not meet the requirements of Note 8 of Group 7, Schedule 9 VATA, as they are not state-regulated.
- State-regulated is defined in Note 8 as approved, licensed, registered or exempted from registration.
Although AMS failed to meet the definition of an entity in Note 8, meaning the appeal failed, the FTT chose to discuss whether the supplies were 'closely related'.
It found that the supplies did not meet the criteria to be closely related to the 'supply of medical care':
- A supply of staff does not represent an indispensable stage in the provision of medical care.
- The service provided by AMS was no different from other commercial providers of the same service.
- The nature of the market for such services drives the conclusion that all suppliers will make taxable supplies; an exemption for the provision of these services would distort the market.
The appeal was dismissed.
Useful guides on this topic
Health & welfare: VAT
When do reduced rating, zero-rating and VAT exemption apply to services relating to medical care, health and welfare? What are the rules?
Starting in business: VAT
One of the first decisions to make when starting in business is whether or not you should register for VAT. Am I running a business for VAT purposes and if so, when do I register?
Goods or services for VAT
What are goods and what are services for VAT? The answer may have an impact on the time of supply, the place of supply and in some cases the rate of the supply. The answer is not always as straightforward as it may seem.
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