Neutral Citation: [2025] UKFTT 661 (TC)
Case Number: TC09544
FIRST-TIER TRIBUNAL
TAX CHAMBER
Manchester Tribunal Centre
Appeal reference: TC/2022/12875
VAT on supplies of drugs to outpatients where the drugs are administered by healthcare professionals from a different legal entity to the supplier. Held that such a supply is for 'personal use'.
Heard on: 17 and 18 March 2025
Judgment date: 5 June 2025
Before
TRIBUNAL JUDGE SARAH ALLATT
MS ANN CHRISTIAN
Between
CLATTERBRIDGE PHARMACY LIMITED
Appellant
and
THE COMMISSIONERS FOR HIS MAJESTY'S REVENUE AND CUSTOMS
Respondents
Representation:
For the Appellant: Mr Thomas, KC, instructed by KPMG LLP
For the Respondents: Ms Vickary of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs
DECISION
Introduction
- This is an appeal against 3 decisions made by HMRC on 8 July 2021, 13 January 2022 and 8 July 2022. Each decision decided that supplies at issue should be standard rated rather than zero rated.
background
- The background is taken largely from the witness statements of Caroline Doherty and Joanne Bowden. Both witnesses gave oral evidence as well as providing witness statements. We found both witnesses to be credible and helpful and their evidence was not challenged.
- There is no dispute as to the facts in this case. Clatterbridge Pharmacy (CPL) is a wholly owned subsidiary of the Clatterbridge Cancer Centre NHS Foundation Trust (the Trust).
- CPL is a private limited company which is run on an arms-length basis. It operates under the trading name "PharmaC".
- The Trust specialises in the treatment of cancer. It operates from an administrative centre on Clatterbridge Road, Wirral, it operates two hospitals (in Liverpool and Aintree) and it operates a hub model providing cancer services from other hospitals not a part of the Trust across Merseyside and Cheshire.
- In 2013 the Trust incorporated CPL as its subsidiary with the intention that CPL would undertake the business of operating a pharmacy dispensing qualifying goods to outpatients of the Trust to improve the service to its patients. CPL provides dispensing from the Wirral and Liverpool hospital sites but not from any other site at which the Trust operates.
- The principal elements of CPL's business are now (i) dispensing medication to the outpatients of the Trust, (ii) acting as a wholesale dealer in medicines (iii) providing a ward top-up service to the Trust and (iv) dispensing medicines to in-patients of the trust.
- This case is concerned with the dispensing of particular medication to particular patients of the Trust, namely those patients who receive intravenous ("IV") and injectable cancer medication from CPL.
- The supply in question is the supply of the dispensing fee charged by CPL to the Trust, for dispensing (some) medication to patients with cancer who receive care from the Trust in their own homes. The care in question includes the administering of these medications to the patients by a healthcare professional.
- It is necessary to set out some regulatory background to this case. This was unchallenged by HMRC.
- The regulation of medicines in the UK is restricted by the terms of legislation including by the Medicines Act 1968, the Human Medicines Regulations 2012 ('HMR') and the Misuse of Drugs Act 1971. The UK system of regulation places different restrictions on different categories of medicines. The main categories of medicines are known as prescription only medicines ('POMs'), pharmacy medicines ('P's), and general sales list medicines ('GSL's). We were referred to Government guidance on reclassification which summarises the restrictions applying to each of these categories and the criteria applied. As stated under the heading 'Prescription-only medicines' in the Guidance, POMs are used for conditions that are best diagnosed and managed by health professionals. The Guidance summarises under the heading 'Prescription-only medicine (POM) to pharmacy (P) medicine' the criteria that are applied to designate a medicine as POM as set out in HMR. The criteria includes where the 'the product is normally prescribed for parenteral administration (by injection)'. That is not the only criterion as POM status can also apply where there is a danger to health if used without medical supervision, if there is frequently incorrect use which could lead to danger to human health or if further investigation of activity and/or side-effects is required. The classification then determines the level of control over the medicine's supply.
