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URL: http://www.bailii.org/uk/cases/UKFTT/TC/2009/TC00136.html
Cite as: [2010] STI 1401, [2009] UKFTT 181 (TC), [2009] SFTD 523

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Allen Carr's Easyway (International) Ltd v Revenue & Customs [2009] UKFTT 181 (TC) (22 July 2009)
VAT - EXEMPT SUPPLIES
Health and welfare

[2009] UKFTT 181 (TC)

TC00136

Appeal number LON/2007/0924

EXEMPT SUPLIES – Health and Welfare – Appellant supplies services to help client stop smoking – Whether services are medical – Whether services directly supervised by a medical practitioner – VATA 1994 s.31 and Sch 9 Gp 7 Item 1(a) and Note (2); EC Sixth Directive Article 13(1)(c)

MISDECLARATION PENALTIES – Whether appellant's circumstances changed since earlier decision in Easyway productions Ltd – Whether Appellant attempted to resolve the issues with the Commissioners before appeal

FIRST-TIER TRIBUNAL

TAX CHAMBER

ALLEN CARR'S EASYWAY (INTERNATIONAL) LTD Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS (Exempt supply) Respondents

TRIBUNAL: MISS J C GORT (Judge)

MR S K DAS LLM, ACIS

Sitting in public in London on 18, 19 and 20 May 2009

Miss Valentina Sloane of counsel, instructed by Wharton & Wharton, for the Appellant

Miss Eleni Mitrophanous, instructed by the Solicitor's Office, for the Respondents

© CROWN COPYRIGHT 2009

DECISION

The principal appeal is against a decision made on 1 February 2006 that Allen Carr's Easyway (International) Ltd's ("the Appellant") supplies are standard-rated for value added tax. The decision was upheld on review by a letter dated 30 April 2007.

The Appellant also appeals against misdeclaration penalties totalling £23,024 as notified by a letter dated 16 March 2006, made under section 63(1)(a) of the Value Added Tax Act 1994 ("the Act").

The Appellant contends that its supplies fall within the exemption for medical services provided by section 31 and Group 7 of Schedule 9 to the Act (see below), and are directly supervised by a person who is enrolled on the register of medical practitioners within the meaning of Item 1(a) and Note (2) to Group 7. It was accepted by the Commissioners that if the Appellant succeeds in that argument, then it also succeeds in its argument that it is not liable for the misdeclaration penalties. If it fails in its contention that it provided medical services and that those supplies were supervised by a medical practitioner, then it was broadly the Appellant's case that the argument with regard to those issues was so complex that it could not be held liable for the misdeclaration penalties which arose out of its misunderstanding of those matters.

The legislation

Article 13A(1) of Sixth Council Directive 77/388/EEC (now Article 131 and 132 of Council Directive 2006/112/EC) provides:

"Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse.

(c) the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member State concerned."

The Value Added Tax Act 1994 provides:

S.31 Exempt supplies and acquisitions

(1) A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 …

(2) …

Schedule 9 Group 7 provides:

"Item 1 – The supply of services by a person registered or enrolled in any of the following –

(a) the register of medical practitioners or the register of medical practitioners with limited registration, …"

Note 2 – "Paragraphs (a) to (d) of Item 1 … 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 registered or enrolled."

Item 1 was amended as set out below (i.e. to include words "consisting in the provision of medical care" by SI 2007/206, arts 2, 3. Date in force: 1 May 2007 …

Item No.

1. The supply of services [consisting in the provision of medical care] by a person registered or enrolled in any of the following –

(a) the register of medical practitioners …

The Commissioners' Guidelines are as follows:-

Notice 701/57 "Health"

3.4 Education services

Doctors undertake a wide variety of education-related activities and consideration should be given to whether they qualify as an exempt supply of education (see Notice 701/30 Education and vocational training) before considering whether the qualify as a supply of exempt healthcare.

…

Presentations aimed at promoting health are also considered to be exempt as their principal purposes is to protect the health of the individuals attending. However, presentations given to a non-medical audience on, for example, the latest medical developments are considered to be taxable.

3.10 Occupational health

Occupational health services are now provided by individual doctors and a wide range of organisations with varying legal status. It is a rapidly growing field and a significant proportion of occupational health services has been contracted out by the NHS to commercial bodies.

Training and advice – this may qualify as an exempt supply of education (see above), but otherwise essentially represents the occupational health provider's role in promoting and advising on health issues for the purposes of maintaining the good health of the company's employees. It is therefore considered to qualify for exemption as medical care.

4.2 "When are services "directly supervised"?

Care services provided by any person who is not a registered health professional, are "directly supervised" for the purpose of the VAT exemption, when all of the following conditions are met:

1. The services are supervised by one of the registered health professionals listed in paragraph 2.1, and the supervisor is professionally qualified to perform and supervise the service.

2. The service requires supervision by a registered health professional, and is provided predominantly to meet the medical needs of a client.

3. The supervisor has a direct relationship with the staff performing the service, and is contractually responsible for supervising their services.

