United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2006] UKVAT V19645

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EMIS National User Group v Revenue & Customs [2006] UKVAT V19645 (05 July 2006)

19645

VALUE ADDED TAX – Exempt supplies – supplies by a non-profit making organisation to its members, medical practitioners, in return for membership subscriptions – whether exempt under item 1(c), Gp. 9, Sch 9 VATA 1994 – whether the organisation's "primary purpose" was the advancement of a particular branch of knowledge or the fostering of professional expertise – finding that the organisation supports its members in learning and applying health informatics by reference to particular (EMIS) clinical software – held that its primary purpose was not the advancement of a particular branch of knowledge, but was the practical purpose of the fostering of its members' professional expertise – appeal allowed

MANCHESTER TRIBUNAL CENTRE

EMIS NATIONAL USER GROUP Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Tribunal: JOHN WALTERS QC (Chairman)

JOHN E. DAVISON

Sitting in public in North Shields on 11 May 2006

Mark Hetherington, of PricewaterhouseCoopers LLP, Newcastle, for the Appellant

Charles Morgan, Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006


 


DECISION

The appeal

1. The EMIS National User Group ("the Appellant") is a charitable company limited by guarantee. It describes itself on its website (and this was confirmed in evidence to the Tribunal) as a non-profit making organisation set up to improve patient care through the better use of health information and information technology, by supporting EMIS users so that they get the best possible use from their computer systems, and by providing training and educational materials. The letters "EMIS" stand for Egton Medical Information Systems. EMIS Limited is an enterprise unconnected in point of ownership with the Appellant. EMIS Limited produces a clinical computer system (software) and the Appellant supports users of the software produced by EMIS Limited.
2. The Appellant appeals against a decision of the Commissioners (hereinafter "Customs") that its membership subscriptions are consideration for taxable supplies, and not exempt supplies. This decision, given after an internal review of the case by Customs, was communicated to the Appellant by a letter dated 13 June 2005, sent by Customs Officer Alisdair Gibbs-Barton.
3. The Appellant claims that the services it supplies to members in return for their subscriptions fall within item 1(c) of Group 9, Schedule 9 to the VAT Act 1994 ("VATA"), which is in the following terms:

"The supply to its members of such services and, in connection with those services, of such goods as are both referable only to its aims and available without payment other than a membership subscription by any of the following non-profit making organisations-

(c) an association, the primary purpose of which is the advancement of a particular branch of knowledge, or the fostering of professional expertise, connected with the past or present professions or employments of its members."

4. This text sets a number of preconditions before a supply of services can be exempt, many of which Customs accept are satisfied in this case. They are as follows:
5. First, the services supplied to members must be referable only to the aims of the organisation: Customs accept that this test is satisfied in the Appellant's case.
6. Secondly, the services must be available without payment other than a membership subscription: Customs accept that this test also is satisfied in the Appellant's case.
7. Thirdly, the organisation supplying the services must be a non-profit making organisation: Customs accept that this test also is satisfied in the Appellant's case.
8. Fourthly, the organisation must be one, the primary purpose of which is the advancement of a particular branch of knowledge, or the fostering of professional expertise. This is the test which Customs submit is not satisfied in the Appellant's case.
9. Fifthly, if the Tribunal were to decide that the fourth test was indeed satisfied on the basis that the organisation was one, the primary purpose of which is the fostering of professional expertise, then it would also be necessary for the Appellant to show that the professional expertise in question was one connected with the past or present professions or employments of the organisation's members: Customs accept that on the basis that the purpose of supporting EMIS users so that they get the best possible use from their computer systems is the Appellant's primary purpose, and (which they dispute) that that purpose is the fostering of professional expertise, that purpose is connected with the past or present professions or employments of the organisation's members, being members of the medical profession and their support staff.
10. Thus, the main issue in the appeal is whether the Appellant's primary purpose is the advancement of a particular branch of knowledge, or the fostering of professional expertise (the fourth test listed above). The Appellant submits that its primary purpose is the advancement of a particular branch of knowledge, that is, health informatics, or the fostering of professional expertise, being the professional medical expertise of general practitioners. Customs say that the Appellant's primary purpose is not the advancement of a particular branch of knowledge, or the fostering of professional expertise, on two grounds. First, that the Appellant's primary purpose is the provision of technical know-how and support to users of EMIS software, which does not qualify as the advancement of a particular branch of knowledge or the fostering of professional expertise. Alternatively, they say that even if the Appellant's members may be assisted by the use of EMIS software in their medical activities (the pursuit of the relief of suffering, the cure of illness and the promotion of medical research), and assuming that assistance in these activities amounts to the advancement of a particular branch of knowledge or the fostering of professional expertise, then nevertheless the Appellant's services are not exempt, because assistance in the members' medical activities is not the primary purpose of the organisation, and is not even a direct purpose of the Appellant's own activities.

