[2011] UKFTT 286 (TC)

TC01148

Appeal number: TC/2009/16010

Value added tax – Supply of staff or services – Supply of temporary dental staff –whether exempt under Group 7, Schedule 9 VATA – Claim for repayment of output tax under s.80(1) VATA- Appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	SALLY MOHER T/A PREMIER DENTAL AGENCY	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: DR K KHAN (Judge)
						JOHN AGBOOLA, FCCA, MBA

Sitting in public in London on 10 and 11 March 2011

For the Appellant:   Rebecca Haynes, Counsel

For the Respondents: Jessica Simor, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

Introduction
1.	This is an appeal under section 83(1) (t) of the Value Added Tax Act 1994 (“VATA”).  It seeks to challenge the Respondents’ decision of 20 October 2009  to uphold their decision of 22 July 2009 to refuse payment of the Appellant’s claim made under section 80 VATA for VAT repayment in the sum of £609,119.31 in respect of the period 1 January 1985 to 31 December 1996.  The Appellant made the claim for overpaid VAT following the decision of Fleming v HMRC [2008] All ER (D) 151 (Jan, HL).

Relevant facts
2.	The Appellant, a dental nurse, established an employment business in 1976 trading as Premier Dental Agency.  In 1999 the business was sold as a going concern to Premier Employment Agency Ltd (“PEAL”) who carried on the same business until its sale to Staff Recruit Ltd in 2008.

3.	The business made two types of supply : first,  of temporary dental staff to dentists, which is the disputed supply, and secondly, of private permanent staff to dentists for an introduction fee.  The core business was the provision of temporary dental staff comprising  97% of the business.  There was also a small supply of dental technicians which was a nominal part of the business.

4.	The business was registered for VAT under registration number 396 5727 95 with effect from 3 September 1994 and was deregistered with effect from 2 July 2000.

5.	It should be stated that the Respondents dispute some of the facts, asserted by the Appellant, relating to the disputed supplies. In particular, they dispute the employment status of the nurses supplied.

6.	The Appellant’s business worked on the following basis.  They sourced nurses and employed them under a contract for services, accounted to HMRC for their PAYE, National Insurance, and Employers’ National Insurance. The Appellant had not retained any copies of the terms and conditions of engagement applicable either to their staff or to clients during the relevant period.  

7.	The Appellant treated the nurses as employees and the dentist or dental establishment to which the nurses were despatched   were    invoiced on the basis of a standard hourly rate.  In circumstances where the Appellant supplied a dentist with a nursing auxiliary rather than a nurse, the auxiliary worked alongside and under the supervision of the registered health professional.

8.	The Appellant stated that when the business was transferred to PEAL in 1999 it was run in the same way after its transfer  as it had been run prior to its transfer.

9.	In 2001, the Appellant became aware that a local competitor was not charging VAT on the supply of temporary nurses to dentists.  On 21 May 2001, Mr A Moher, a shareholder in the company, its finance director and partner of Mrs Moher, contacted the  National Advice Service (VAT) and was advised to write for a ruling on the tax treatment of its supplies.   This was done on 2 September 2001.

10.	A letter on 21 September 2001 from the Respondents confirmed that if PEAL was acting as principal on the supply of dental nurses, the supplies were exempt pursuant to Item 1, Group 7, Schedule 9 VATA.  At all times thereafter PEAL accounted for VAT on its supplies of temporary dental nurses on the basis that those supplies were exempt.  The Respondents accepted this position.  The supplies of permanent dental nurses were standard rated.   The business was therefore a partially exempt business and the Respondents and PEAL agreed to specific adjustments in respect of VAT periods 09/01 to 03/04.

11.	PEAL made a claim for the recovery of output tax.  By a letter dated 8 July 2005, PEAL’s representative, Simon Levine, a tax advisor, wrote to the Respondents’ Voluntary Disclosure Unit to claim a repayment of £278,399 output tax incorrectly accounted for on sales made in the periods 08/99 to 06/01 and £36,994 output tax assessed as due for the period 09/01.  The Respondents wrote to the Appellants on 31 August 2005 stating that the claim of £278,399 for the periods 08/99 to period 06/01 was capped by virtue of section 80(4) VATA.  After further correspondence, HMRC made an offer to settle on 22 December in the sum of £212,112.17 plus interest.  An adjustment was made in the amount of £8,305.45 which represented output tax due on the placing of standard rated permanent nurses.

12.	On 23 September 2005 Mr Moher, the financial director of the company, wrote to the Respondents’ Written Enquiries explaining that they were “an employment agency specialising in the placing of dental nurses on a temporary basis with dentists” and then went on say  “that we act as a principal in the supply of dental nurses” and the fact we are a principal for VAT purposes “was the main reason that we got VAT exemption in 2001 as we are deemed to be supplying the dental nursing services, which is exempt from VAT”.  The letter requested confirmation that “we are still fully exempt from VAT in the supply of these dental nurses on a temporary basis”.

13.	On 26 September 2005, the Respondents stated that “without sight of the agreements I am unable to confirm the VAT position for you”.  On 3 October 2005, Mr Moher sent a copy of PEAL’s “temporary placement contracts (with the dentists)” together with a small selection of invoices.  The Respondents confirmed on 13 October 2005 that on the basis of the information provided PEAL’s supply of temporary dental nurses were exempt to PEAL.

14.	On 26 March 2009, the Appellant’s representative, Mr Levine, made  a claim pursuant to the Fleming case for a reclaim of VAT in the sum of £609,119.31 output tax which had been overpaid in the periods January 1985 to December 1996 together with interest.  This constitutes the Claim for the purposes of this appeal.