- The General Pharmaceutical Council ('GPhC'), the regulator for pharmacists, pharmacy technicians and registered pharmacies in Great Britain, state on their website that under the Medicines Act 1968 a business or organisation must register a physical premises as a pharmacy if it intends to carry on the sale of P medicines and the supply of POMs against prescriptions, which require the product to be labelled for a specific patient as a dispensed medicinal product. The reference to sale and supply refers both to situations in which medicines are sold and other situations where the POM is supplied to the patient at no charge. Where POMs are provided by community pharmacies against an NHS prescription the cost of the medicines is covered by the NHS and the pharmacy receives a dispensing fee. The patient may pay a prescription charge but may alternatively have a valid exemption meaning they will not be charged. As a GpHC licensed pharmacy CPL is required to abide by the GPhC's standards for registered pharmacies.
- . CPL holds a wholesale dealing licence which permits it to make bulk supplies of medicines to the Trust (the Trust then uses those medicines for administration to its patients). CPL applies VAT to all the supplies made under the wholesale dealing licence which are not at issue in this appeal.
- Legislation imposes additional obligations in relation to the secure and safe management of drugs designated as controlled drugs ('CDs') under misuse of drugs legislation. CDs are a subcategory of POMs. CPL also holds a Home Office Controlled Drugs licence ('CDL') which it requires to make wholesale supplies to the Trust. There is a requirement in the Misuse of Drugs Regulations for a pharmacist supplying CDs against a prescription to ascertain whether the person collecting is the patient, the patient's representative or healthcare professional and to require them to sign the back of the prescription form. The patient is identified for those purposes as the person named on the prescription to whom the drugs are being supplied. The supplies at issue in this appeal are not CDs but they are dispensed to patients in the same way as they are collected by the nurse who is a healthcare professional. The requirements for CDs are written into the 'Facilitation of dispensing medication for Clatterbridge Cancer Centre Patients' dated 1 October 2013 (the 'Facilitation Agreement'. Schedule 2 of the Facilitation Agreement reflects the requirements of the regulations in respect of CDs which would apply to CDs dispensed by CPL over the counter.
- Unless an exemption applies then POMs can only be supplied to the public on the prescription of an appropriate practitioner. A prescription is not defined in the regulations, the word generally means a direction from a prescriber to request a medication for a particular patient. As set out in Medicines Ethics and Practice ('MEP'), a practical guide for pharmacists published by the Royal Pharmaceutical Society ('RPS'), several pieces of information must be present for a prescription to be legally valid: the prescription must state: a valid date; address of the prescriber; indication of the type of prescriber; name and address of the patient and specify the age for children under 12 years. It is also a general requirement that prescriptions are written or printed legibly in indelible ink and be signed in ink by the prescriber. An exception applies to allow prescriptions to be issued electronically and with an electronic signature.
- A summary of the regulatory restrictions concerning the administration of POMs is set out in Medicines Matters, an official guide published in 2006, which explains that medicines legislation does not specifically address the issues of administration of medicines except where the product is for injection which would for these purposes include the IV medicines (IV is a form of injection). Such medicines can be self-administered, administered by doctors and subject to certain limitations other prescribers, or administered by somebody acting in accordance with the direction of a doctor as is the case with CPL's supplies of injectables. There is no requirement for the person administering at the direction of a doctor to be a healthcare professional or to have any medical qualification though the expectation would be that a person should have suitable training and experience for any given treatment.
- Dispensed POMs can only be administered to the named patient because of a general prohibition on the supply of the POM by an unlicensed person. Regulations would also prevent a patient to whom a medicine has been dispensed from supplying the medicine back to the pharmacy. RPS in their code of ethics also recognise that once medicines have been dispensed to a patient then they cannot be returned for reuse as storage conditions cannot be guaranteed once the medicine has left the pharmacy. These restrictions all mean that CPL cannot use a medicine for another patient once it has left CPL's registered premises. These restrictions mean that practically a medicine dispensed against a prescription cannot be used for treating anybody other than the named patient.
- There are a number of legal requirements relating to the labelling of dispensed medicines.. This includes a requirement to attach the name of the patient and the address of the supplying pharmacy. There is no requirement within the labelling requirements to identify the person who is expected to pick up or take delivery of the POM.
- Exemptions apply to the requirement for POMs to be supplied against a prescription. An exemption applies to POMs supplied under a patient group direction ('PGD'). Medicines supplied under a PGD are not 'dispensed' as they are not supplied to a named individual. The PGD operates in a different way to a prescription as it is an instruction to supply or administer medicines to patients generally in planned circumstances. PGDs are issued to allow a class of health professionals, so it might for example be issued to nurses or to chiropodists and podiatrists, to supply and administer the medicine. The supply by that professional does not then have to be under the control of a pharmacist as normally would be the case for POMs. PGDs can and often are applied to injectable medicines like the flu jab.
