Isle of Wight NHS Trust & Ors. v The Commissioners for HMRC

Before I turn to the strike out applications, as an observation, it seemed to me that there was a lack of clarity as to what precisely might be the substantive issue before the Tribunal should these appeals not be struck out. As can be seen from paragraph 8 above, the issue was described as being whether past supplies of locum doctors were exempt or not. Paragraph 4 of Ms Yang’s Skeleton Argument articulated it in those terms. I accept that the reason for so doing was to establish the factual basis for the appeals i.e. that the NHS Trusts had borne the VAT cost of the supplies of locum doctors.

I have highlighted the word “past” because:-

The facts are not in dispute. Although I heard extensive argument and I was referred to a large number of cases, ultimately the primary issue was simply what constitutes an appealable decision. In the event that the Reply is not an appealable decision then the issue of standing falls away. However, there is an inevitable overlap between jurisdiction and standing.

I agree with Judge Mosedale at paragraph 90 of Mather where, albeit in regard to standing, she states:-

“It is for a person who maintains that this Tribunal has jurisdiction to hear the appeal that must prove this Tribunal actually does have jurisdiction, and that is the case even where the jurisdiction issue is raised in an application for a strike out by the respondents”.

It is for the NHS Trusts to establish that this Tribunal does have jurisdiction.

This Tribunal, like all Tribunals, has a statutory jurisdiction. In the present case there is no dispute that that is only to be found in section 83(1)(b) VATA.

I agree with Judge Mosedale at paragraph 3 in Mather where, having considered the Upper Tribunal decision in HMRC vEarlsferry Thistle Golf Club [2014] UKUT 250 (TCC) (“Earlsferry”), she agreed that there could be no appeal to this Tribunal under section 83(1)(b) unless it is against a decision made by HMRC on the VAT chargeable on the supply of any particular goods or services.

I also agree with her, as do the parties, that when I consider whether or not the Reply was a decision, then that is a matter that must be determined objectively and in its context which includes the Email and the Opening Letter to which it was a response. Subsequent correspondence is also relevant.

Clearly, HMRC refused to conduct a review of their policy and guidance. In summary, Ms Newstead Taylor argued that that should have been the end of the matter since, in general, such a refusal to review is not an appealable decision.

I was not referred to it but HMRC are absolutely correct when they state in their Guidance on Non-Statutory Clearances that “There’s no general right of appeal against advice given by HMRC, except where rights to appeal are set out in statute.” I say that because, in essence, HMRC argue that the Reply and the September letter amounted to advice.

Both parties referred to Olympia Technology Ltd v HMRC [2006] VATTR 19984 (“Olympia”) at paragraph 12 where the Tribunal stated:

“In my judgment in order for the Tribunal to have jurisdiction there must be an issue between the parties which has been sufficiently crystallised to constitute a decision falling within one of the paragraphs of section 83. Such decision will normally be writing (sic) and be clearly expressed as a decision subject to appeal whether or not the word decision is used. Where a determination is not expressed as an appealable decision it may nevertheless constitute such a decision in the light of its contents and the surrounding circumstances. There may on analysis be a clear determination although there is no mention of the right of appeal. On the other hand a letter by the Commissioners may clearly be intended not to give rise to a right of appeal …”.

I have added emphasis as both parties were agreed that the words “sufficiently crystallised” were very important. Ms Newstead Taylor argued that that made it clear that it required identification of specific supplies and claims or specific instances.

By contrast, Ms Yang argued that the words meant that the parties knew exactly the area of dispute between them, namely whether or not a supply of locum doctors as staff is exempt from VAT under Item 5.

Furthermore, she relied on the case of Morrison Central Garage Limited & Others v Commissioners of Customs & Excise (3 March 1980) (“Morrisons”) for the proposition that there is no need to identify a specific supply or claim for there to be an appealable decision; the only requirement is that “there is actual tax chargeable and an actual supply made”.

The Chairman of the Tribunal, Mr R A Bennett QC, went on to say that he could not read into the legislation any requirement that a decision of HMRC must be specific as to the supply referred to or the amount of tax payable in a context where, from the facts, it was plain that both parties knew perfectly well the area in dispute between them. Ms Yang argued that that is precisely the position in this instance.

Ms Newstead Taylor argued that the law had evolved since 1980 and the more recent case law does not refer to Morrisons and those cases point to a need for fact specific decisions.

Firstly, it is relevant to note that the only difference between the wording in section 83 (1)(b) and the predecessor legislation is that section 83 refers to “VAT” instead of “tax”; therefore the point about statutory interpretation remains valid.