4. A qualified supervisor is available for the whole time that the care service is provided.

5. No more than 2000 hours per week of staff time are supervised by a singe health professional.

6. A supervisor has a say in the level of care to be provided to the client, and will usually see the client prior to the commencement of the care service.

7. The supervisor must be able to demonstrate that they monitor the work of the unregistered staff.

Where the above conditions are not met, your services are standard rated, even when performed to meet the medical or health care needs of a client."

The misdeclaration penalty

Section 63(1) of the Value Added Tax Act 1994 provides that:-

"In any case where, for a prescribed accounting period –

(a) a return is made which understates a person's liability to VAT or overstates his entitlement to a VAT credit, or

(b) an assessment is made which understates a person's liability to VAT and, at the end of the period of 30 days beginning on the date of the assessment, he has not taken all such steps as are reasonable to draw the understatement to the attention of the Commissioners,

and the circumstances are as set out in subsection (2) below, the person concerned shall be liable, subject to subsections (10) and (11) below, to a penalty equal to 15% of the VAT which would have been lost if the inaccuracy had not been discovered."

Section 63(2) provides:-

"The circumstances referred to in subsection (1) above are that the VAT for the period concerned which would have been lost if the inaccuracy had not been discovered equals or exceeds whichever is the lesser of £1,000,000 and 30 per cent of the relevant amount for that period.

Section 63(10) provide :–

"Conduct falling within subsection (1) above shall not give rise to liability to a penalty under this section if –

(a) the person concerned satisfies the Commissioners or, on appeal a tribunal that there is reasonable excuse for the conduct, or

(b) at a time when he had no reason to believe that enquiries were being made by the Commissioners into his affairs, so far as they relate to VAT, the person concerned furnished to the Commissioners full information with respect to the inaccuracy concerned."

Section 70(1) provides:–

"Where a person is liable to a penalty under Section 60, 63 …, the Commissioners or, on appeal a tribunal, may reduce the penalty as to such amount (including nil) as they see proper".

Section 70(3) provides:-

None of the matters specified in subsection (4) below shall be matters which the Commissioners or any tribunal shall be entitled to take into account in exercising their powers under this section."

Section 70(4) provides that:-

These matters are –

(a) the insufficiency of the funds available to any person for paying any VAT due or for paying the amount of the penalty;

(b) the fact that there has, in the case in question or in that case taken with any other cases, been no or no significant loss of VAT;

(c) the fact that the person liable to the penalty or a person acting on his behalf has acted in good faith.

We were referred to the following cases:-

ECJ cases

D'Ambrumenil and Dispute Resolution Services [2003] ECR 1-13989 Case C-307/01

Smithkline Beecham Case C-206/03

Solleveld Case C-443/03

LuP GmbH [2008] STC 1742 Case C-106/05

Kugler Case C-141/00

Dornier Case C-45/01

Tribunal cases

E Moss (VAT Decision 1950)

Anthony John Land (VAT Decision 15547)

A & S Services (AT Decision 16025)

Elder Home Care Ltd (VAT Decision 11185)

Easyway Productions Ltd (VAT Decision 14938)

HMRC publications

Public Notice 701/57 Health professionals

The Background

The Appellant company is involved in the business of assisting people to stop smoking.

It was initially registered as a partnership between Mathew Jacobs, Piers Thompson, Allen Carr and Joyce Carr and t/a Easyway Productions.

It has been registered for Value Added Tax (VAT) since 31 August 1989.

The Appellant runs a number of smoking cessation clinics on the basis of a "method" devised by the late Allen Carr himself. The first sessions using the method were run in 1983, and Allen Carr published his first book detailing the method in 1985. Since then, use of the method has spread widely and as well as clinics run by the Appellant it includes clinics run by independent franchisees both in the UK and over thirty other countries. Whilst it has not been subjected to independent scientific evaluation, nor is it specifically endorsed by the NHS, the Department of Health, or other statutory bodies in the health sector, it was acknowledged by the Commissioners in their Statement of Case that the method is generally accepted to have a high success rate, on the basis of testimonials from both satisfied customers and individual health professionals.

The Appellant derives income from marketing the method and the sale of related goods and services such as a telephone helpline, videos, books, franchise payments from the UK and from overseas providers of the method, as well as direct payment from people for both individual and collective therapy sessions. It has premises in London and Birmingham, but also holds clinics in hotels or at clients' premises.

By a decision of the Tribunal released on 4 June 1997 (Easyway Productions Ltd v The Commissioners of Customs and Excise) the Tribunal decided the following:

"(1) … the services supplied by the Appellant are not "directly supervised" by a registered medical practitioner within the meaning of Note (2) of Group 7 of Schedule 9; that decision disposes of the appeal but as submissions were made on the second issue I express my views which are

(2) that the supplies made by the Appellant may or may not be supplies of medical care but they are not provided by a registered medical practitioner in the exercise of his profession."

At that time the clinic sessions were claimed to be supervised by Dr Richard Carr (Allen Carr's son). Since that decision was released, the Appellant appointed a Dr Anil Visram, who is a registered medical practitioner, to work part-time supervising the therapists at its various clinics. It was one of the issues for this Tribunal whether or not his work can be considered supervision as a matter of law.