- A further exemption applies to the supply of POMs in hospitals in which case there is no requirement for a formal prescription. Supplies in hospital can be made against a patient specific direction. A patient specific direction is similar to a prescription as it is an order for treatment relating to a particular individual but it does not need to comply with the requirements for a prescription because of the exemption applying to supplies in a hospital setting. Hospitals can choose if they want to supply drugs to inpatients through a dispensary and so against a prescription but there is no requirement for them to do that. That is not the case with hospitals supplying drugs to their outpatients for use outside of the hospital - those supplies always have to be dispensed against a prescription unless some other exemption like a PGD applied.
Supplies at issue
- The medicines at issue, administered by way of subcutaneous injection or intravenously (IV), were dispensed under the Facilitation Agreement. The Facilitation Agreement also applies to a range of other supplies that are not at issue including medicines to be self-administered by the patient outside of the hospital. HMRC accepts all 'generally' self-administered supplies outside of the hospital as zero-rated. The self- administered medicines are dispensed to patients in different ways as they can be dispensed over the counter at the pharmacy premises, delivered direct to the patient through CPL's delivery service or, as is often the case for supportive and pre-medicines, picked up by the nurse and delivered to the patient at the homecare visit. The dispensing process for injectable/IV and oral medicines is the same as they are all labelled and packaged in the same way with the patient's name and address. Pre-medicines or 'pre-meds' are those taken prior to the main treatment, whilst supportive medicines are those provided to alleviate the side effects of the treatment.
- Under the Facilitation Agreement the cost of the medicine is treated as a pass-through and the Trust pays CPL an additional 'dispensing fee'. This is the same structure of charge as applies to dispensing medicines under the standard NHS pharmacy contracts, whereby a community pharmacy contractor will submit all prescriptions that have been dispensed during the month to the NHS Business Authority and will be reimbursed with a 'Single Activity Fee' for each individual item that has been supplied to a patient. The dispensing fee is treated for VAT purposes in the same way as the supply of the medicines to which it relates and so the dispensing fee is zero-rated where CPL has treated the dispensing of medicines as zero-rated. The patient does not pay any fee for the cancer medicine. It is standard in the NHS for cancer medicines to be dispensed to patients for no charge - if necessary the patient can obtain an exemption certificate from their GP which allows the patient to access medicines for no charge from their community pharmacy. GPs will often prescribe supportive medicines and can also prescribe some hormonal therapies relating to cancer which can be picked up by patients from their community pharmacy. Once the exemption certificate has been issued then it applies for a period of five years to all medicines prescribed to that patient (irrespective of any link between those medicines and the cancer).
- As outlined above the supplies at issue in the appeal are medicines that are to be administered by IV or subcutaneous injection in the patient's own home. Examples of the subcutaneous injections are anti-cancer drugs used in breast cancer. Examples of intravenous medicines supplied are immunotherapy drugs which are dispensed as pre- made bags of the drug in saline solution. The medicines form part of a group of treatments known as Systemic anti-cancer therapy ('SACT'). The wider group of SACT treatments include drugs taken orally in pill form that are not at issue in this appeal. Nearly all medicines in pill form can be self-administered by patients in their own home. One exception mentioned to us is Vinorelbine - that is a chemotherapy drug that is taken orally but must be taken in a hospital setting because of the serious risks of adverse reaction. Some of the treatments are cytotoxic drugs meaning the medicine is toxic to cells preventing their replication or growth. Cytotoxic drugs are recognised as being hazardous to human health and so subject to additional restrictions in their packaging and handling. CPL is legally required to assess the risks from handling cytotoxic drugs and take suitable precautions to protect them. Many of the medicines supplied for IV or subcutaneous injection are required to be kept in a temperature controlled environment to ensure the products stability. In addition some of the medicines are light sensitive and so should be stored away from any light.