Secondly, I agree that more recent cases do not refer to Morrisons but the principles in Morrisons can be seen in a number. For example, Judge Berner and Judge Herrington in the Upper Tribunal in HMRC v SDI (Brook EU) Ltd and Another [2017] UKUT 0327 (TCC) (“SDI”) stated at paragraph 47:-

“It is clear that appeals are not confined to cases where HMRC have decided the precise amount of VAT to be charged. Cases may proceed on questions of principle which are related to the chargeability of VAT, such as questions as to the nature of particular class of supply and whether those supplies are standard rated, exempt or zero rate. Section 83(1)(b) cannot therefore be construed narrowly; it must be construed broadly so as to encompass any issue between taxpayer and HMRC, in respect of which HMRC has made a decision, which is material to the chargeability of the taxpayer to VAT.”

Of course, that decision binds this Tribunal.

In 2013, Judge Berner in Iveco Limited v HMRC [2013] UKFTT 763 (TC) had expressly addressed section 83(1)(b) VATA and the Tribunal’s jurisdiction at paragraphs 55 et seq. Specifically he stated at paragraph 59:-

“In my view, s 83(1)(b) is capable of encompassing appeals on all questions relating to the chargeability of supplies of goods and services. It is wide enough to include such questions arising from the direct application of a VAT Directive, in so far as those questions bear upon the chargeability of a taxable person to VAT, which includes questions as to the manner in which domestic provisions may be applied, or construed in applying, to the proper charge to tax as provided for under either domestic or EU law.”

Ms Newstead Taylor argued that these two cases both referred to “chargeability” and in that context, although a Tribunal would require to construe the section broadly, nevertheless the issue in question would require specificity as to the supply.

She accepted that Judge Brooks, at paragraph 11, in NT ADA Limited v HMRC [2016] UKFTT 0642 (TC) had said that for a decision to be within the scope of section 83(1)(b) does not require an amount of VAT to have been determined by HMRC. He explained that:-

“these words are not included in s83(1)(b) VATA and had Parliament intended them to be included it would have expressly done so as it had been in s83(1)(c), (g), (j), (p) and (q).”

I agree.

She did not refer me to the following paragraphs but I note that at paragraphs 12 and 15 Judge Brooks went on to say:-

“12.

In Colaingrove v C&E Commrs [2000] VATTR 19681, the Chairman of the VAT and Duties Tribunal (Mr Theodore Wallace) said at [10]:

‘I accept that a decision by the Commissioners is a pre-requisite for the right of appeal, see Marks & Spencer plc v Commissioners of Customs and Excise (No. 2) [1997] V&DR 344. What constitutes a decision is however inevitably a matter of fact and degree.’

….

15.

That issue … is not in the abstract or on a hypothetical basis (if it were it is clear from Odhams that the Tribunal would not have jurisdiction). As such, I consider it to be sufficiently crystallised to constitute a decision ‘in respect to’ … within …VATA”.

I agree with Judge Mosedale in Mathers, at paragraph 96, where she said:-

“It is well established that the courts do not determine hypothetical matters or matters simply of interest to a person. There must be a real legal interest in the matter for the court to have jurisdiction”.

At paragraph 87 Judge Mosedale had pointed out, in my view correctly, that a legal interest does not have to be financial. I do accept that the NHS Trusts have a very real legal interest in the taxation of the supply of locum doctors. It is also a significant financial interest.

The key issue is what constitutes a decision. Both parties cited and relied upon Judge McNall in Iqbal t/a Platinum Executive Travel v HMRC [2015] UKFTT 0215 (TC) (“Iqbal”) where he found at paragraph 11 that:

“The Oxford English Dictionary defines a decision as ‘the final and definite result of examining a question; a conclusion; the making up of one’s mind on any points or on a course of action; a resolution or determination’. All these definitions share a theme, which is one of finality. On occasion, the courts have been called upon to determine the meaning of decision, and have held it to be a popular and not a technical word, meaning little more than a concluded opinion: see, for instance, Re Dover and Kent County Court [1891] 1 QB 75.

I agree.

However, in the following paragraph, on the facts in that case he explains that the Tribunal found that the letter in question expressed nothing more than a provisional view on the basis of the evidence and information supplied to HMRC. It did not definitively rule out a claim for input tax. The very last sentence “I await your comments” was an invitation to further dialogue giving the taxpayer the opportunity to respond before any decision is reached.

HMRC argue that the penultimate paragraph in the Reply was analogous to that. Unsurprisingly, the NHS Trusts disagree. They have consistently argued that the second and third paragraphs of the Reply address the questions asked of HMRC in regard to Item 5. Paragraphs 4 to 6 move on to the discrete issue of the section 80 claims and the penultimate paragraph relates to that and not to the decision which is in the third paragraph.

The Reply falls to be read as a whole and in the context of the Email and the Opening Letter.

I accept the argument from HMRC that, as the Email made clear, the starting point was that BB were asking HMRC to review the position and engage in dialogue; the then intention was to make section 80 VATA claims. It was perceived as the start of a process. That is fair.