15.	On 22 July 2009 the Respondents rejected the Claim.  They explained that their view of the law had now changed and “an extensive review of concessions has been conducted. HMRC has received legal advice to confirm that supplies of staff are not care or medical care, and that the published guidance amounted to an informal concession” The Respondents accepted that at the time the previous advice was given to the Appellant it reflected their view of the law, at that time.   A review was requested by the Appellant and the HMRC decision was upheld on 29 October 2009.This is the basis of the Appeal.

Relevant Legislation
16.	Article 13(A)(1) of Directive 77/388/EEC (the “Sixth Directive”) provided, so far as relevant, that the following supplies should be exempt from VAT:
“…
(b)	hospital and medical care and closely related activities undertaken by bodies governed by public law or, under social conditions comparable to those applicable to bodies governed by public law, by hospitals, centres for medical treatment or diagnosis and other duly recognised establishments of a similar nature;
(c)	the provision of medical care in the exercise of the medical and paramedical professions as defined by the member State concerned;
…
(e)	services supplied by dental technicians in their professional capacity and dental prostheses supplied by dentists and dental technicians;
…”
17.	Section 80 VATA 1994, provides so far as relevant:
“(1)	Where a person – 
(a)	has accounted to the Commissioners for VAT for a prescribed accounting period (whenever ended); and
(b)	in doing so, has brought into account as output tax an amount that was not output tax due;
the Commissioners shall be liable to credit the person with that amount.”

18.	Group 7, Schedule 9 VATA as originally enacted (and which essentially reproduced the relevant provisions of the predecessor Act of 1983) provided for the exemption of the following:

“Item No
2.	The supply of any services or dental prostheses by – 
(a)	a person registered in the dentists’ register; 
(b)	a person enrolled in any roll of dental auxiliaries having effect under section 45 of the Dentists’ Act 1984; or
(c)	a dental technician.”
19.	Note 2 to Group 7 provided:

“(2)	Paragraphs (a) to (d) of item 1 and paragraphs (a) and (b) of item 2 include supplies of services made by a person who is not registered or enrolled in any of the registers or rolls specified in those paragraphs where the services are wholly performed or directly supervised by a person who is so registered or enrolled.”
The Respondents’ submissions
20.	The Respondents submit that Item 2, Group 7, Schedule 9 VATA provides for exemption (and properly construed it has always provided for exemption) in respect of services supplied to patients by appropriately qualified (or supervised) individuals.  

Exemption in respect of dental care  

1.	Item 2 does not provide exemption in respect of the supply of staff to dentists, and, properly construed, never has so provided.

2.	The supplies which the Appellant made to her dentist clients were not supplies to dental patients.  They were supplies of staff to dentists and therefore standard rated.  There is nothing in Article 13A (1) of the Sixth Directive that requires  Member States to exempt a supply of staff to dentists.  

3.	The Respondents do not dispute that throughout the period covered by the Claim their own interpretation of the relevant law was that the supply of dentists and dentist auxiliaries by a registered nursing agency constituted an exempt supply of dental care or dental services. 

 Following the House of Lords decision in  R (on the application of Wilkinson) v IRC [2005] UKHL 30) the HMRC’s practice of issuing extra-statutory concessions and their legal interpretations which, for whatever reason, they considered may have led to them extending the availability of exemption beyond that required by the Sixth Directive. They felt that they provided exempt treatment under Group 7, Schedule 9 VATA of supplies which should not be exempt pursuant to Article 13 (A) (1).  They concluded subsequently that the correct legal interpretation of the scope of Group 7, Schedule 9 VATA is the supply of staff to dentist is standard rated. In allowing an exemption in respect of supplies of staff to care providers by nursing agency they were operating outside the scope of Article 13 (A)(1) .

4.	The Respondents reviewed their policy in 2007 and concluded that their interpretation of the law with regard to the scope of Group 7 was incorrect and they have acknowledged this position.  They continued, as a matter of concession, to allow exemption to businesses whose supplies continued to meet the criteria applied prior to the change of interpretation of the law.  In spite of this position, they have said that output tax is properly due on such supplies and the concessionary treatment does not change the position.

5.	As applied to this case, the Respondents believe that the Appellant properly accounted for VAT on their supplies.

6.	Section 80(1) VATA provides that where a person has accounted for VAT and in doing so has brought into account as output tax an amount that was not output tax due, the Respondents  shall be liable to  credit the person with that amount.  The Respondents believe that since VAT was properly due they have no power to credit the Appellant with the output tax claimed and cite the decision in Wilkinson.

7.	The Respondents say at the time they repaid PEAL the output tax,  they had not yet carried out the policy review which led to the revision of the scope of Group 7, Schedule 9  exemption.

8.	In so far as the repayment made to PEAL represented repayment of an amount of output tax, in repaying that amount the Respondents acted as they considered themselves obliged to act by section 80(1).  The Respondents believed that no tax is due to be repaid in the circumstances.

9.	The Respondents have outlined arguments with respect to unjust enrichment and input tax but this is not the subject of this appeal. It is a matter for another appeal or hearing if the Appellant is successful.

10.	The unjust enrichment argument briefly summarised is as follows.  

(a)	If the Tribunal were to determine in favour of the Appellant that the output tax was not output tax due by charging their clients VAT, the Appellant would have received output tax on the supplies their clients would be entitled to repayment of tax and the Appellant would have been unjustly enriched by receiving the payments of VAT.  The appropriate calculation would have to be done to establish whether in fact the Appellant has been unjustly enriched.  That calculation would also reduce input tax that the Appellant would be entitled to claim by virtue of being a partially exempt business.  Therefore, should the Tribunal decide in favour of the Appellant the Respondents will have to create a calculation showing the appropriate attribution of the Appellant’s input tax.