- The medicines are dispensed against a prescription from an authorised prescriber. The Trust operates on the basis that the first course of SACT treatments have to be prescribed by a consultant. Subsequent treatments can then be prescribed by an authorised non- medical prescriber, such as a nurse or pharmacist who has completed a prescribing qualification. The treatments in cancer care are protocol-led so whatever tumour or disease the patient has will have a protocol attached to it. The protocols which are maintained by the Trust detail the full regime that the patient will receive and so also refer to treatments that are given in a clinical setting including any pre-medication and supportive medicines. The pre-meds and supportive medicines will be dispensed in the same way and in the same packaging as the injectable medicines. Instead of being administered by the nurse during the homecare visit the oral medicines are left with the patient to take in accordance with the label instructions. The standard practice is for pre-meds to be taken in the hours leading up to the nurse's visit. During the homecare appointment the nurse will then hand the patient any oral pre-meds for the next visit or supportive medicines to be taken in the days or weeks following the appointment.
- Where medicines are supplied on prescription it is generally recognised that it is preferable for the actions of prescribing, dispensing/supply and administration to be performed by separate care professionals. The prescriber has the legal responsibility for the prescription and so has professional responsibility for ensuring an accurate diagnosis has been made and the prescribed treatment is suitable both for the diagnosed condition and the individual patient. The registered pharmacist's responsibilities are different and involve, as outlined below, making sure the prescription is legally valid, that the prescribed medicines are clinically appropriate and then dispensing the correct product in accordance with the prescription.
- The Trust issues its prescriptions in electronic form which allows CPL to trace the prescription back to the prescriber. The electronic prescriptions issued by the Trust contain all of the information required by regulation include the name and address of the patient. The prescriptions also include additional information going beyond the minimum requirements such as details of the height, weight, sex and age of the patient. The prescriptions can include both the IV or subcutaneous injection and the supportive and pre-medications. Whilst not at issue in this appeal the Trust also issues prescriptions for the oral medicines that dispensed by CPL and either picked up by patients from CPL's pharmacy counters or delivered direct to them through CPL's delivery service.
the issue under appeal
- The issue for the Tribunal to decide is whether the supply in question qualifies for zero rating under Schedule 8, Group 12, Item 1 of VATA.
- It is agreed that this is a supply of goods.
- The legislative provisions below make it clear that the sole matter at issue is the meaning of the term 'personal use' in the legislation.
the law
Legislative provisions
23. In order to fall within the zero-rating provisions, of Item 1 of Group 12, within Schedule 8 of VATA it is necessary for the goods to fall within the following description:
Item 1:
The supply of any qualifying goods dispensed to an individual for that individual's personal use on the prescription of an appropriate practitioner where the dispensing is—
(a) by a registered pharmacist, or
(b) in accordance with a requirement or authorisation under a relevant provision.
The various items in Schedule 8 are supplemented by Notes.
Section 96(9) VATA provides:
" Schedules 7A, 8 and 9 shall be interpreted in accordance with the notes contained in those Schedules; and accordingly the powers conferred by this Act to vary those Schedules include a power to add to, delete or vary those notes."
25. Thus, the Items in Group 8 must be interpreted in accordance with the Notes.
Schedule 8 contains the following Notes relating to Item No.1:
By Note 2A the term 'qualifying goods' is defined; and
By Note 5A it is then provided that -
5(A) In item 1 the reference to personal use does not include any use which is, or involves, a use by or in relation to an individual while that individual, for the purposes of being provided (whether or not by the person making the supply) with medical or surgical treatment, or with any form of care—
(a) is an in-patient or resident in a relevant institution which is a hospital or nursing home;
or
(b) is attending at the premises of a relevant institution which is a hospital or nursing home.
26. The above Notes were inserted into VATA by the VAT (Drugs, Medicines and Aids for the Handicapped) Order 1997. It is accepted that the supply is one of qualifying goods and therefore nothing turns upon Note 2A. The dispute instead focuses on the term 'personal use' for which Note 5A is the relevant interpretive provision.
