VAT CASES - 01.06.2020

Company supplied medical services and not staff

The case. Archus Trading Ltd (AT) had five shareholders and directors who were all qualified doctors. The company provided a GP service for inmates of HMP Kilmarnock, invoicing Ayrshire and Arran Health Board (AA).

The contract referred to the company providing staff to the NHS, so HMRC decided that the company was providing a standard-rated supply of staff and should be registered for VAT. In other words, AA was providing the VAT-exempt medical services and not AT. It tried to direct AT to register for VAT.

The law. A supply of staff is standard-rated, whereas medical services carried out by a qualified practitioner are exempt from VAT if the services relate to the health of the patient. In a supply of staff situation, the individual person comes under the control of the customer, to perform work as instructed.

The decision. Many trading factors indicated that AT was supplying medical services, irrespective of what the contract said. Ongoing GP consultations were carried out with the inmates and prescriptions were arranged for their medication; the company also provided an out of hours medical care service; it had its own insurance policy to cover potential neglect.

The First-tier Tribunal allowed the appeal, recognising that the commercial reality was that the directors were able to carry out work as they thought necessary, so the company supplied medical services that were exempt from VAT rather than staff.

Key points.There have been many cases on the staff versus medical services dilemma but it depends on whether the individual workers are acting under the instructions of the customer or whether the supplier can make its own decisions about the work being carried out. The wording in contracts is very important, but the commercial reality of an arrangement, i.e. what actually happens in practice, always takes priority.

Archus Trading Ltd v HMRC [2020] TC07557

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