The facts

11. The Tribunal heard oral evidence from two witnesses called by Mr. Hetherington, on behalf of the Appellant, namely, Dr. William Don Westwood, a general practitioner in Gateshead, who is the Appellant's Treasurer, and Dr. Ralph Sullivan, a general practitioner in North Yorkshire, and a founding member and Secretary of the Appellant. We accept their evidence as true, and accordingly find the following facts.
12. Dr. Westwood joined the Appellant as a member in 1998 and became its Treasurer in 2001. His surgery has been using EMIS software for 15 years. EMIS Limited supplies the EMIS software and endeavours to support the users of it, but the Appellant, which is independent of EMIS Limited, exists to support the users of EMIS software. EMIS software is now used by, in Dr. Westwood's estimate, about 55% of UK practices.
13. Dr. Westwood was referred to the objects clause in the Appellant's Memorandum of Association, which is in the following terms:

"The Charity's objects ("the Objects") are to aid the relief of suffering and the cure of illness by continuous research into matters relating to the causation, prevention, diagnosis and treatment of illness and disease, in particular by collecting, collating and exchanging information with users of EMIS computer software or other interested members of the public."

14. He said that the clause fairly reflects the Appellant's objects, but he added that the way the Association puts its objects into effect changes and he said that "we would now say more about education and the handling of medical information". His point was that the Appellant increasingly is engaged in supporting its members in learning health informatics. "Health informatics", he explained, is now a recognised academic discipline and covers the use of computer technology to store, retrieve and make use of health-related information.
15. Basic training in the use of EMIS software is provided by EMIS Limited, as is software support, which is provided for a support fee charged by EMIS Limited.
16. The Appellant publishes a magazine called EMIS User in which articles appear which aim to inform the reader about uses to which the EMIS software can be put to enable more effective medical practice. An annual conference is also staged by the Appellant, and Dr. Westwood's own experience, in going to the 1997 conference, was that he had been persuaded that EMIS software was a useful tool. It transformed the way he used the computer and helped him to transfer over from written records to electronic records.
17. Dr. Westwood accepted as "partially true" (when it was put to him by Mr. Morgan in cross-examination) that the Appellant concentrated on one means (the EMIS software) of achieving the creation of electronic data, but he said that to an equal extent the Appellant was introducing people to the concept of how EMIS software users keep electronic medical records, and the practical application of those records. When Mr. Morgan put it to him that the Appellant was "facilitating the use of [EMIS] software" (paraphrasing what was said in an article in the Appellant's magazine), Dr. Westwood replied: "No, we are introducing people to the concept [of medical practice using electronic records] and then showing them how to do it".
18. Dr. Sullivan told the Tribunal that at the start (1991) EMIS Limited had lent the Appellant money (£25,000), interest-free, to get started, but that the Appellant's committee was always directly elected by the members. There had been no financial links with EMIS Limited since the first loan, and that had been forgiven by EMIS Limited after about 5 years.
19. Under cross-examination, Dr. Sullivan asserted that the Appellant's object was indeed the relief of suffering, and that it had engaged in research, in developing new knowledge, by, for example, analysing records.
20. EMIS Limited does not have in its organisation a body of clinicians who have used the EMIS software and have an understanding of health informatics. Their medical expertise is in writing software, rather than in training general practitioners in the effective and inventive clinical use of it. EMIS Limited never had sufficient resources to develop within its own organisation a service such as that which is provided by the Appellant; nor had there ever been any prospect of NHS funding for such a service.

The parties' submissions

21. Mr. Hetherington, for the Appellant, submitted that if the Tribunal had regard to the following factors, which he contended were relevant, and were the factors highlighted in Customs' internal guidance, viz:-

•    The objects and objectives set out in the Appellant's Memorandum of Association;

•    The powers and activities of the Appellant;

•    What the Appellant itself considers its primary purpose to be; and

•    What the Appellant's members consider the Appellant's primary purpose to be;

the Tribunal ought to conclude that the Appellant's primary purpose is the advancement of a particular branch of knowledge, health informatics, or the fostering of professional expertise, being the professional medical expertise of general practitioners. He also submitted that the Appellant's purpose in assisting its members' medical activities is a direct and the primary purpose of the organisation.

22. He submitted that health informatics was a study of trends and information, not training in the basic use of software.
23. He relied on a passage from paragraph [17] of Chadwick LJ's judgment in Expert Witness Institute v Customs and Excise Commissioners [2002] STC (CA) 42, which was cited by Jonathan Parker LJ in Commissioners of Customs and Excise v Electronic Data Systems Ltd. [2003] EWCA Civ 492 at paragraph [26], where Chadwick LJ said:

"… the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question."