- To a large extent this case is one of statutory interpretation. The most recent case on this (where the judgement was delivered after this hearing) is For Women Scotland v The Scottish Ministers [2025] UKSC 16 which gives a very helpful summary of the approach to statutory interpretation that the courts should take at paragraphs 9 and 10.:
9. The general approach to statutory interpretation in the United Kingdom is well established. The House of Lords and this court have set out the basic approach on a number of occasions, including in R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] 2 AC 349. Most recently, this court set out the approach in R (O) v Secretary of State for the Home Department [2022] UKSC 3; [2023] AC 255 in which Lord Hodge DPSC, giving the leading judgment, stated (paras 29-31):
"29. The courts in conducting statutory interpretation are 'seeking the meaning of the words which Parliament used': Black-Clawson International Ltd v Papierwerke WaldhofAschaffenburg AG [1975] AC 591, 613 per Lord Reid of Drem. More recently, Lord Nicholls of Birkenhead stated: 'Statutory interpretation is an exercise which requires the court to identify the meaning borne by the words in question in the particular context' (R v Secretary of State for the Environment, Transport and the Regions, Ex p Spath Holme Ltd [2001] 2 AC 349, 396). Words and passages in a statute derive their meaning from their context. A phrase or passage must be read in the context of the section as a whole and in the wider context of a relevant group of sections. Other provisions in a statute and the statute as a whole may provide the relevant context. They are the words which Parliament has chosen to enact as an expression of the purpose of the legislation and are therefore the primary source by which meaning is ascertained. There is an important constitutional reason for having regard primarily to the statutory context as Lord Nicholls explained in Spath Holme, 397: 'Citizens, with the assistance of their advisers, are intended to be able to understand parliamentary enactments, so that they can regulate their conduct accordingly. They should be able to rely upon what they read in an Act of Parliament.'
30. External aids to interpretation therefore must play a secondary role. Explanatory Notes, prepared under the authority of Parliament, may cast light on the meaning of particular statutory provisions. Other sources, such as Law Commission reports, reports of Royal Commissions and advisory committees, and Government White Papers may disclose the background to a statute and assist the court to identify not only the mischief which it addresses but also the purpose of the legislation, thereby assisting a purposive interpretation of a particular statutory provision. The context disclosed by such materials is relevant to assist the court to ascertain the meaning of the statute, whether or not there is ambiguity and uncertainty, and indeed may reveal ambiguity or uncertainty: Bennion, Bailey and Norbury on Statutory Interpretation, 8th ed (2020), para 11.2. But none of these external aids displace the meanings conveyed by the words of a statute that, after consideration of that context, are clear and unambiguous and which do not produce absurdity. ...
31. Statutory interpretation involves an objective assessment of the meaning which a reasonable legislature as a body would be seeking to convey in using the statutory words which are being considered. ..."
10. In R (Quintavalle) v Secretary of State for Health [2003] UKHL 13; [2003] 2 AC 687, Lord Bingham of Cornhill warned against giving a literal interpretation to a particular statutory provision without regard to the context of the provision in the statute and the purpose of the statute. He stated (para 8):
"The court's task, within the permissible bounds of interpretation, is to give effect to Parliament's purpose. So the controversial provisions should be read in the context of the statute as a whole, and the statute as a whole should be read in the historical context of the situation which led to its enactment."
findings of fact
- The Tribunal finds as fact the following matters which it has taken into account in the appeal.
- The supplies at issue involve medicines which are administered by way of a needle.
- All of the medicines in question are prescription only medicines (POMs) and therefore have been dispensed for the use of a specific person. If returned unused they would be destroyed.
- There is no regulatory requirement for these to be administered by any specific person.
- We have not been supplied with an exhaustive list of the drugs in question nor the precautions to be taken when using them, but these are accepted to be toxic drugs with specific protocols on safety and administration at the complex end of the drug spectrum.
- This is an expanding area of research in the medical service industry such that at any one time across the country, the same goods could be supplied by the same pharmacy but some would be administered by patients to themselves (or with help only from a family member) and others would be administered to patients by a healthcare professional.
- The Tribunal also notes the following facts that it finds to be irrelevant to this appeal.
- The issue arises because the supply of goods is made by a different legal entity to the medical care from the healthcare providers.
- The standard rating of such drugs would increase the cost of the drugs to the NHS (and others).
discussion
- The disagreement between the sides is essentially one of legislative construction, with slight differences as to definition of 'personal'.
- The Appellant contends that to decide the meaning of 'personal use' the court is required to ascertain the meaning of the words used in statute in the light of their context and the purpose of the statutory provision, and the basic proposition that words which are not defined should be given their ordinary natural meaning.
- The Appellant says that whilst zero rating provisions must be interpreted strictly because they constitute exceptions to the general rule that all supplies of goods and services for consideration by a taxable person are subject to VAT, this principle does not mean that they must be interpreted so strictly that they should be deprived of their intended effect (see SAE Education Limited v HMRC [2019] UKSC 14 at paragraph 42 per Lord Kitchin).