The evidence

A large agreed bundle of evidence was provided comprising four ring binders. We have only read those documents to which our attention was drawn or which we indicated we wished to read. We heard oral evidence on behalf of the Appellant from Dr Visram, and from Mr Robin Hayley who is the managing director of the Appellant and is also an Allen Carr therapist. A witness statement from Mr John Henshaw, an officer of the Commissioners who managed a Vat assurance team specialising in charities and not-for-profit bodies was provided. He was not called and we were not referred specifically to this witness statement, but we were referred to many of the documents which are exhibited thereto.

The facts

We are not concerned with the status of those companies or entities which have franchised agreements with the Appellant, although the manual we saw which sets out the method was provided to the franchisees and is written in part with them in mind. The manual is similar to that originally written by Allen Carr himself, which was in evidence at the earlier tribunal hearing, but it has since been modified, principally because of the input of Dr Visram. The manual prescribed in considerable detail the process and procedure to be used by the therapist. A client (who will by definition be someone who wishes to give up smoking), having contacted one of the clinics and made an appointment, has to complete a questionnaire. These questionnaires are in part used by the therapist who provides group therapy in a session which lasts between 4½ and 5 hours. The cost is £210 and there is no extra cost for those clients who return for either one or two further sessions beyond the initial one. The principal session is divided into three parts: the first part is a discussion, based in part on the attendees' questionnaires, of reasons for smoking and particularly of the fact that their addiction is to nicotine and not to smoking itself which is the fundamental tenet of the method and also deals with any medical issues which may arise. The second part is concerned with methods of stopping smoking, and in particular with helping the clients understand why they smoke, and the third part, which is headed "hypnotherapy", but which was said by Dr Visram to be essentially relaxation therapy, consists of the clients sitting comfortably in reclining chairs with the lights off, breathing deeply and relaxing whilst the therapist talks to them. This session lasts about 20 minutes. There are regular smoking breaks during the two earlier sessions but not during the final one.

The therapists, of whom there are currently six, may come from any walk of life and may have no medical or psychological qualifications. All that is required is that they have previously been smokers. They are trained in the Allen Carr method which involves their learning the manual (which is quite lengthy, consisting of about 150 close-typed pages), sitting in on sessions conducted by other therapists, presenting sessions to their colleagues (but not with paying clients) and a formal interview at which Dr Visram may be present but is not invariably so. It is considered imperative that a therapist learns to deliver the essential message which is that nicotine is the cause of smokers' symptoms such as stress, tension and boredom, not the answer to them, and it is a myth that smoking can relieve those symptoms. It is a further fundamental tenet of the method that neither will-power nor nicotine replacement therapy ("NRT") are effective methods of treating nicotine addiction. NRT in particular is regarded as incompatible with the method. The Appellant does not advertise its services but has a website.

Dr Visram B.Sc.(Hons), M.B., BPh., F.R.C.A., qualified as a doctor in 1986. He is currently a consultant anaesthetist at St. Bartholomew's and the Royal London Hospital NHS Trust. He has a further degree in neurophysiology and undertakes some private work, and has had training in behavioural modification therapy by non-pharmacological methods. He has a special interest in neuroanaesthesia and paediatric anaesthesia, having written extensively on dealing with anxiety in children pre-anaesthesia. We found Dr Visram to be an impressive witness who is clearly committed to the cause of giving up smoking, but he could not, and should not be, regarded an independent witness. Dr Visram signed a contract with the Appellant in July 1997, after having been approached because of his advocacy of stopping smoking, and his concurrence with the central tenets of the Allen Carr method. The preamble to his agreement records inter alia the part played by Dr Richard Carr in helping develop the method and ensuring that the content of the therapy was "consistent with the highest standards of the established medical profession". By the agreement Dr Visram contracted inter alia to take over from Dr Carr the responsibility of supervising the services provided by the therapists, and was given the right whenever he required to: "Interview and/or interrogate any of the Therapists, to inspect the premises where therapy is conducted, to inspect the records of each and every smoker receiving the therapy, to suspend any of the Therapists for whatever reason he may deem to be appropriate, to alter the contents of the Easyway training manual and to alter the system of recording and reporting all information relating to the therapy as he sees necessary. Dr Visram will have the right to make any alterations to procedures he deems necessary in order to conform to the Standards." This contract has not been updated.

Dr Visram works approximately 4 hours a week on the Appellant's behalf. He had modified the manual, in particular he had required that all questions of a medical nature were addressed in the early stages of a session and he required that there be more interaction between the client and the therapist in the early stages. All the sessions were audio recorded and reviewed by Dr Visram, he did not listen to the full recording of a session but, by being able to locate the medical questions, he was more easily able to deal with them. He listened carefully to check that the therapists were conveying the message about the effects of nicotine correctly and were addressing any medical queries correctly. He had devised a questionnaire which the therapists completed weekly advising him of the sessions conducted by them and of any medical issues arising. He holds monthly telephone conferences with all the therapists, and requires all questions of a medical nature to be referred to him. Every six months he reviews the content of the sessions and advises any changes he deems necessary. He visits two of the London-based clinics about twelve times per annum to observe the therapists and to discuss medical issues with them. In the past he has visited the Birmingham clinic. All the therapists have available his mobile telephone number and are able to contact him at any time by telephone or by e-mail. On occasions he has written to clients.