The Appellant’s submission

11.	The Appellant first makes certain submissions regarding the Respondents’ interpretation of the law.  They draw reference to VAT leaflet 710/2/83 which sets out HMRC’s view of the law and the VAT treatment of  agencies.  In that leaflet, it is stated that the liability of nursing agencies to account for VAT depends on:

(i)	whether the agency acts as agent or principal;
(ii)	whether the worker carrying out the nursing care is a nurse or nursing auxiliary; and
(iii)	in the case of a nursing auxiliary, whether the nursing care is being carried out in a hospital or institution (defined in the leaflet by reference to Item 4, Group 7 of the Exemption Schedule of the VAT Act 1983) or under the direct supervision of a registered health professional listed in Item 1 Group 7.

12.	The leaflet goes on to say in paragraphs 2 and 3 that if the agency acts as principal in either the circumstances set out in (ii) and (iii) above it is making a single exempt supply.

13.	The Appellant asserts that the leaflet shows HMRC’s view of the law with regards to whether the agency acts as agent or principal and it states:

“Whether an agency is an agent or a principal is determined solely by the contractual relationships between the parties involved – the worker, the agency and the client …

You are an agent only if you have agreed with someone else that you will act as their agent.  Customs and Excise require evidence that such an agreement exists, before it can be accepted – for VAT purposes – to be contained in your published terms of trading, such as brochures describing the services you offer and in the various forms you use in transactions between you and the worker and between you and the client.

If you claim to be agent of the worker it would be expected that the conditions of the worker’s membership of your agency would include a statement that you do act as agent of the worker.  This would imply that the worker has agreed to that particular contractual relationship with you.

If you claim to be the agent of the client it would be expected that your agreement with the client includes a statement that you do act as the agent of the client.  In this event you have offered to act as the agent of the client and the client has been made aware of the terms of your offer.  By taking up the offer, the client is assumed to have agreed to that particular contractual relationship.

If a worker is your employee (i.e. if he or she is under a contract of service with you) then you will always be acting as principal in your supply of the worker’s services to the client. …”

14.	The Appellant says that HMRC’s view, as stated in the Leaflet has been maintained for some time and certainly throughout the period of the Claim between 1985-1996.

15.	This view of the law was maintained in Notice 701/57 of March 2002 (paragraph 3.4-3.7) and it remained the view of HMRC in Notice 701/57/07 of January 2007 (paragraph 4.4-4.6).  The latter leaflet draws reference to Notice 700- “the VAT Guide to assist in determining whether they act as agent or principal.”

16.	The Appellant draws reference to the fact that the case of Reed Personnel Services Ltd [1995] STC (588) (“Reed Personnel”) which had been heard and decided when the Respondents had made their decision on PEAL’s supply in September 2001.

17.	The Appellant draws reference to the Respondents’ own internal guidance VI-5 3.22 which discusses the Reed Personnel case as follows:

“In the field of nursing agencies, traders may seek to draw up agreements along the lines of those used in the Tribunal/High Court cases where the appellants were found to be acting as agent, notably British Nursing Co-operation Ltd LON/91/1696Y, August 1992 (8816) and Reed Personnel Services Ltd, QB [1995] STC 588. If the contractual arrangements have changed and the working practices of the bureau are not inconsistent with an agency relationship, you should accept that a new relationship has been created.”

18.	The Appellant says that in Reed Personnel, Justice Laws,(as he then was), observed that  contractual documents set out the rights and obligations of the parties concerned in private law, they do not necessarily establish the VAT position.  This can only be ascertained by examining the whole facts of the case.

19.	The Appellant says that they are confused by the Respondents’ present views. These are not to be found in any published document or indeed are an explanation or reason why they have changed their view, which is that the supply of dental nurses and technicians, through a registered nursing agency, does not constitute an exempt supply of dental care or dental services because it is not a supply to a dental patient.

The Appellant’s other contentions

1.	The Respondents’ interpretation of the law has always been the same. They have always taken the position that nursing agencies, acting as principal, are making exempt supplies pursuant to the VATA.

2.	 The Appellant’s claim for overpaid VAT rests upon a proper construction of the VATA and its application to the relevant supplies.  The Respondents’ position remains as stated in Notice 701/57/07.  It remains wholly unclear why they consider that their previous position is wrong.   The subsequent position taken by the Respondents is not relevant.  

3.	The Respondents’ interpretation of Item 2, Group 7 Schedule 9 of VATA is in order for a supply to benefit from the relevant exemption, there must be a service supply to the patient.  This is not in the Directive (Article 13(A)(1) nor the wording of Item 2 Group 7, Schedule 9 VATA. Such an interpretation would result in exemption being available “only where the direct recipient of the services of the dental nurse or technician were the patient and, in effect, only where the nurse or technician was self-employed and acting on her own account in supplying those services directly to a patient”.

4.	The exemption applies to the supply of medical care by certain persons and is neutral as to legal personality through whom those services are delivered.  If the dental nurses and technicians or auxiliaries were employees of a company there would be no question but that the relevant services were supplied by and through the company because services supplied by employees are excluded from the scope of VAT.

The Sixth Directive further excludes from the scope of VAT persons in a relationship which is not employment but is tantamount to employment by virtue of their legal ties. The Appellant draws reference to Article 4 of the Directive.   The Appellant says that there is no basis in law to differentiate between those employed by a principal and nurses and technicians acting on their own account.  If the law is interpreted in this way it would “treat the same service differently on the basis only of the nature of the legal personality through which the same service is being supplied”.

The Appellant say that, for the purposes of VAT, the relationship between her and the nurses and technicians she recruited is tantamount to an employer-employee relationship. The nurses and technicians do not carry on business on their own independent account.  The allegation by the Respondents that these are two different supplies, one by an employed and one by a self-employed persons, is to conflate the issue.

