St Martin’s Medical Services and avoidance

In the late 1990s, two members of a healthcare group set up an avoidance scheme to maintain VAT recovery on purchases of drugs and medical prostheses. The scheme ultimately failed after the BUPA decision in the CJEU in 2006, but HMRC’s attempts to dissolve it went badly wrong when it invited one company to make a claim to recover overpaid output tax, but missed its own deadline to assess the other company for over-recovered input tax. The First-tier Tribunal has thrown out HMRC’s attempts to refuse the output tax claim, deciding that once a scheme had failed, and all necessary steps had been taken to reverse its effects, artificiality issues were no longer relevant when considering time limits or other procedural points.