- The standstill nature of the zero rate means that particular care should be taken not to extend the reach of the zero rate (see Newscorp UK & Ireland Ltd vs Revenue and Customs Commissioners [2023] UKSC 7 which contains the following explanation):
The position following the enactment of the Sixth VAT Directive was therefore that member states were permitted to continue to apply certain zero rates that were in force prior to 31 December 1975 provided that the cumulative conditions were met. No provision was made, however, permitting new zero rates to be adopted by member states, even if the cumulative conditions were met. Thus, in effect only zero rates in force prior to 31 December 1975 were permitted. Article 28 of the Sixth VAT Directive was referred to as a "standstill" provision by the Court of Justice of the European Union ("the CJEU") in Talacre Beach Caravan Sales Ltd v Customs and Excise Commissioners ("Talacre Beach") Case C-251/05, [2006] STC 1671 at para 22. As the zero-rating of newspapers was still in force on 31 December 1975, the UK could continue to maintain that zero rate after the enactment of the Sixth VAT Directive. Article 28(2) was amended by Directive 92/77 of 19 October 1992 so as to permit zero rates that were "in force on 1 January 1991" to be maintained but only if they "are in accordance with Community law".
- The Appellant therefore argues that 'personal use' should be given its ordinary meaning, that this meaning does not alter depending on location of the patient or method of administration, and should apply to the medicines in question which are clearly labelled as being for the particular use of an individual patient.
- They then say that Note 5A prohibits personal use applying to someone in a hospital or a care home, but that Note 5A should not be read as meaning anything more than excluding patients in those particular settings from the zero rate.
- HMRC argue for a different statutory construction. They say that Note 5A must not be read as determining zero rating (because Item 1 is the determinative provision), but merely aiding interpretation. They therefore say that because Note 5A says that 'personal use' excludes use in a hospital, this cannot mean that 'personal use' means 'use for a particular person' and then Note 5A excludes from that use a person in a hospital. That would be reading Note 5A being determinative. It must therefore mean there is something about the meaning of 'personal use' that in and of itself excludes how items are used in a hospital.
Meaning of 'personal use'
- Both parties referred us to the Oxford English dictionary, where the definition is:
'Of, relating to, concerning, or affecting a person as a private individual (rather than as a member of a group or the public, or in a public or professional capacity); individual, private; one's own.'
- HMRC focused on the word 'private' in this definition. They contrasted one the one hand, any medicine which an able bodied individual would be expected to administer to themselves (tablets, liquid medicine that needed no particular precautions, injectables such as epipens where the injection is expected to be administered by the patient) and categorised those as for 'private' (and therefore personal) use, even if in actual fact the patient was helped by a carer/relative/healthcare professional, with, on the other hand, medicine which was not dispensed for 'private' (personal) use of the patient, but in order for them to be administered to the patient by a health care professional in the course of their medical care.
- HMRC do not contend that it matters who specifically administers the medicine, and they accept that where exactly to draw the line will be difficult to determine and may change over time, nevertheless they say that it would possible to determine which side of this 'private use or not' line every drug (or drug use) fell. In this specific case, they contend that the nature of the drugs, requiring for example the nurses to carry 'spill kits' in case the drugs are accidentally spilled, shows they are of such a nature that they are dispensed not 'for the personal use of an individual' but 'for an individual to receive them from a healthcare professional'.
- The Appellant says that 'personal use' means use by a named individual patient. Note 5A restricts the zero rate to such use when the individual is not within a hospital or nursing home setting. But this does not mean that the ordinary meaning of the words 'personal use' in Item 1 is to be restricted any further, and the equating of 'personal' with a more restricted definition including a notion of 'privacy' is not appropriate.
- The Appellant makes the point that HMRC's definition would make many cases difficult to determine and dependent on a number of factors which may shift over time. For example, it is not the fact that these drugs are administered with a needle that HMRC views as determinative. HMRC accept that some drugs can be self-injected, using exactly the same method (drawing down the liquid from a vial rather than having it pre-loaded) as the drugs in this case, but still be for 'personal use'. Furthermore, there are pilot programmes in place which aim to allow patients to self inject these specific drugs without the presence of a healthcare professional after training and 'signing off' by a nurse. This raises the situation that the line between zero rating and standard rating could shift over time (which could be a matter of months). This would lead to an uncertain and unsatisfactory outcome.
- The Appellant points to the legislative history to aid the understanding of what the words 'personal use' are intended to mean.
