Tribunal demonstrates ‘orthodox approach’ to single supply VAT exemption

The appeal revolved around whether the First Tier Tribunal (FTT) had erred in holding that supplies of drugs and contraceptives to a prison were not separate taxable supplies.

The case involved Spectrum Healthcare CIC. The company provides, or subcontracts, various healthcare services in prisons across England, under a contract with NHS England. Whilst Medical care provided to prisoners is exempt for VAT purposes, Spectrum argued that its supply of prescription drugs (zero-rated) and non-prescription contraceptives (reduced rate) should be considered separate from its VAT exempt healthcare service, thus making those supplies taxable and allowing Spectrum to recover input tax.

The FTT concluded that NHS England received from Spectrum under each contract a single composite supply of “primary healthcare or health and social care in the specified prison or prisons”. The tribunal considered that it would be artificial to split that supply into separate supplies of the individual elements included in the healthcare or social care service provided by Spectrum. The FTT decided that components of Spectrum’s supply included the provision of drugs and contraceptives, which fell within the VAT exemption under Article 132 (1)(c) of the Principal VAT Directive (PVD), concluding that no part of the supply was to be taxed differently.

Spectrum appealed the decision to the Upper Tribunal. The Upper Tribunal concluded that the FTT’s approach was correct and adopted the “orthodox view” of whether there is a single or multiple supply before characterising whether the supply or supplies fell within an exemption.

Ian Robotham, tax law expert at Pinsent Masons, said: “This case is somewhat of a slam dunk for HM Revenues and Customs in so far as the Upper Tribunal was unwilling to find the FTT had erred on any of the grounds of appeal.”

The Upper Tribunal found that the correct way to approach cases of single or multiple supply and whether exemptions should apply is to consider them in that order. When considering whether it is a case of single or multiple supplies, the Upper Tribunal held that it was correct to look at the contracts and who the consumer of the supplies is. Although the prisoners were the end recipients of the drugs and contraceptives, the ‘healthcare services’ as a composite whole were being provided to NHS England as the consumer of the services (not the patient as Spectrum alleged) and it would be artificial to split the supplies.

When determining the VAT status of the composite supply, the Upper Tribunal carried out a thorough review of the relevant EU case law. It concluded that the FTT was not wrong to conclude – as Spectrum alleged that it was – that the EU case law did not decide that supplies of drugs and other goods could never be elements in single supply of medical care for the purpose of the medical care PVD exemption under Article 132(1)(c), and that the FTT was correct to determine that there was not a separate taxable supply of drugs or contraceptives.

The UT also found against Spectrum that the FTT had made an Edwards v Bairstow error of law by finding that the nine factors that Spectrum relied upon did not surmount the hurdle of showing that the only conclusion open to the FTT was to find that there had been multiple supplies.