5.	The Appellant believes that the relevant supply is exempt pursuant to Item 2, Group 7, Schedule 9 VATA.

Evidence

The Tribunal was provided with two ring binders as well as supporting documents which were added to the binders.  One binder contained correspondence and the other contained authorities, notices and other HMRC publications.

Evidence of Aubrey Moher

	Aubrey Moher, the finance director of the Appellant, gave oral evidence.  His evidence was as follows:

1.	He accepted the statement of Sally Moher of 4 August 2010 as being accurate in all respects.  The witness statement was three pages long.
2.	He confirmed that the split between temporary and permanent staff is roughly 97% to 3% and the core business was the provision of temporary staff.
3.	He described the nurses as general purpose dental nurses and their duties involved chaperoning patients, looking after the patients and assisting with any problems in the dental surgery.  They assisted the dentist in the performance of their duties.
4.	He confirmed that the business was operated in the period 1985 to 1996 in the same way as it operated after that time.
5.	He confirmed that the terms of business and employment were also the same.
6.	He confirmed that the Appellant charged VAT in the period 1985 to 1996 to be on the “safe side”.  The charging of VAT was changed in 2001.

The simple question
	
20.	The question for determination is whether or not the output tax accounted for by the Appellant to the Respondents in relation to the disputed supplies during the relevant period covered by the Claim was output tax due for the purposes of section 80(1) VATA and, if so, whether or not the Respondents are entitled to or required to repay the output tax to the Appellant.

21.	The parties have agreed the core issue is one of principle, whether or not the Appellant supplies were exempt under the relevant provisions. This is a matter which must be decided by reference to the law and legal principles only.

Discussion

22.	In many respects this is a simple case.  The sole issue for determination by the Tribunal is whether the Appellant’s supplies were exempt supplies under section 31 of VATA and were covered by Item 2 of Group 7 of Schedule 9 which implements Article 13(A)(1)(b), (c) and (d) of the Sixth Directive.

23.	The Tribunal is concerned with the law.   The main exempting provision is Article 13(A) of the Sixth Directive.  There are three sets of VAT Leaflets/Notices on which the parties rely.  These are VAT Leaflet 710/2/83, applied until March 2002; VAT Notice 701/57, applied from March 2002 until January 2007 and VAT Notice 701/57/7 which applied from January 2007.  In addition there is VAT Notice 700, Part 8 which looks at the question of agents and principal.  These Notices and Leaflet cannot be interpreted to compromise European law. 

24.	Further, following the House of Lords’ decision in R (on the application of Wilkinson) IRC [2005] UK HL 30 where it was held that HMRC’s administrative discretion to make concessions departed from the strict statutory legal position, the Respondents sought to review their concessions and  legal interpretations. They were concerned not to extend the availability of exemption beyond that required by the Sixth Directive.  The Respondents thought they may have been treating as exempt under Group 7, Schedule 9, supplies that were not required to be exempt pursuant to Article 13(A)(1).  As part of the review, the Respondents looked at their position with regard to exemptions in respect of the supply of staff by nursing agencies to care providers and concluded that the supply should be standard rated rather than exempt.

25.	The Tribunal’s remit, as found in its rules, is primarily to look at the law. 

26.	Let us turn first to the Respondents’ interpretation of the law and the exempting provisions.  This would allow us to understand the Appellant’s submissions.

27.	Article 13(A)(1)(b), (c), (d) of the Sixth Directive provides that the provision of medical care and the services of health care professionals shall be exempt from VAT. Schedule 9, Group 7 of VATA (as originally enacted) implements VAT exemption into domestic law. The Respondents’ interpretation of that law  up to 2007, as evident from the Leaflet and Notices, was that the supply of nurses and nursing auxiliaries by a registered nursing agency is an exempt supply, where the agency acts as a principal. This view  can be found in Notice 701/57 (paragraph 3.4-3.7) and in Notice 701/57/7 (paragraph 4.4-4.6).  It seems however that the first change in the HMRC’s view can be identified in Notice 701/57/7 (applied from January 2007) which makes clear that there must be “supplies of care, as opposed to supplies of staff” for the supply to be exempt. 

28.	The Tribunal will now look EC and domestic law.

29.	Any exemption provided by Article 13(A) of the Sixth Directive must be strictly construed since it is an exemption for the general principles of VAT which are applied to supplies of goods and services generally in different countries.  The Appellant has identified  Article 13(A) (1)(b),(c),(d) of the Sixth Directive as relevant.  

30.	First ,Article 13(A), while laying down the exempt transactions by reference to the nature of the services supplied makes no mention of the legal form of the person supplying them.  The provision  does not  require the medical services to be supplied by a taxable person having a particular legal form, in order for them to be exempt.  The only requirement is that they must be supplied by persons who possess the necessary professional qualifications. .  In other words, the exemption is not dependent on the legal form of the taxable person supplying the services but does identify the bodies authorised to provide the services

31..    The   relevant provisions of the Directive are implemented through provisions in national law, and those provisions must be interpreted in a manner which is consistent with the system of taxation in Member States which implement those provisions.  The provisions in the Directive have their own particular meaning.  Article 13(A) states that the exemptions are provided in the public interest and that the particular Member States must, in applying those exemptions, prevent “any possible evasion, avoidance or abuse.”

32.	We know that these provisions must be strictly interpreted..  The identification of the suppliers with the supply made can be seen in the UK legislation in Item 2, Group 7, Schedule 9 of the VATA (dentist, dental auxiliaries and dental technicians).There is a clear nexus between the suppy by a professional and the patient.  

