In Spectrum Community Health CIC v HMRC [2022] TC08557, a prison healthcare service was found to be one single composite supply and that was wholly exempt from VAT.
- Spectrum Community Health CIC is a Healthcare Services provider for prisoners in thirteen English prisons.
- The services are supplied to NHS England under standard NHS contracts and include medical care, the provision of prescription drugs and the supply of non-prescribed sexual health products.
- The contracts state that the services should be fully integrated and of a Primary Care nature.
- One single annual amount is paid, in equal monthly instalments, for the whole contract, with no individual service price analysis.
- Each element of the service can be provided by the contractor (Spectrum) or sub-contracted out to other providers and this is a standard approach.
- Spectrum, whilst agreeing that the medical care supplies are exempt, contends that the prescription drugs and sexual health products are separate taxable supplies (being zero-rated and reduced rate respectively).
- HMRC consider there to be one single composite supply, where all supplies therein are exempt.
- Spectrum appealed to the FTT.
There are two types of Composite Supply:
- A principal supply and ancillary services that enable better enjoyment of the principal supply.
- Two or more elements supplied that a so closely linked they form an indivisible economic supply.
The FTT found that:
- Whilst the prisoners were beneficiaries of the supplies, the recipient was NHS England.
- The recipient is only able to purchase the supplies as a group, supporting the argument that it is an indivisible supply.
- Although not determinative, a single price and single invoice would suggest an indivisible supply.
- NHSE requires Spectrum to provide an integrated primary healthcare service, with all supplied elements falling into that description.
It was held that Spectrum was making one single composite supply.
Both parties agreed that if there was one supply, it was an exempt supply of medical care. Spectrum argued that this fell within Item 1, Group 7 of Sch 9 VATA and HMRC argued that it was Item 4 instead. The difference between the two is that if classified within Item 1 it would allow for the supply of drugs and contraceptive products to be excluded from the supply and subject to VAT. A single supply within Item 4 extends the exemption to closely related activities. The FTT held that:
- The differing treatments for VAT purposes stem from the EU Principle VAT Directive (PVD), where Item 4 (Article 132(1)(b) PVD) requires the services to be supplied in a hospital or state-regulated institution. The FTT found this to mean the services must be supplied in a recognised medical centre.
- Spectrum was not a place or premises (i.e. a medical centre) and so did not meet the criteria for Item 4.
- The only other qualifying provision for medical care is Item 1. Item 1 (Article 132(1)(c) PVD) requires the provision of medical by relevant professionals. Spectrum employs relevant professionals to supply the services and so falls within Item 1.
Spectrum argued that the exemption did not extend to the provision of drugs and contraceptive products. The FTT disagreed, finding that Article 132(1)(c), as per the CJEU decision in C-353/85 European Commission v UK, extended the exemption to cover minor supplies of goods that were strictly necessary at the time of the provision of medical care and that were physically and economically indissociable.
The appeal was dismissed.
UPDATE: This case has been appealed to the Upper Tribunal.
Useful guides on this topic
Health and welfare: VAT
When does reduced rating, zero-rating and VAT exemption apply to services relating to medical care, health and welfare? What are the rules?
Mixed supplies: Single or Multiple supply?
Is a mixed supply a single or multiple supply for VAT purposes? What tests and case law apply?
External link
Spectrum Community Health CIC v HMRC [2022] TC08557
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