QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| The Queen on the Application of GSTS Pathology LLP
Guy's and St Thomas' NHS Foundation Trust
|- and -
|Commissioners for Revenue & Customs
Miss Alison Foster QC and Mr Peter Mant (instructed by the Solicitor for Revenue & Customs) for the Defendant
Crown Copyright ©
"the provision of care or medical and surgical treatment and in connection with it the supply of any goods in any hospital or state-regulated institution."
The VAT treatment of the proposed joint venture
The Request for a Ruling
"KPMG have been invited to act as due diligence advisers and tax advisers to Guy's in respect of their proposed joint venture arrangement to form an independent limited liability partnership (LLP) to carry out pathology services internally and externally. As you appreciate, the VAT and tax consequences of such an arrangement are extremely complex and I am writing to you in order to seek specific clarification and confirmation of the VAT treatment of this venture. Whilst Guy's is not due to go live with the LLP until September, the project's timeline dictates that it needs certainty of the VAT treatment before it enters into firm contractual arrangements with Serco. The Trust has therefore requested that we obtain a ruling from HMRC by the end of May which can be sufficiently relied upon to take forward the venture with VAT certainty."
The uncertainty over VAT exemption
"30 Moreover, medical tests which, as in the present case, are prescribed by general practitioners as part of the care they provide may contribute towards maintaining human health because, like any medical service effected for prophylactic purposes they allow for the observation and examination of patients before it becomes necessary to diagnose, care for or heal a potential illness."
" ..... in the light of the objective of reducing healthcare costs pursued by the abovementioned exemptions, medical tests such as those at issue in the main proceedings which have as their purpose the observation and examination of patients for prophylactic purposes, may constitute 'medical care' within the meaning of [the medical care exemption]."
"3.1 Some qualifying institutions allow outside businesses or practitioners to operate from their premises ..... "
The Notice goes on to state:
"For a supply made by such a business to qualify for exemption, they need to be providing care or medical or surgical treatment and all of the following conditions must be met:
• The goods or services supplied must form part of the medical care or surgical treatment provided within the qualifying institution.
• The goods or services supplied must be of a type commonly provided to beneficiaries of such services.
• The supply must not consist of drugs ..... or any other items that are integral to the care or treatment provided in the qualifying institution.
• The supply must involve direct contact between the provider and the beneficiary, and must contribute directly to the treatment of the beneficiary.
• The supply must not take place in a qualifying institution for reasons of geographical convenience only. This means that the supply must not be of a type that might equally be provided at a location other than the premises of a qualifying institution."
"There are very few supplies made by outside businesses that meet all of the above conditions."
"treatment supplied by outside contractors providing renal dialysis services in hospitals."
The 2008 ruling
"It is accepted that pathology services undertaken by the LLP are not for the primary purpose of protection, maintenance or restoration of the health of the person concerned but to provide a third party with the necessary element for taking a decision. Accordingly, the supply of pathology services by the LLP is taxable at the standard rate."
Reliance on the Rule
"We would have looked at other options for structuring the business if we had received a different ruling from HMRC before we had looked at any long term contracts to provide pathology services. However once we received the VAT ruling referred to, we relied on it and structured the joint venture accordingly. This issue has become even more complex now that GSTS has won additional contracts and an additional partner has joined the joint venture."
The 2010 Rulings
"Providing that the supplies do not differ then the same rules apply as per the earlier letter [from HMRC]."
The HMRC Decision
"As you are aware, I have asked our VAT policy secretary to examine the documents and information that you have provided in order to give a definitive view of the liability of the pathology supplies in question."
"HMRC would argue that analysing samples related to specific patients using a variety of health professionals is a far more complex service than just providing information. This analysis provides an essential part - indeed it is often the crucial part - needed to make a diagnosis. Therefore these services do constitute health care."
"In HMRC's view it would seem to be clear that pathology services play a vital role in 'the protection, maintenance or restoration of the health', meaning that they would qualify for exempt medical care. HMRC recognises that you have been correctly applied the standard rate of liability as per the HMRC ruling given on 29.04.10. We have listened to your argument that HMRC should allow you sufficient time to make suitable provisions and arrangements, and therefore we will not be giving the date of this letter as the date from which this exempt ruling must be applied. Instead, we are willing to state that this exempt ruling should be adopted from 01.05.2013. This should give you time to examine all of your suppliers' contracts in the light of this exempt ruling."
The Impact of the HMRC Decision
The Tribunal Appeal
The claim for Judicial Review
The Application for Interim Relief
The Approach to Interim Relief
Legitimate Expectations: the Law
"I cannot for my part accept that the Revenue's discretion is as limited as Mr Beloff submitted. In the Fleet Street Casuals case the Revenue agreed to cut part of the recoverable losses in order to obtain an immediate payment of tax. In Ex p Preston, the Revenue cut short an argument with the taxpayer to obtain an immediate payment of tax. In both cases the Revenue acted within its managerial discretion.
The present case is less obvious. But the Revenue's judgment on the best way of collecting tax should not be lightly cast aside. The Revenue might stick to the letter of its statutory duty, declining to answer any question when not statutorily obliged to do so and maintaining a strictly arm's length relationship with the taxpayer. It is however understandable that the Revenue has not, in practice, found this to be the nest way of facilitating collection of the public revenue."
"First, it is necessary that the taxpayer should have put all his cards face-upwards on the table. This means he must give full details of the specific transaction on which he seeks the Revenue's ruling unless it is the same as an earlier transaction on which a ruling has already been given. It means that he has indicated to the Revenue the ruling sought. It is one thing to ask an official of the Revenue whether he shares the taxpayer's view on the legislative provision, quite another to ask whether the Revenue will forgo any claim to tax on any other basis. It means that the taxpayer should indicate the use he intends to make of any ruling given. This is not because the Revenue would wish to favour one class of taxpayers at the expense of another but because knowledge that a ruling is to be publicised in a large and important market could affect the person by the level at which the problem is considered, and indeed whether it is appropriate to give a ruling at all. Secondly, it is necessary that the ruling or statement relied upon should be clear, unambiguous and devoid of relevant qualification."
"12 The importance of the extent to which thousands of taxpayers may rely upon guidance, of great significance as to how they will manage their lives, cannot be doubted. It goes to the heart of the relationship between the Revenue and taxpayer. It is trite to recall that it is for the Revenue to determine the best way of facilitating collection of the tax it is under a statutory obligation to collect. But it should not be forgotten that the Revenue itself has long acknowledged that the best way is by encouraging co-operation between the Revenue and the public ..... Co-operation requires fair dealing by the Revenue, and frank and open dealing by the public. Of course the Revenue may refuse to give guidance and re-create a situation in which the taxpayers and their advisers are left to trawl through the authorities to find a case analogous to their own, or, if they are fortunate, a statement of principle applicable to their circumstances. But since 1973, in a field fraught with borderline cases relating to an enormous variety of circumstances, the Revenue has chosen to confer what presumably it regarded as a benefit on taxpayers who wished to know whether they were likely to be treated as resident or not."
" ..... There is nothing 'mere' about official advice which is wrong in law ..... It is of course serious for the taxpayer; but it is serious for the public and for the rule of law. It is the Bill of Rights 1688 - the nearest thing we have to a constitutional text - which abrogates the dispensing power of the Crown. The decision of the Divisional Court ..... in R v IRC, ex parte MFK Underwriting Agencies Ltd  STC 873 ..... makes it absolutely clear that the law recognises no legitimate expectation that a public authority will act unlawfully. It is only where the expectation is of a particular exercise of managerial discretion that the court will begin to examine its legitimacy."
The present case
The Balance of Convenience