The medical queries which generally arose related to:

(a) Withdrawal symptoms such as weight gain, depression, constipation and disturbed sleep patterns;

(b) Medication used such as nicotine replacement therapy, tranquillisers, anti-depressants, zyban and champix;

(c) Illnesses where there is some (not always conclusive) clinical evidence that nicotine can alleviate or control the symptoms such as ulcerative colitis, Alzheimer's and Parkinson's diseases;

(d) The impact of smoking sensation on other health problems such as asthma, bronchitis or heart conditions.

In one instance a therapist who had a client with ulcerative colitis was advised to suggest that that client took NRT because Dr Visram considered the dangers of complete nicotine withdrawal to someone with that condition outweighed the necessity of complying with the Appellant's method and never using NRT. It was Dr Visram's opinion that the method was based on the extensive research into nicotine addiction. He had changed the method himself to the extent that he had made the procedure more interactive, had required a discussion of medical issues during the first session and had shortened the length of the third session.

Dr Visram had reviewed two studies of the Allen Carr method, firstly a paper from Austria published in the International Archives of Occupational and Environmental Health and secondly an article published in the Austrian Journal "Sichere Arbeit" ("Safe Work") entitled "The long-term success of occupational and non-smoking seminars". The first is a survey of patients who had attended one of the Appellant's clinics as part of a workplace related initiative, and the second was a telephone survey conducted by a firm of various of its employees who had attended an Allen Carr clinic in the previous two to four years. The studies showed an abstinence level of 40% and 51.6% respectively. Dr Visram acknowledged that both studies had limitations in their methodology, which he set out in his review. He considered that the first study was less susceptible to bias, but was limited by being a smaller sample with a shorter follow up period. Overall however he concluded that in respect of the first paper it was "a very robust cohort study with follow up to a year which shows a significant success in quitting smoking plus an improvement in health for participants." With regard to the second paper he concluded that: "Although the survey is not as robust as the previous paper, it is a good retrospective survey and shows the Allen Carr method to be very effective. There are potential biases as outlined above. One of its most powerful messages which adds new information to the previous study is the duration of the effectiveness of the Allen Carr method is – most people who have stopped smoking by means of the method for two years will not relapse. The comparable rates for late relapse in the literature for other methods including NRT are much higher."

A publication produced by the Department of Health entitled "NHS Stopping Smoking Services & Nicotine Replacement Therapy" provides that such services are available across the NHS and NRT is provided as a complement to the therapy. The therapy is provided in group sessions and most advisers are nurses or pharmacists who have had training for the role. The type of training is not specified. The National Institute for Clinical Excellence (NICE) has issued guidance on the use of NRT or Bupropion (Zyban), it claims that its use doubles the chances of a smoker successfully quitting. We were also shown a White Paper on tobacco which refers to the same statistics, and also refers to NRT being provided free of charge to those least able to afford it. At paragraph 4.17 of the White Paper, which was prepared on 10 December 1998, it states: "We will monitor the effectiveness of this policy over the coming three years to see if alternative approaches to NRT would be better." At paragraph 4.28 it sets out the findings of the Addiction Resource Centre at the Bethlehem and Maudsley NHS Trust whose clinic achieves a success rate of 20-25% a year, and provides NRT at a reduced cost. A report from the Royal College of Physicians entitled Nicotine Addiction in Britain states: "Smoking is now recognised as the single largest avoidable cause of premature death and disability in Britain … it is now recognised that Nicotine Addiction is one of the major reasons why people continue to smoke cigarettes …" In a section headed "Treatment of Nicotine Addiction" it gives the two main complementary forms of intervention as "motivation, support and advice" and "treatment products such as NRT".

There have been no randomised control trials to monitor the effectiveness of the Appellant's method, principally because of the cost involved. NICE has not evaluated the method. However, a Professor Britton was commissioned by the Appellant to produce a report outlining a proposal for a trial comparing the efficacy of the method with standard NHS Stop Smoking services in achieving smoking cessation for six months. In his report he refers to the Austrian trials and comments that the data indicates that the Appellant's method achieved levels of success which compared favourably with those reported from conventional NHS Stop Smoking Services. He estimated the cost of carrying out such a trial as being £719,853, a large sum for the Appellant. We were shown an invoice from the Appellant to the Westminster Primary Care Trust dated 7 April 2009 in the sum of £4,400 plus £660 VAT in respect of "Stop Smoking Therapy" for 20 employees at £220 per person. The Appellant's website shows its corporate clients as including inter alia the Inland Revenue, Guinness, Esso, Marks & Spencer, Channel Four, Sony, Tesco, BT and Pruhealth. The Appellant relies particularly on the first and last of those listed as giving validation to its claim to provide medical care.