24. He expressly disclaimed any reliance on article 13A(1)(f) of the Sixth VAT Directive as providing a wider exemption than the UK legislation (item 1(c) of Group 9, Schedule 9, VATA).
25. Mr. Morgan relied on another passage from the judgment of Jonathan Parker LJ in Electronic Data Systems Ltd., at paragraph [129], where he said:

"There is, as it seems to me, a degree of inherent tension between on the one hand the need to interpret the exemptions strictly and on the other hand the adoption of a purposive approach to the interpretation of wide and general words. In my judgment, that tension falls to be resolved by interpreting the exemptions in a way which does not have the effect of extending their scope beyond their fair meaning, as ascertained by adopting a purposive approach to their interpretation."

26. He submitted that the Appellant cannot "write its own exemption" simply by stating its objects or inserting statements into its accounts in a manner which appears to attract an exemption. The Tribunal must look at what the Appellant actually pursues as its primary purpose (i.e. what it actually does in practice), and further consider what the Appellant actually provides to its members, rather than what its members do on their own account aided by the support of the Appellant.
27. He submitted that the Appellant's primary purpose is not within the exemption because it is the provision of technical know-how and support to users of EMIS software.
28. Mr. Morgan relied on the following authorities: British Institute of Cleaning Science Ltd. v Commissioners of Customs and Excise (1985) LON/85/184 (1981), Committee of Directors of Polytechnics v Commissioners of Customs and Excise [1992] STC 873, The Institute of Legal Cashiers and Administrators v Commissioners of Customs and Excise (1994) LON/93/244A (12383).
29. He submitted that British Institute of Cleaning Science Ltd. established that the reference in item 1(c) to "the advancement of a particular branch of knowledge" connoted the advancement of a branch of science or the arts in a sense in which an academic would employ it, and that this approach was reinforced by the decision in Committee of Directors of Polytechnics, which made a distinction between the advancement of a particular branch of knowledge and a pragmatic and practical purpose. He argued that the work of the Appellant has a pragmatic and practical purpose in this sense, rather than an academic one in any sense.
30. He relied on The Institute of Legal Cashiers and Administrators as an illustration of the distinction between the "severely practical" nature of the Institute's work and the professional skill of solicitors, and for the point that the accounting functions with which the Institute was concerned were incidental to legal practice, rather than the practice of the law itself.
31. Mr. Morgan submitted that the primary purpose of the Appellant is the provision of services and facilities to users of EMIS software as detailed on its website, viz: advice, support and guidance on using EMIS clinical systems to improve patient care; the issue of the quarterly magazine EMIS User; the provision of the member's handbook containing information to help members use their EMIS systems, which is updated regularly; the arrangement of an annual conference; the provision of guidance packs, including documentation for scanning, macros and setting up local user groups; the provision of on-line support including email discussion groups and forums; and representation to EMIS Limited and other bodies. These purposes do not, in Mr. Morgan's submission, constitute either the advancement of a particular branch of knowledge or the fostering of professional expertise. He submits that EMIS software is primarily a practice management tool and not a medical research forum or facility, and the supplies made by the Appellant in return for the membership fees are the provision of an IT support service and not the prevention, cure and amelioration of ill health.