33.	  The law in the UK  cannot compromise European law  and while HMRC may operate a system of non-legally binding concessions and interpretations of law, they cannot deviate from the spirit and intention of the EC law.  HMRC may exercise discretion when dealing with the law but there are no issues of discretion here.  If HMRC interpret the law in a particular way, the Appellant may have a legitimate expectation that it operates that way. In the event of a loss or detriment, they may have a claim.  However, the Appellant has raised no issue of legitimate expectation and if anything, has obtained a gain rather than suffered a detriment. 

34.	The Tribunal must therefore look to see whether the Appellant provided  services in the manner contemplated by the legislation.  In looking at this question, it may be important to consider whether the Appellant acted as a principal to see how and by whom the services were supplied.  However, the determination of that issue alone is not determinative of the core issue .

35.	Let us turn first to the case of Commissioners v Reed Personnel Services Ltd [1995] STC 588 (“Reed Personnel”). Both parties referred to this case.  In this case, Reed Personnel provided temporary nurses, who were self-employed, to the National Health Service, private hospitals and various institutions. Their view was that they were supplying nursing services as agents not as principals since they were introducing nurses to clients and the nurses were providing the services directly to those clients.  The key question was whether the services were exempt under Group 7, Schedule 9 VATA 1994 or whether they were taxable at the standard rate as the supply of introductory services.  In other words, whether they were making supplies as principals or agents.  The contracts between the parties did not say that Reed Personnel were acting as agents.  They said that this should be implied into the contract.  The judge, Laws J (as he then was) looked at what had been agreed between the parties, including the marketing brochures, the conditions of work and the offer of work.  The judge, in upholding the tribunal’s view, said that Reed Personnel had acted as agent and therefore did not have to account for VAT on the employees’ remuneration costs.  The High Court stated that the written contracts were not determinative of the issue and the correct approach was to step outside the contract and look at all aspects of the business in order to make a decision.  The Court said:

“In principle, the incidence of VAT is obviously not by definition regulated by private agreement. Whether and to what extent the tax falls to be exacted depends, as with every tax, on the application of the taxing statute to the particular facts.  Within those facts, the terms of contracts entered into by the taxpayer may or may not determine the right tax result.  They do not necessarily do so.  They will not do so where the contract, though it tells all the parties everything that they must or must not do, does not categorise any individual party’s obligations in a way which inevitably leads to the conclusion that he makes certain defined supplies to another.  In principle, the nature of a VAT supply is to be ascertained from the whole facts of the case.  It may be a consequence, but it is not a function, of the contracts entered into by the relevant parties.”

36.	Let us therefore look at the surrounding documentation and correspondence.  There is a paucity of information for the relevant period.  The Tribunal was provided with the Terms of Engagement for Temporary Workers Contract 2011.  We have no information on the contract used for the relevant period though the Appellant submitted in evidence that the contracts were the same.  The Tribunal does not accept the 2011 contract as establishing the terms and conditions for the period 1985-1996. The working conditions were very different at that time.

37.	Turning to the correspondence. On 23 December 2005 the Appellant wrote to the Written Enquiries section of HMRC to clarify the VAT liability on their supplies.  In that letter, they stated that they acted as principal in the supply of dental nurses and then stated:

“The dental nurses are supplied to the dentist at an hourly rate and, whilst at the dental surgery, they are under the complete instruction and control of the dentist and we have no direct involvement in the work that they do”.

38.	The Appellant, by their own admission, provided staff that were wholly controlled and supervised by the dentist to whom the staff was provided.

39.	In another letter written to HMRC some six years earlier, on 18 June 1999 by Goldwins, chartered accountants to the Appellant, stated that their company “specialises in introducing nursing staff to dentists as an agent” and “requires to be reimbursed for the cost of the nurse, which it will pay as an agent for the dentist plus an introduction fee which is no more than 30% of the invoice total”.  In another letter dated 5 September 2001, the Appellant stated that “we only supply nurses to dentist and at all times these nurses must act under the supervision of the dentist as required under law by the Dentist Act”.

40.	It seems that in spite of the Appellant’s assertion that they acted as principals, the dentist to whom the nurses were supplied were the principals for the purposes of the provision of services for which an exemption exists.  It was the services that they provided to their customers that benefitted from the exemption.  In his oral evidence to the Tribunal, Mr A Moher, the finance director of the company, stated categorically that they supplied dental nurses and the workers were temporary workers and by law their National Insurance, PAYE and Employers’ National Insurance was collected and paid to HMRC on their behalf.  What does this tell us about their status?  This point is highlighted in Notice 710/2/83 at paragraph 3, where it is stated:

“Although you may deduct income tax and National Insurance from workers’ wages this does not necessarily mean that you are the employer.  This is because you are obliged by law to make these deductions.  Therefore, the fact that these deductions are made is not of itself an indication whether you are an agent or a principal”.

41.	If the Appellant were in charge of the provision of the dental services by their staff in a hospital or institution, then there would be an argument for saying that they are providing services to the ultimate client.  It is certainly more difficult to make that argument if they are providing staff professionals who provide the exempt services to patients. in the manner explained.

42.	Are the Notices helpful?  The Appellant says that the Notices are not concessions or informal extra-statutory concessions but rather HMRC’s view of the law. This view of the law, stated in the various Notices, issued since 1983, is that nursing agencies acting as principals are making exempt supplies pursuant to VATA.

43.	The Appellant draws heavily from VAT leaflet 710/2/83 and in particular paragraphs 2 and 3, which state that if an agency is acting as a principal it is making an exempt supply.  In paragraph 2, it states that if “you run a nurses agency then, under the Nurses Agency Act 1957, you may only supply registered or enrolled nurses and midwives”. The Appellant does not run a Nurses Agency under the 1957 Act.  Paragraph 3 states that if “you run an employment agency you may be the agent of the auxiliary or your client (or both) or you may be a principal”.  The Notice contemplates a party acting as an employment agency which is what the Appellant operates.  The Notice goes on to speak about action required by agencies and states at paragraph 5:

“Up till now, Customs and Excise have generally assumed that nurses agencies are agents and that other agencies (including those providing nursing auxiliaries) are principals, Customs and Excise now accept that this may not be correct in all cases, unless some agencies may have wrongly classified themselves or may have been wrongly advised by their local VAT officers.  You are therefore, invited to review your own status as agent or as principal”.