Following the Tribunal decision in 1997 there was considerable correspondence between Allen Carr himself and the Commissioners up to 2005 when Robin Hayley started corresponding with a Mr Richard Houghton of HMRC. That correspondence has not been made available to the Tribunal, but in a letter dated 19 February 2006 Mr Carr set out a summary of the issues with which much of that correspondence dealt. We have seen that summary and accept that the Appellant was in regular correspondence with various officers of the Commissioners in an attempt to resolve the issues which are facing this Tribunal.

The Respondents' case

The Commissioners' case in essence is that the sessions given are not medical in nature, not involving the exercise of any medical expertise. It is not sufficient to qualify as "medical care" for the Appellant to claim that its services have a health benefit and a therapeutic aim, they must also be medical in nature. The sessions are not a supply of medical care provided by a medical practitioner in the exercise of his profession, nor are they directly supervised as such. The method is neither formally recognised nor regulated; the therapists have no formal qualifications and no medical training. We were referred to the case of Solleveld at paragraph 37-41 where the ECJ stated:

"37. In this respect, concerning, first, the objective pursued by Article 13A(1)(c) of the Sixth Directive, it should be noted that the condition laid down by that provision, that medical care must be provided in the exercise of the paramedical profession as defined by the Member States concerned, is to ensure that the exemption applies only to medical care provided by practitioners with the required professional qualification (Kugler, paragraph 27). Consequently, not all medical care falls within the scope of such an exemption, the latter concerning only that of sufficient quality having regard to the professional training of the providers.

38. It follows that the exclusion of a particular profession or a specific medical-care activity from the definition of the paramedical profession adopted by the national legislation for the purpose of the exemption laid down by Article 13A(1)(c) of the Sixth Directive must be capable of justification on objective grounds based on the professional qualifications of the care providers and, therefore, by consideration relating to the quality of the services provided.

39. As regards, secondly, the principle of fiscal neutrality, which is inherent in the common system of VAT, it must be remembered that, according to case-law, that principle precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes …

40. In order to determine whether medical care is similar, it is appropriate to take into account, concerning the exemption laid down in Article 13A(1)(c) of the Sixth Directive and having regard to the objective pursued by that provision, the professional qualifications of the care providers. In fact, where it is not identical, medical care can be regarded as similar only to the extent that it is of equivalent quality from the point of view of recipients.

41. It follows that the exclusion of a profession or specific medical-care activity from the definition of the paramedical professions adopted by the national legislation for the purpose of the exemption from VAT laid down in Article 13A(1)(c) of the Sixth Directive is contrary to the principle of fiscal neutrality only if it can be shown that the person exercising that profession or carrying out that activity have, for the provision of such medical care, professional qualifications which are such as to ensure a level of quality of care equivalent to that provided by persons benefiting, pursuant to that same national legislation, from an exemption."

Miss Mitrophanous submitted that, as the sessions do not constitute the provision of medical care, their supervision by a member of the medical profession is insufficient to bring them within the exemption.

The Commissioners also relied on the case of d'Ambrumenil for the well-known proposition of European law that an exemption must be narrowly construed. At paragraph 55 the European Court of Justice rejected the extension of the exemption to all activities normally included in the function of doctors (an argument which had been put forward on behalf of the United Kingdom Government in that case) applying the normal construction that all exemptions envisaged in Article 13 are to be interpreted strictly since they constitute exceptions to the general principal. At paragraph 53 the Court said:

"Article 13A(1)(c) does not exempt all services which may be effected in the exercise of the medical and paramedical professions, but only provision of medical care, which constitutes an independent concept of Community law."

It was submitted that we should reject the Appellant's claim that the exemption must be interpreted in line with its purpose of reducing health cost because that claim assumes that the service is effective, whereas there is no relevant recognition of the service.

The Commissioners point to the fact that the franchisees may use the method without supervision by a medical practitioner, or people may buy the book to follow the method that way, and they conclude that the service does not by its nature therefore involve medical expertise. Whilst it is a necessary condition of medical care that it prevents or treat disorders, it is not a sufficient condition. An example was given us of a personal trainer in a gym as fulfilling that condition but nonetheless not providing medical care, even when a medical practitioner was engaged as a consultant.

With regard to the Appellant's argument that Dr Visram enhanced the quality of the service and therefore, although the sessions may not require medical expertise, they qualify because they are so supervised, this was rejected for the following reason: if no medical expertise is involved, then the service cannot be enhanced, its quality cannot be improved, simply because it is provided by a medical practitioner. Thus, a service that does not require the exercise of medical expertise because it simply does not involve such expertise cannot properly be considered to be medical care. Because the Appellant's method is based solely on the idea that the pleasure in smoking is illusory, there is no reason to think that a doctor will be any better at delivering this message. It is a message that neither requires nor involves the exercise of medical expertise.

Miss Mitrophanous points to the key difference between the Appellant's services and the message of the medical establishment: the Appellant says "do not use NRT or will-power", the medical establishment states that using NRT and will-power is required. The service provided by the Appellant is not the same as that provided by doctors just because both have the same aim.