Our Decision

32. As stated above, the Tribunal's task is to determine whether or not the primary purpose of the Appellant is the advancement of a particular branch of knowledge, or the fostering of professional expertise, namely medical expertise, within the meaning of item 1(c) of Group 9, Schedule 9, VATA.
33. We readily accept Mr. Morgan's submission that for this purpose the Tribunal must look at what the Appellant actually does in practice, in order to determine its primary purpose, and that we must consider what the Appellant actually provides to its members, rather than what the members do on their own account aided by the support of the Appellant.
34. On this basis, accepting Dr. Westwood's evidence, we find that the Appellant actually supports its members in learning and applying health informatics, that is, the use of computer technology, specifically EMIS software, to store, retrieve and make use of health-related information to enable more effective medical practice.
35. We do not accept that because these activities are directed to aid the relief of suffering and the cure of illness, then such is a description of the primary purpose of the Appellant. We accept the distinction drawn by Mr. Morgan, on behalf of Customs, that the relief of suffering and the cure of illness are activities pursued by the Appellant's members aided (as the case may be) by the support of the Appellant.
36. We must therefore decide whether what the Appellant actually does in practice, in accordance with its objects, comes within a fair interpretation of the words of the exemption, viz: "the advancement of a particular branch of knowledge, or the fostering of professional expertise" – cf. the citation from Expert Witness Institute referred to at paragraph 23 above.
37. So far as the advancement of a particular branch of knowledge is concerned, the Appellant's argument is that its primary purpose is to advance the study of health informatics, which it submits is a particular branch of knowledge, in the sense explained by Lord Grantchester QC in British Institute of Cleaning Science Ltd. and cited, without disapproval, by Brooke J in Committee of Directors of Polytechnics.
38. The Tribunal accepts that health informatics is "a branch of science or the arts in a sense in which an academic would employ it", to quote Lord Grantchester. It remains, however, to decide whether the Appellant's primary purpose is indeed the advancement of health informatics.
39. So far as the fostering of professional expertise is concerned, the Appellant's argument is that its primary purpose is to foster the medical expertise of its members.
40. The Appellant can have only one primary purpose. The advancement of a particular branch of knowledge connotes, in the Tribunal's judgment, the promotion of an academic study primarily for its own sake. We accept that such advancement or promotion is likely to have practical advantages as well, but in our view any such advantages are incidental to the promotion of the academic study. On the other hand, the fostering of professional expertise is essentially a practical matter, and this conclusion is reinforced, in the Tribunal's view, by the connection in the legislation itself between the fostering of professional expertise and the past or present professions or employments of the organisation's members.
41. In our judgment, the activities of the Appellant are essentially practical rather that theoretical and for this reason it would be wrong to say that its primary purpose is the advancement of health informatics.
42. We now consider whether the Appellant's primary purpose is the fostering of professional expertise. Mr. Morgan, for Customs, invites us to follow Brooke J in Committee of Directors of Polytechnics and find that it was not.
43. In that case the Tribunal had found that the Committee's primary purpose had been to raise the standards of teaching in polytechnics so that they compared favourably with universities and also to reach the standards stipulated for exemption from membership examinations by learned institutions. Brooke J accepted the submission advanced by Counsel for Customs that, having regard to the objects of the Committee and its activities as a whole, the Committee's primary purpose was practical and administrative, promotional and managerial, and not to foster professional expertise connected with its members' past or present profession.
44. In our judgment, the Appellant's case is stronger than that of the Committee in that case. One can see that the Committee was primarily concerned with the status of polytechnics rather than the professional expertise of the teachers who taught at them (who were not, in any event, necessarily members of the Committee, which was composed of directors of polytechnics in England and Wales).
45. In this case, in the Tribunal's judgment, the Appellant's raison d'être (to adopt the phraseology of Brooke J) is to support its members in learning and applying health informatics, that is, the use of computer technology, specifically EMIS software, to store, retrieve and make use of health-related information to enable more effective medical practice.
46. We find that the Appellant's primary purpose is to assist and encourage its members to acquire and utilise the knowledge, skills and tools, which enable information to be collected, managed, used and shared to support the delivery of healthcare and promote health. This is done exclusively in the context of the use of EMIS software, and is, we accept, a practical and pragmatic purpose, but it is nonetheless one which we consider can fairly be described as the fostering of medical professional expertise connected with the Appellant's members' professions.
47. We consider that the description of the Appellant's supplies for which Mr. Morgan contends, that is, the provision of an IT support service, is pejorative and unfair. But even if all the Appellant does could be described as the provision of an IT support service, that in our judgment would not prevent the Appellant's primary purpose being the fostering of medical professional expertise, having regard to the context in which the IT support service is provided.
48. It would be too restrictive, we consider, as a matter of purposive construction, to hold that the Appellant's primary purpose was not the fostering of medical professional expertise, simply because it is focussed on the use of the EMIS software. Nor do we consider that our obligation to construe exemptions strictly compels us to take such a restrictive approach.
49. The necessary strict application of the exemption is, we consider, in this case particularly provided by the introductory words to item 1 which allow exempt treatment only to supplies of services both referable only to the aims of a qualifying non-profit making organisation and available without payment other than a membership subscription. When we come to construe "the fostering of professional expertise", it is right, in our judgment, to consider whether what the association actually does, in accordance with its objects, fairly answers to that description. We consider in the Appellant's case that it does.
50. Accordingly we allow the appeal.
51. Mr. Hetherington asked for the Appellant's costs in the event of a decision in the Appellant's favour. We direct Customs to pay the Appellant's costs of and incidental to and consequent upon the appeal to be assessed if not agreed, in accordance with rule 29(1)(b) of the VAT Tribunals Rules 1986. This should be done within 28 days of the date of release of this Decision.

JOHN WALTERS QC

CHAIRMAN

Release Date: 5 July 2006

MAN/2005/0594