44.	The Appellant was aware of this Notice but continued to charge VAT on its supplies.  This suggests that having consulted the Notice they did not think that their supplies were exempt.  They continued to account for output tax.  The Tribunal is of the view that the Appellant clearly thought at the time that they should charge VAT on their supplies. They did not rely on the Notice to claim exemption.  The Notice operated in the period of the Claim and invited agencies to “review your own status as agent or as principal.”  The Appellant has not clearly explained how this Notice applied to their business or indeed the steps taken to review their status.

45.	Let us look at Notice 701/57.  The Appellant says that this Notice shows no “discernible change” in HMRC’s position.  They draw reference to paragraph 3.4-3.7 in particular to support their view. 

46.	In that Notice, paragraph 3.4 provides as follows:

“Can a business that employs or engages health professionals or unregistered care staff exempt their supplies?”

Yes, provided that the business: acts as principal (rather than an agent) in the supply of care; and the services provided meet the conditions detailed in paragraph 2.2 or paragraph 3.3.”

47.	This paragraph speaks of the supply of care.  In order to provide care services, the Notice requires (paragraph 3.1) that there is direct supervision provided by a person who is a health care professional and who monitors the services through regular checks.  In paragraph 3.5 the question is asked whether an agent arranging the supply of services by a health professional or unregistered carer can exempt the agency or arrangement fees and the answer given is “No”.  Agency fees for arranging and administering the supply is standard rated. This would apply to the service supplied by the Appellant.  The supply which is exempt is the supply of care.

48.	In the latter notice 701/57/7, paragraph 4.4, the question is asked whether a business that employs or engages health professionals or unregistered care staff can exempt their supplies.  The answer given is “Yes,” if they act as principal (rather than agent) in the supply of care.

49.	We do not have documentary proof of the actual services which are being supplied.  This was not provided to the Tribunal.  It is fair to say that the Appellant is  providing dental nurses to dentists and those dental nurses are under the supervision of the dentists. They are not providing care. It is clearly stated in their letter of 5 September 2001 that:

“We act as principal for the supply of dental nurses (temporary).  We only supply nurses to dentists and at all times these nurses are under the supervision of the dentists as required under law by the Dentists Act”.

Again, on  3 October 2005 they confirmed to HMRC that they provide dental nurses and they confirmed that their invoices are not split between wages and agency commissions.  The splitting of the invoices would have indicated a supply of services but this was not done.

50.	The Tribunal can only find evidence from the correspondence that there was a supply of staff. The Notices are broadly drafted. The Appellant must make a clear case that the exemption applies to their business but this has not been done. The Appellant has not clearly explained how their supplies fit within the Notices nor have they provided the supporting documentary evidence to support their contention.  It is not enough to simply assert that what they provided was done as principal not agent.  While the determination of that issue is relevant, it is not the sole determinant of the core issue,which is , was it a supply of services or a supply of staff.

51.	The Tribunal cannot clearly establish the services which were provided in the relevant period.  We therefore cannot accept the statement in Sally Moher’s witness statement at paragraph 6.  There were no terms and conditions for workers provided in the relevant period.  The indications from the correspondence and from the facts as presented to  the Tribunal suggest that there was a supply of staff and not of services.  The Appellant seemed to have thought the same by charging VAT on the supply of staff since they did not qualify for exemption under the relevant Notices.  

52.	Let us now look at the Respondents’ communications. The Appellant’s main submission is that the Respondents have accepted their supplies can be charged without VAT.  By a letter dated 21 September 2001, the Respondents confirmed to the Appellant that if they were  the principal in the supply of dental nurses, then the supplies of those nurses would be exempt pursuant to Item 2, Group7, Schedule 9 VATA.  From September 2001, PEAL accounted for VAT on the basis that its supplies of temporary dental nurses was exempt and its supplies of permanent dental nurses were standard rated.   

53.	The letter dated 21 September 2001 from HMRC (advice service) stated, in response to the fact that the competitor of the Appellant, Southern Cross, had for some time been allowed to provide its services without accounting for output tax,  that if “this is the same scenario as claimed in your letter, then I confirm that your supplies would also be one of exemption for VAT purposes”.  This position was explained further in the witness statement of Sally Moher (dated 4/8/10 and accepted by her husband Aubrey Moher in his oral evidence).  It was stated in paragraph 7:

“PEAL charged VAT on all sales until September 2001 when I was made aware by our main competitor Southern Cross Employment Agency “SCEA” (a business similar to ours) that temporary nurses were exempt from VAT.  On 21 September 2001, PEAL received a written ruling from Customs and Excise that our supplies of temporary placements should be exempt from VAT.  Subsequent to this, PEAL ceased to charge VAT on the temporary placements”.

54.	On 8 July 2005, Simon Levene, VAT consultant to the Appellant, wrote to the Voluntary Disclosure Unit HMRC stating that PEAL “had to reduce its prices from what they wished to charge otherwise dentists would go to the competitors for their dental nurses”.  This point was reinforced in a further letter from the Appellant to HMRC of 5 September 2001.