With regard to the question of medical supervision, the Commissioners' case is that Dr Visram's services are more akin to advice and consultancy. They relied on the fact that the treatment does not require supervision, the method is provided by a non-qualified therapist, and if it were to count as medical care then a high degree of medical supervision would be needed. In fact Dr Visram only provides an add-on service of answering medical queries, he does not supervise delivery of the method, having no real influence on the message and being open-minded about NRT, he does not see the clients to assess their suitability and no proper evidence was given that he oversaw the method.

In Notice 701/57 the Commissioners set out guidelines as to what they consider constitutes direct supervision, one of the purpose of these being to prevent services which do not qualify for exemption primarily on the basis that they do not involve the provision of medical care becoming so simply by the insertion of a health professional into the overall service. It makes it a condition of a care service qualifying for exemption on the basis that it is directly supervised by a registered health professional that "the service requires supervision by a registered health professional". If a service cannot properly be described as the provision of medical care, and thus does not involve or require direct supervision by a registered health professional, it does not qualify for exemption simply because the service is in fact supervised by a registered health professional. It was the Commissioners' contention that Dr Visram does not directly supervise the therapists' work but carries out a wholly separate advisory function of answering medical questions relating to smoking. The provisions in Note 2 are there to permit, in appropriate circumstances, registered health professionals to delegate certain activities to unregistered or unqualified individuals. In the proper application of this provision it is still the health professional, using his knowledge and skills, who has overall control of what treatment is provided, and who takes responsibility for the delivery of that treatment. The evidence does not support Dr Visram's having such control.

With regard to the misdeclaration penalty, the Commissioners rely on the previous decision of the tribunal that the appellant's services are not supervised, and the fact that following that decision the appellant continued to exempt its activities and that no evidence has been provided in respect of any reasonable excuse which the Appellant might have advanced.

The Appellant's case

Miss Sloane reminded us that we have to determine whether the entirety of the service provided by the Appellant fell within the scope of the exemption, and that we should not be looking at the Allen Carr method in isolation, or considering the service provided by the franchisees at all. The Appellant relies on Note 2 to Item 1 of Schedule 9 Group 7 of the VATA, set out above, as covering the services provided by the Appellant's therapists on the basis that they are directly supervised by Dr Visram. It points to the similarity of the sessions provided by the Appellant and the services provided by the National Health Service to smokers.

We were referred to the ECJ decision in d'Ambrumenil at paragraph 57-60 where the Court said:

"57. In relation to the concept of 'provision of medical care', the Court had already held in paragraph 18 of its judgment in B. v W, and restated in paragraph 38 of its judgment in Kugler, cited above, that that concept 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.

58. While it follows from that case law that the 'provision of medical care' must have a therapeutic aim, it does not necessarily follow therefrom that the therapeutic purpose of a service must be confined within an especially narrow compass (see, to that effect, Commissioners v France, paragraph 23). Paragraph 40 of the judgment in Kugler shows that medical services effected for prophylactic purposes may benefit from the exemption under Article 13A(1)(c). Even in cases where it is clear that the persons who are the subject of examinations or other medical interventions of a prophylactic nature are not suffering from any disease or health disorder, the inclusion of those services within the meaning of 'provision of medical care' is consistent with the objective of reducing the cost of health care, which is common to both the exemption under Article 13A(1)(b) and that under (c) of that paragraph (see Commissioners v France, paragraph 23, and Kugler, paragraph 29).

59. On the other hand medical services effected for a purpose other than that of protecting, including maintaining or restoring, human health may not, according to the Court's case-law, benefit from the exemption under Article 13A1(c) of the Sixth Directive. Having regard to their purpose, to make those services the subject of VAT is not contrary to the objective of reducing the cost of healthcare and of making it more accessible to individuals."

60. As the Advocate General correctly pointed out in paragraphs 66-68 of her Opinion, it is the purpose of a medical service which determines whether it should be exempt from VAT. Therefore if the context in which a medical service is effected enables it to be established that its principal purpose is not the projection, including the maintenance or restoration, of health but rather the provision of advice required prior to completing of a decision or legal consequences, the exemption under Article 13A(1)(c) does not apply to the service. "

From this case it was submitted that we should derive the conclusion that the purpose of the service determined whether or not it should be exempt, and that services with the objective of reducing the cost of healthcare were within the exemption. Because smoking itself is an illness, namely nicotine addiction, and the Appellant's method prevents the development of illnesses, it comprises medical care. The Appellant adopted the United Kingdom's argument in d'Ambrumenil that the term 'medical care' should not be construed unduly narrowly. (However, we note that that argument was not adopted by the Court.) From the proposition that smoking was an illness we were referred to the case of SmithKline Beecham, which concerned the tariff classification of nicotine patches and where it was said at paragraph 36-38:

"36. It is clear from the documents before the Court, and especially from the scientific experts' reports referred to by SmithKline, that the patches present clearly defined therapeutic or prophylactic characteristics with an effect concentrated on precise functions of the human body.

37. First, they form a recognised treatment for nicotine (or tobacco) addiction and withdrawal symptoms involved in that addiction.