- The legislative history regarding the supply of drugs and medical care has generally focussed on the line between zero rated supplies of drugs on the one hand, and exempt supplies of medical care on the other. See for example Dr Beynon and Partners v Customs and Excise Commissioners [2004] UKHL 53, Healthcare at Home Ltd v Revenue and Customs Commissioners [2007] UK VAT V20379, Nuffield Health v Revenue and Customs Commissioners [2013] UKFTT 291 (TC).
- There are therefore a number of cases regarding single or multiple supplies, which generally (but not always) landed on the supplies of drugs and services by one supplier being viewed as a single supply of exempt medical care.
- The words "dispensed to an individual for his personal use" were added to Item 1 which formerly applied the zero rate to "the supply of any goods dispensed [by a registered pharmacist] on the prescription of a [medical practitioner]". It also added the provisions of Note 5A (set out above) which states that personal use does not include use as an inpatient.
- The legislation was introduced to address the widening of the zero rate for drugs and aids such as prostheses in the light of the Court of Appeal's judgment in BUPA, Wellington and St Martins v CCE [1997] STC 445 which decided that supplies of drugs and prostheses to inpatients by private hospitals were not part of a single supply of exempt medical care but were separate supplies of zero rated goods.
- The decision was later overturned in the House of Lords but before that had happened, the government legislated to deal with the situations in question, such that even if it was settled that such a supply was partly a separate supply of drugs, those drugs supplied to inpatients would be specifically excluded from the zero rate.
- Here, because the only supply that is being made is one of drugs, there is no question that they could be part of an exempt supply of medical care. This is a feature of the split of the supply of drugs (by CPL) and care (by the Trust).
- The Appellant contends therefore that the 'mischief' being addressed by the legislation was that of an exploitation of the boundary between zero rated drugs and exempt medical care by hospitals. It was never intended to create a boundary between the dispensing of zero rated drugs and standard rated drugs to patients out of hospital.
- On HMRC's reading of the meaning of personal use, on the zero rating side of the line sit: all drugs in a hospital setting (because they are not used in a private setting) and all drugs determined to be for personal administration outside a hospital setting, being all tablets, some injectables, and some (perhaps all, but this was not at point in this case) creams, and liquids for oral ingestion. The meaning of 'personal use' on its own has to incorporate both those meanings, with note 5A merely aiding clarification in case there was any doubt. On the standard rating side of the line sit all drugs supplied outside a hospital setting but determined to be non-personal due to the need/expectation that a healthcare professional will administer them.
- On the Appellant's reading of the meaning, initially all drugs prescribed to an individual sit on the zero rating side of the line, and then Note 5A moves the ones that are supplied within the given inpatient criteria to outside the zero rating side of the line. The Appellant contends that the reason for having the 5A criteria is because the drugs would then become subsumed within a single exempt supply of medical care.
- We approached our decision firstly by concluding what, in the absence of the requirement or otherwise to read something further into the legislation, we would consider was meant by 'personal use' in this context.
- Turning again to the legislation, it says:
The supply of any qualifying goods dispensed to an individual for that individual's personal use on the prescription of an appropriate practitioner where the dispensing is—
(a) by a registered pharmacist, or
(b) in accordance with a requirement or authorisation under a relevant provision.
- There is no dispute that this is a supply of qualifying goods. There is no dispute that the goods are 'dispensed to an individual' and both parties agree that this does not turn on who actually picks up the drugs from the pharmacy. There is no dispute that these drugs are supplied on the prescription of an appropriate practitioner where the dispensing is by a registered pharmacist.
- Looking at the OED definition, the first part of the definition, 'Of, relating to, concerning, or affecting a person as a private individual (rather than as a member of a group or the public, or in a public or professional capacity)' is, we consider, not relevant here. This draws the distinction between personal and business, or between personal and group, or between personal and public. None of these are relevant when considering the type of supply at issue here.
- The second part of the definition is where we can look for the meaning that is relevant in this context 'individual, private; one's own.'. It seems clear to us that whilst 'personal use' can certainly mean 'use by an individual in private', that would be too restrictive a definition of something that could plainly mean something much wider. For example, the concept of ownership, and use only by an individual. If a pharmacist said to an individual 'this is for your personal use only' we consider that this would be understood to mean 'this must only be used on/in your body' not 'you must be able to administer this yourself'.
- We disagree with HMRC that the natural reading of the words 'personal use' incorporates both 'use in a private setting' and 'use if it can be expected to be administered by the individual', and that personal use involves only a situation that involves both of those things.