55.	The Appellant relied on the Respondents’ communication that they did not have to account for output tax on its supplies and sought a repayment of tax which they had paid. This claim was settled in the sum of £212,112,.17.There followed the Claim which is the subject of this appeal. 
The Respondents rejected this Claim on the grounds that their understanding of the law at the time was incorrect and after review they concluded that the supply of staff was not care or medical care. They said that the published guidelines amounted to an informal concession and accordingly the Appellant had made no error in law in charging VAT on their supplies.

56.	The Tribunal finds that the fact that a repayment was made  to the Appellant and the Respondents’ interpretation of the law at the time of that payment was different from their position on the interpretation of the law at present, is not determinative of this appeal.  The fact that Customs held one view  and now have another view of the law does not influence the Tribunal.  Indeed the Respondents have acknowledged that their interpretation of the law has changed and was wrong.As mentioned earlier,  this change was brought about as a result of the House of Lords decision in R (on the application of Wilkinson) v IRC [2005] UK HL 30.  They  carried out a review of extra-statutory concessions and legal interpretations which they considered had led to providing exempt status on certain supplies,  contrary to the Sixth Directive.  This was made clear in 2007 in the case of Care@ (VTD 20316) at para 22, which states in relation to Group 7, Schedule 9:

“The acceptance (as exempt) of the supply of registered staff is as a result of a long standing policy of the Respondents which was developed on the understanding that the nurses agencies bore legal responsibility for the supply of care by the nurses they supplied.  This area of policy is currently under review and is the subject of liaison between the Respondents and the health care sector”.

57.	The Appellant disputes whether the Respondents’ position arises as a result of a concession.  They say it arises from the proper construction of VATA and its application to the relevant supplies.  They say in their skeleton arguments at paragraph 21 and 22 as follows:

“Contrary to the assertions of HMRC, their treatment of the supply of nursing services through nursing agencies was not by virtue of any “concession” or “informal extra-statutory concession” on the part of HMRC but was and remains HMRC’s interpretation of the law.  This is clear from the public notices it has issued since 1983 and its stance in cases it has argued before the VAT Tribunal and High Court.  HMRC have always interpreted the law as meaning that nursing agencies acting as principal are making exempt supplies pursuant to the VATA.

By contrast, a concession in the context of VAT amounts to an extra-statutory relief from VAT which would otherwise be chargeable on supplies as a matter of statute.  A fortiori, if the Commissioners consider that supplies constitute exempt supplies pursuant to the VATA, this is incompatible with a position that the supplies in question are taxable but ought to be subject to relief by way of concession”.

58.	Is the matter one of an extra-statutory concession or one of law? This is relevant in determining the Tribunal’s jurisdiction. The Tribunal wishes to clarify that the parties do not have any issue with the jurisdiction of the Tribunal and both consider that the matter should be settled by reference to the law.  The parties accept the jurisdiction of the Tribunal as stated in their letter of 29 January 2010.  The Tribunal is concerned with the collection of tax under the VATA and all matters relating to such taxes fall properly within its jurisdiction. The Appellant has exercised a right to appeal to the Tribunal pursuant to section 80(t) VATA 1994, which concerns “a claim for the repayment of an amount under section 80(1) VATA.”  The matter is settled by reference to the law only.

59.	Lets us turn to the relevant legal points. The Appellant asserts that there is the provision of medical care exemption.  The Appellant says that the Respondents’ argument that there must be a supply to the patient is not correct and such an interpretation is restrictive.  If this were the case, then exemption will only be available where there is a direct recipient of the services of dental nurse or technician and in effect only where nurses and technicians were self-employed and acting on their own account in supplying such services directly to the patient.  They draw reference to Article 4 of the Sixth Directive and say that if dental nurses and technicians deliver their services through a principal, there is no basis in VAT law to differentiate between that position and the position of employed nurses and technicians or indeed the position of nurses and technicians acting on their own account. This would be to differentiate those services simply on the basis of the legal personality through which the services are supplied and such a distinction is not allowed.  They maintain that for the purposes of VAT, the relationship between the Appellant and the nurses and technicians is tantamount to an employer-employee relationship. The nurses and technicians do not carry on business on their own independent account and the Appellant when acting as principal in the supply of nurses or technicians services therefore obtains exemption with regard to  those services.

60.	The Tribunal does not believe that looking at whether the services are supplied through a principal or not or indeed through any other relationship is determinative of the issue.  The real and only question is what was being supplied and whether that supply was taxable or exempt.

61.	The section dealing with the provision of medical care is Article 13(A)(1)(c) of the Sixth Directive and Item 4 Group 7 Schedule 9 of VATA.

62.	The concept of medical care is a community law concept and we must look to community law to find its meaning.

63.	In Case C-384/98 D v W [2000] ECR 1-06795 there is an attempt to define medical care  as follows ( paragraph 18) :

“… “the concept of provision of “medical care” does not lend itself to an interpretation which includes medical intervention carried out for a purpose other than that of diagnosing, treating and insofar as possible curing diseases or health disorders”.

64.	The service which is provided must have a “therapeutic aim” and this must be construed strictly.

65.	In Case 307/01 Ambreumenil and Dispute Resolution Services v Commissioners of Customs and Excise [2005] STC 650 there was a supply of services requiring both legal and medical expertise and services such as arbitration and mediation.  The Appellant challenged the classification of certain of the services and whether they fell within the provision of medical care within the meaning of Article 13(A)(1)(c) Sixth Directive.  On a referral to the European Court of Justice it was held that the exemption from VAT did not apply to such things as the giving of a certificate for a person’s medical condition for pension purposes and medical examinations conducted with a view to the preparation of expert medical reports in matters of litigation nor medical examinations conducted with a view to the preparation of expert medical reports used in litigation. The principle emerging is that where medical services is provided and its principal purpose was not the protection of health but rather the provision of medical advice with a view to litigating a matter, then the exemption under Article 13(A)(1)(c) did not apply and such a service could not benefit from the exemption.  It was not medical care. Care has a therapeutic and diagnostic function and a supply of staff only falls  short of a provision of care.