38. Second, by helping the persons concerned to stop smoking, the use of the patches help to prevent diseases associated with the consumption of tobacco, as the Commissioners had noted in particular in the written observations and in its answer to a question raised pursuant to Article 54A of the Courts Rules of Procedure."

As with the Commissioners, the Appellant relied on the case of Solleveld, but emphasised different aspects. On the facts of the present case it was submitted by Miss Sloane that the principle of equal treatment, reflected in the field of VAT by the principle of fiscal neutrality, required that the Appellant's services should be exempt. There was no provision in either the domestic or the European legislation that medical care can only be provided by a registered health practitioner. The concept of medical care extends to any "services which have as their purpose the diagnosis, treatment and insofar as possible, cure of diseases or health disorders" (LuP).

We were referred to the report of the Royal College of Physicians cited above as recognising that "motivation, support and advice" was one of the two main forms of intervention. We were referred to the wide-ranging and inclusive (Miss Sloane's words) approach in Public Notice 701/57 which, at section 3.4 includes within the concept of medical care services such as 'presentations aimed at promoting health' which are 'considered to be exempt as their principal purpose is to protect the health of the individual attending'. At Section 3.10, which is entitled 'Occupational health', there is a sub-paragraph entitled 'Training and advice', which it is stated may qualify as an exempt supply of education, but otherwise 'essentially represents the occupational health provider's role in promoting and advising on health issues for the purposes of maintaining the good health of a company's employees. It is therefore considered to qualify for exemption as medical care'. While Miss Sloane referred us to this passage in Public Notice 701/57, she nonetheless reminded the Tribunal that the conditions therein relied on by the Commissioners for their interpretation of 'directly supervised' were not binding on us, do not have the force of law and, in many cases, are unsupported by authority. We were referred to the case of Anthony John Land where the tribunal said that the guidelines were "no more than an interesting ex parte expression of opinion", and the ordinary English words 'direct supervision', applied. On the matter of "directly supervised" the Appellant relies on the decision of the Tribunal in E. Moss (19510) where it was held that 'direct' means that there is no intervening third party, and 'supervision' means the appropriate level of supervision depending upon the circumstances of the case. Direct supervision does not have to be constant or unremitting. Condition 2 in section 4.2 of the guidelines in Public Notice 701/57 (see above) is nowhere to be found in the legislation or the case law, and, it was submitted, does not make sense. She gave as an example a general practitioner who would be supplying a taxable service when providing advice on giving up smoking or getting fit, but an exempt one when performing a task which can only be performed by a registered health practitioner.

Decision

The first matter we have to decide is whether the Appellant provides 'medical care'. It is perhaps unfortunate that the earlier tribunal dealing with very similar issues did not go on to decide that issue but limited itself to a decision on the question of supervision by a medical practitioner.

We accept that the Appellant's aim is to treat nicotine addiction, which, as was recognised in the case of Smithkline Beecham, is a medical condition. The Allen Carr method is designed to help prevent diseases associated with the consumption of tobacco. We bear in mind that we are not considering whether the delivery of the method itself can properly be called the provision of medical care, but whether the service provided by the Appellant, namely the delivery of the method in conjunction with the service provided by Dr Visram constitutes medical care. In our judgment it is important not to consider the method in isolation. Whilst Miss Mitrophanous advanced a cogent argument as to why delivery of the method by itself cannot properly be considered to be the provision of medical care, we are persuaded that, taking together with Dr Visram's input, it not only can, but should be so considered, for the following reasons.

As stated above, the Appellant's aim is to provide a therapeutic service which is delivered to people who are suffering from a recognised medical condition, namely nicotine addiction. Paragraph 58 of d'Ambrumenil cited above, refers to the necessity of there being a therapeutic aim to qualify as 'medical care'. In the same paragraph the European Court refers to the objective of reducing the cost of health care, which is a direct consequence of giving up smoking and hence an indirect aim of the Appellant. At paragraph 60 the Court accepted the Advocate General's conclusion that it was the purpose of a medical service which determined whether it should be exempt from VAT. Whilst we accept the Commissioners' argument that it does not follow from the fact that the Appellant has therapeutic aim and the consequence of a client giving up smoking is a reduction of the cost to the health service, that it is therefore providing medical care, nonetheless these matters take the Appellant a long way towards satisfying the legal requirement.

We accept Miss Sloane's argument in respect of Public Notice 701/57, namely that its provisions are not binding on us, but we take account of those provisions in respect of presentations aimed at promoting health which she cited to us from section 3.4 and also section 3.10 in respect of training and advice. The Appellant does make presentations to different companies, the names of some of which are set out above, and the companies' aim in employing the Appellant is to promote the health of its employees. This would appear to show that there is an inconsistency in the approach taken by the Commissioners. There are further inconsistencies in the Commissioners' case in that, on the one hand it is argued by Miss Mitrophanous in her skeleton argument that the Appellant's claim for exemption "assumes that the service is effective, contrary to the absence of any relevant recognition of the service", whereas in the Statement of Case it is stated: "The method is however generally accepted to have a high success rate, on the basis of testimonials from both satisfied customers and individual health professionals". Furthermore, the former Commissioners of Inland Revenue were clients of the Appellant, paying for staff to undergo the method. Pruhealth also pay for the Appellant's services, and, in our judgment, endorsement by an organisation whose business is providing health care, and one of whose aims is to prevent illness, does provide some relevant recognition of the method.

