No retrospective reliance on concessionary VAT treatment
In First Alternative Medical Staffing Ltd and another v HMRC[2022] EWCA Civ 249 (4 March 2022),the CA held that a taxpayer could not retrospectively rely on a VAT concession allowing employment agencies to exempt supplies of medical staff.
The appellants were employment bureaux which provided nurses and other medical staff to hospitals and care homes. At the time of the relevant supplies the employment bureaux had treated themselves as agents and had accounted for VAT solely on their commission. However, it had subsequently become common ground that the employment bureaux were in fact acting as principals in respect of these supplies.
From a technical perspective, when acting as principal in relation to the supply of staff, the employment bureaux ought to have accounted for VAT at standard rate. However, a concession was available (known as the nursing agencies’ concession) under which HMRC permitted employment agencies supplying health professionals to treat the supply staff as principal as exempt from VAT, subject to certain conditions being met.
It appears that there was some confusion over whether HMRC had accepted that the appellants had met the conditions of the concession. However, the CA proceeded on the assumption that the conditions were met since this was, in any case, a moot point given the conclusions that would follow.
The question at the centre of the appeal was whether the taxpayers were able to retrospectively rely on the nursing agencies’ concession. In this regard, the CA agreed with the judgment of the High Court that they could not. Under UK law, there was no ‘legitimate expectation’ inherent within the wording of the concession as there was nothing that the ‘ordinarily sophisticated taxpayer’ would understand to mean the concession could be applied retrospectively. There was also no legitimate expectation under EU law.
The CA also rejected an argument that the taxpayers had exercised a choice to exempt supplies (insofar as they were made as principal) before the time of supply. On this basis (so the taxpayers argued) the treatment of the transaction in question as agency supplies was a misclassification which did not reflect a change in that decision. However, Mr Justice Zacaroli gave this argument short shrift and could see no way in which the appellants could be viewed as having applied exemption to the relevant supplies.
Why it matters: Whilst in the specific context of the nursing agencies’ concession (which still appears in Notice 701/57 section 6), this judgment has wider relevance to anyone looking to rely on a HMRC concession retrospectively. If with hindsight it turns out that a concessionary treatment would have been more advantageous from a VAT perspective, it seems unlikely that it will be possible to go back and ‘correct’ to the more favourable treatment. Consequently, where a concessionary treatment may apply it is extremely important that this is considered and determined before a transaction takes place.
No retrospective reliance on concessionary VAT treatment
In First Alternative Medical Staffing Ltd and another v HMRC[2022] EWCA Civ 249 (4 March 2022),the CA held that a taxpayer could not retrospectively rely on a VAT concession allowing employment agencies to exempt supplies of medical staff.
The appellants were employment bureaux which provided nurses and other medical staff to hospitals and care homes. At the time of the relevant supplies the employment bureaux had treated themselves as agents and had accounted for VAT solely on their commission. However, it had subsequently become common ground that the employment bureaux were in fact acting as principals in respect of these supplies.
From a technical perspective, when acting as principal in relation to the supply of staff, the employment bureaux ought to have accounted for VAT at standard rate. However, a concession was available (known as the nursing agencies’ concession) under which HMRC permitted employment agencies supplying health professionals to treat the supply staff as principal as exempt from VAT, subject to certain conditions being met.
It appears that there was some confusion over whether HMRC had accepted that the appellants had met the conditions of the concession. However, the CA proceeded on the assumption that the conditions were met since this was, in any case, a moot point given the conclusions that would follow.
The question at the centre of the appeal was whether the taxpayers were able to retrospectively rely on the nursing agencies’ concession. In this regard, the CA agreed with the judgment of the High Court that they could not. Under UK law, there was no ‘legitimate expectation’ inherent within the wording of the concession as there was nothing that the ‘ordinarily sophisticated taxpayer’ would understand to mean the concession could be applied retrospectively. There was also no legitimate expectation under EU law.
The CA also rejected an argument that the taxpayers had exercised a choice to exempt supplies (insofar as they were made as principal) before the time of supply. On this basis (so the taxpayers argued) the treatment of the transaction in question as agency supplies was a misclassification which did not reflect a change in that decision. However, Mr Justice Zacaroli gave this argument short shrift and could see no way in which the appellants could be viewed as having applied exemption to the relevant supplies.
Why it matters: Whilst in the specific context of the nursing agencies’ concession (which still appears in Notice 701/57 section 6), this judgment has wider relevance to anyone looking to rely on a HMRC concession retrospectively. If with hindsight it turns out that a concessionary treatment would have been more advantageous from a VAT perspective, it seems unlikely that it will be possible to go back and ‘correct’ to the more favourable treatment. Consequently, where a concessionary treatment may apply it is extremely important that this is considered and determined before a transaction takes place.
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