66.	Another case which was referred to is Commissioners v KML Child Care Services Ltd [2006] STC 18.  In this case, the taxpayer’s business was the supply of staff, who remained as their employees, to various schools including local education authority schools and nurseries.  A question arose as to whether the services supplied by the taxpayer were exempt supplies for the purposes of VAT. Such services could only be exempt if they were a  supply by a state regulated private welfare institution of “welfare services”.  The simple question was whether the taxpayer could be said to provide welfare services and whether the taxpayer could be described as state regulated within the appropriate definitions.   Hart J said that there was a distinction between the nature of the service supplied by the taxpayer (the supply of staff) and the service supplied by the recipient of that supply.  The institutions receiving  the services of staff  were themselves regulated by the State with attendant obligations and duties. In the circumstances, this could not be a basis for saying that the Appellant was itself making supplies of welfare services. The case of the Commissioners v Reed Personnel cited earlier was applied.  The High Court drew a distinction between a supply of staff and a supply of services.  The supply of staff is a provision of employees.  Those employees are provided to a party, (the recipient of the employee)  who in turn deliver a service. In effect, there are two supplies, one of staff and one of services and they are made by  two different parties. The distinction is simple and clear.

67.	There are European cases where the distinction is blurred. In case C434/05 Stichting Regionaal Opleidingen Centrum Noord-Kennemerland/West-Friesland (Horizon College) v Staatssecretaris van Financien [2008] STC 2145, a case before the ECJ which considered the question of whether there was a supply of staff for educational services.  Without going into great detail in the case, the ECJ said that the provision of temporary teachers was not capable on its own of being a supply of education but was capable of being a supply “closely related” to education and so within the education exemption. The ECJ said it was a matter for the national courts to determine whether particular matters were within the exemption.  One has to look at all the facts  not just the contractual documents, to make that determination.

68.	What then emerges from the case law?  The law certainly is not settled.  For our purposes however the Tribunal finds that what was supplied was the services of staff rather than the services which those staff themselves provided.  The Appellant was supplying people and the dentists to whom those people were provided was supplying services to their patients. It is necessary to look at the services supplied and not only whether one is acting as principal or agent.  It may be that as part of that exercise that one has to look to see whether a party is acting as a principal but only to that extent and for that purpose.  The staff which were being supplied were used in the provision of medical care as defined under community law.  The service being provided was that of an employment agent supplying staff just as any other employment agency.

69.	It is accepted that the Inland Revenue’s position was confused but the Appellant had the benefit of that confusion and it cannot be said that it operated to their detriment.

70.	The Appellant provided very little documentary evidence relating to the period.  It is therefore difficult to establish exactly what was provided, by whom and on what basis. The contractual basis for the services was not fully supported by evidence.  The Tribunal had to piece together, from the correspondence, what was being provided.  The Appellant by their own admission said that they were providing nurses as agents and they were under the direct supervision of the dentists.  This was in the written correspondence.  

71.	The Tribunal is aware of the principle of neutrality, that is to say there must be no discrimination where care is being provided and where it is covered by the exemption. There is no basis to discriminate where services are provided by a principal or self-employed parties or indeed employees.  The fiscal neutrality doctrine requires that services are treated in exactly the same manner and the Appellant drew reference to Article 4 of the Sixth Directive and the definition provided of taxable person.This point is noted but it is necessary to look at the underlying supply being made.

72.	Nurses who are provided by the Appellant do not have a supervisory role but rather one of being an attendant to the dentists.  It is correct to say that the Appellant paid the dentists regardless of whether they were paid by their clients.  This is a statutory obligation and applies to all agencies in similar position.  The Appellant had various communications with HMRC since they were not clear on the legal position.  However in spite of the various communications, they continued to charge VAT and not to treat their services as being exempt until some years later.  

73.	Mrs Moher in her witness statement stated that the contracts for the relevant period were the same as those which were shown to the Tribunal as being 2011 copies.  The Tribunal does not accept this position.   There was less worker protection at the relevant time and in all likelihood the contracts would have been different.  The Tribunal does not accept that they were providing services through the medium of the Appellant acting as their principal but rather there were two supplies to two different parties.  Even if one accepts that the services are provided through a principal it does not change the VAT treatment as far as the Tribunal is concerned. The important point is whether there was a supply of services or a supply of staff.  

74.	We accept that the exemption is not dependent on the legal personality by or through whom it was provided.  The exemption envisaged by Article 13(A) of the Sixth Directive is not dependent on the legal form of the taxable person supplying the service (Case C-141-01 Kugler GmbH v Finanzamt fur Korperschaften 1 in Berlin [2002] ECR 1-6833).  It is required however that the services be supplied and they be supplied by a person who possesses the necessary professional qualifications.  Item 2, Group 7, Schedule 9 VATA provides for exemption in respect of services supplied to patient by appropriately qualified or supervised individuals.  It provides exemption in respect of dental care but it does not provide exemption in respect of the supply of staff to dentists and has never so provided.  The supplies which the Appellant made to her dentists’ clients were not supplies to dental patients.  They were supplies of staff to dentists and therefore was standard rated.  There is nothing in the Sixth Directive that requires Member States to exempt supplies of staff to dentists.  

75.	In the circumstances, the appeal is dismissed and the Tribunal finds that the relevant output tax for which the Appellant accounted was properly due and there should be no credit to the Appellant for the output tax which has been claimed.Finally, the issue of unjust enrichment does not arise. 

76.	The parties may apply to the Tribunal on any matters of costs.

77.		This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

DR K KHAN

TRIBUNAL JUDGE
RELEASE DATE: 3 May 2011