Statutory interpretation
- We then turn to HMRC's point on statutory construction. The presence of Note 5A means that it is very clear that a drug is not for personal use if it is used by or for an inpatient in a hospital or nursing home, or whilst on hospital or nursing home premises. Absent note 5A, we do not think that the reading of the legislation would exclude use in a hospital, for example, being personal use.
- HMRC say that this shows our initial judgement on the meaning of personal use within Item 1 is wrong. They say that the Note cannot add something into the legislation that is not there already, it can only clarify what it means.
- We agree with HMRC that the zero rate legislation has to be interpreted strictly. In particular it must not extend the zero rate to anything not covered by the zero rate prior to 31 December 1975 (see Newscorp UK & Ireland Ltd vs Revenue and Customs Commissioners [2023] UKSC 7 quoted above).
- However, we disagree with HMRC that this means that the legislation, without the relevant notes, is complete in itself and that the notes cannot by themselves adapt it.
- The first reason we find this is by looking at the other Notes to the same Schedule. For example, Note 2A reads:
(2A)In item 1 , "qualifying goods" means any goods designed or adapted for use in connection with any medical or surgical treatment except—
(a) hearing aids;
(b) dentures; and
(c) spectacles and contact lenses.
- We think that Note 2A does not merely 'clarify' what 'qualifying goods' means. It defines it. The natural meaning of 'qualifying goods' is no more than 'goods that meet a particular qualification'. It is meaningless without the details of the qualification criteria, which Note 2A supplies.
- Note 2B reads:
(2B)In item 1 "appropriate practitioner" means—
(a) a registered medical practitioner;
(b) a person registered in the dentists' register under the Dentists Act 1984 ;
- Similarly, Note 2B contains an absolute definition. Its reading is not only that 'appropriate practitioner' includes those listed. It means that anyone not so listed is not an appropriate practitioner.
- Note 5A could have been similarly drafted, explaining what personal use was, rather than what it was not. However we see no reason to import to the Note anything other than the natural reading of it, which merely excludes supplies to people in certain situations from being zero rated supplies.
- Similarly to the case of Newscorp (which was about whether digital newpapers were 'newspapers') here we have a situation which was clearly not envisaged at the time that the statute was written. It is a situation that is still evolving today. Our task is not to try to understand what might have been wanted by Parliament had this situation existed; it is to construe the legislation to determine how the words and context of the legislation apply to the present case.
- We were referred to the case of HMRC vs Jigsaw Medical Services Ltd [2018] UKUT 222 (TCC) which considered another part of the VAT schedule, similar to here, where a relevant Schedule is supplemented by Notes.
- There, the Upper Tribunal allowed an appeal against the FTT decision, on the basis that the FTT decision had started merely by looking at the note to the provision, rather than regarding the provision itself as the gateway to decide whether or not the note was relevant.
- The decision also considered as aids to the statutory construction point, the position of any explanatory notes (not relevant here), consistency or otherwise with policy, and avoiding absurdity, along with the 'narrow construction' point that we have mentioned above.
- We consider that here we are approaching the legislation in exactly the way outlined in Jigsaw. The natural meaning of the word 'personal' is considered first. For anything that is not 'personal', note 5A is irrelevant. For anything that might be, Note 5A can then provide further information on whether it is or is not. In addition, to the minor extent that it may be relevant, this construction avoids the potential absurdity in HMRC's reading of the legislation, which would mean that, at its most extreme, the zero rating of supplies of a drug by a pharmacy would depend on whether a particular patient had been 'signed off' by a nurse as able to receive and administer the drugs themselves, and this situation could move from standard rating to zero rating and back again over a period of months depending on such things as the situation of the patient and the exact timings of the 'signing off' procedure by nurses.
- In addition, as set out by the Supreme Court in For Women Scotland, we are taking into account the natural meaning of the words, properly informed by the legislative context. We have considered context as a secondary consideration, after the consideration of the natural meaning of the wording in the legislation. The context here is that the wording was introduced to ensure that supplies made in a hospital can never be supplies of zero rated goods. The context was not specifically to draw a distinction between the personal use and non personal use of drugs supplied to patients outside a hospital, therefore we do not think that the word personal was intended to draw that distinction.
- For the reasons given above, we ALLOW this appeal.
Right to apply for permission to appeal
- 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.
Release date: 05th JUNE 2025