Group therapy, which is what the Appellant provides, is itself a recognised therapeutic technique, but we were not given any evidence by the Commissioners as to what form of training therapists employed by the NHS to administer group therapy to smokers undergo, nor indeed any evidence at all about the sort of qualifications or training any counsellors or therapists who are accepted by the Commissioners as providing medical care undergo. The European Court in the case of Solleveld at paragraph 38-40 (cited above) with reference to professional qualifications, concludes that medical care "can be regarded as similar to the extent that it is of equivalent quality from the point of view of the recipients" (para 60) and the level of quality of care is equivalent to that provided by persons benefiting from the exemption. Given that such evidence as we have, namely the two studies of the method, the various companies and public bodies that used the service, and Dr Visram's evidence, is to the effect that the success rate of the Appellant's service is at least as high, if not higher than that of the NHS' comparable service, it cannot be said that the Appellant's clients receive a qualitatively inferior service. The Commissioners themselves in their Statement of Case acknowledged its effectiveness, and, by sending employees of the Inland Revenue to the Appellant, they must be taking to accept the quality of the service. It is the case that there is no provision of either the European or the domestic legislation that medical care can only be provided by a registered health practitioner.

Dr Visram's input is an integral part of what the Appellant provides. He is very well qualified in various medical disciplines and has a long-standing commitment to assisting people giving up smoking. It was not suggested that his involvement with the Appellant was for mercenary reasons, and his enthusiasm for the Allen Carr method was evidently genuine. It was his belief that his input enhanced the quality of the service on the basis that it maintained the quality of the medical care. There is no evidence that the therapists working for the NHS do anything different other than making available NRT, and we were not told whether or not they themselves determine whether or not to prescribe it, or in what circumstances it is prescribed. Whist Dr Visram does not see all the clients individually, his approach is to ensure that all matters of a medical nature are referred to him by the therapists, and from time to time patients contact him directly. Because of the Appellant's core belief that NRT is harmful and not helpful, it must be the case that there is even more need for medical input than would be the case if the use of NRT were part of the Appellant's treatment method because of the incipient dangers to some people of sudden nicotine withdrawal. There was no evidence before us that any of the Appellant's clients had ever suffered from lack of medical attention. Dr Visram was sufficiently alert to the dangers, and sufficiently in touch with the therapists to ensure that NRT was prescribed where such a danger existed.

Miss Mitrophanous compared the Appellant's services with those provided by a gymnasium or a sports club, and thus of Dr Visram as akin to a medical consultant supervising at the gym or supervising a personal training regime. We do not accept the analogy because the only aim of a person purchasing the Appellant's method is to achieve a medical end: namely quitting smoking and thereby gaining the uncontested health benefits which accrue. People may attend gymnasia or sports clubs, or embark on a personal training regime for a variety of reasons other than for the health benefit.

The Respondents' argument that supervision is not required does not of itself preclude exemption. It was observed by the Tribunal in the case of Anthony John Land that the purpose of the requirement that medical care be directly supervised was to ensure the quality of the service. As the chairman in that case, Paul De Voil, put it: "the mischief aimed at … by the VAT Act, is the unsupervised unqualified person – the 'cowboy' …". ` We accept Miss Sloane's submissions on the interpretation of 'directly supervised', and consider that the amount of input from Dr Visram both in terms of the content of the sessions and the role played by the therapists can only properly be described as direct supervision. We do not accept that his services are only an 'add-on'. The evidence showed quite clearly not only that Dr Visram has considerable involvement on a regular basis with the therapists, but that his concern is to have a medical input by ensuring that nicotine addiction is properly explained and by ensuring that any and all medical issues are properly and promptly addressed, both by monitoring the sessions and by keeping the therapists informed of any relevant medical literature, and by ensuring that he is at all times contactable by the therapists.

For all the above reasons we find that the services provided by the Appellant constitute medical care and that those services include direct supervision by a person who is enrolled on the register of medical practitioners. Although this decision means that the appeal against misdeclaration penalties also succeeds, we would add that, had the Appellant not succeeded in the substantive appeals, we would nonetheless have allowed the appeal against the misdeclaration penalties, firstly because the circumstances of the Appellant in this case are very different from those in the decision in Easyway on which the Respondents relied and, secondly, the Respondents appeared to be quite unaware that there had been considerable effort on behalf of the Appellant to resolve the issues over many years and argued that there had been no such contact, whereas the evidence before us was to the contrary.

This appeal is allowed and, the appeals having been brought before 1 April 2009, it is directed that the VAT Tribunals Rules 1986 apply with regard to costs, and the Appellant is awarded its costs, to be agreed or, in the absence of such agreement, to be referred to a Costs Judge of the High Court.

MISS J C GORT

TRIBUNAL JUDGE

RELEASE DATE:22 July 2009