What I do not accept is HMRC’s contention at paragraph 29(a) of their Skeleton Argument that the Opening Letter “was not written to obtain a decision” from HMRC.

HMRC do not accept that the bullet points in the Opening Letter, which I quote at paragraph 17(e) above, were a request for a review and a decision.

HMRC relied on the fact that the Email had said that BB were “…hoping for a prompt and pro-active approach to resolving this” and would welcome any meetings or discussions to “…move any part of the technical consideration on…” for their argument that it was simply a general and non-specific enquiry from BB.

HMRC also rely on the concluding sentence in the Opening Letter which reads: “We are keen to find a resolution and would be pleased to discuss the issue….”.

HMRC argue that the reference to the section 80 claims means that that was the express intention for BB. It was only when BB discovered that section 80 claims were not possible that they used the Opening Letter as a way of arguing their point with HMRC, effectively, in my words, by the back door.

Putting to one side the fact that the NHS Trusts could not make section 80 claims, the intended claims would have been predicated on establishing that the supplies should have been treated as exempt in the first place which was the clearly expressed intention of the Email and Opening Letter.

Ms Newstead Taylor argued that the proper approach for the NHS Trusts would have been to apply for non-statutory clearance. I am not convinced, since HMRC do not give advice under that service where they do not think that there are genuine points of uncertainty. As their own guidance on that service makes clear, in that instance they “will explain why we think this and direct you to the relevant online guidance”. In a way that is what the Reply did do.

HMRC correctly state that the NHS Trusts cannot make section 80 claims. I do not accept that their remedy is to litigate with their suppliers. I agree with Ms Yang that, unless and until HMRC decide that such supplies should be exempt that would not be a remedy and it certainly would not be an “effective” remedy. I say “effective” because Lord Tyre made it clear in Earlsferry that there is a need for an effective remedy.

Ms Newstead Taylor relied on paragraph 47 in Mather and argued that the Reply was not a statement about the VAT liability of a particular supply. I do not think that Mather assists HMRC because as Judge Mosedale pointed out at paragraph 7, the decision letter in question in that case said:-

“Although I cannot provide you with a definitive response I can give you the following advice …”.

Ms Yang points to the request in the Opening Letter that HMRC “confirms that (sic) VAT exemption is applicable to the supply of locum doctors under Item 5” which was a specific request for a ruling and what she describes as a definitive response being the final sentence in the third paragraph of the Reply which reads:-

“For the avoidance of any doubt, HMRC does not share the views set out in your letter/report.”

HMRC relied on paragraphs 67 to 69 of Morfee v HMRC [2016] UKFTT 0601 (TC) where Judge Walters, QC and Mr Coles referenced Earlsferry arguing that “an appeal cannot be brought under section 83(1)(b) VATA in the abstract to put in issue a ‘matter’ consisting of the VAT chargeable on the supply of goods or services”.

However, I agree with Ms Yang that the reason why it was decided that the letter in question was not a decision in that case is set out at paragraph 69. It was because an HMRC Complaints Officer was addressing an issue of possible maladministration on HMRC’s part, not any issue of VAT liability.

Turning to the bullet points from the Opening Letter that I have quoted at paragraph 17(e) I find that it is clear from the Reply that HMRC knew what had been asked of them.

Ms Yang did not advance any arguments in relation to HMRC’s intimation that they did not intend to review their policy or guidance and I think rightly so. Rather, her argument is that although the Reply was not expressed as an appealable decision, and it was not, the area of dispute between the NHS Trusts and HMRC was clearly identifiable. It was.

I find that the Email and Opening Letter clearly set out, at considerable length, what the NHS Trusts perceived to be a discrete and crystallised issue, namely the VAT treatment of the supply of locum doctors. It was not an abstract or hypothetical argument. Specifically in the case of the Category 1 appellants there was particularised detail.

Paragraphs two and three of the Reply make it clear that HMRC understood and recognised the issue.

The crucial words are indeed “For the avoidance of doubt, HMRC does not share the views set out in your letter/report.” Had those words been omitted HMRC would have had a very much stronger case for the Applications. Taken with the wording of the rest of that paragraph and the preceding paragraph, it is clear that the technical submission had been considered and rejected. That sentence clearly expresses a “concluded view” and a considerable element of “finality” in relation to the VAT treatment of the supply of locum doctors. “For the avoidance of doubt” is an unequivocal statement. It does not invite further dialogue.

I agree with Ms Yang that, as SDI makes clear,cases can proceed on a question of principle. BB had identified the nature of the supply and the principles involved. The case law to which I have referred above and with which I agree makes it clear that there is no need to identify a specific supply or for an amount of VAT to have been determined. There is a need to identify, and it has been identified, the chargeability to VAT, or not, of a type of supply. There is actual tax chargeable and actual supplies are made.

I do not accept the argument that because the words “consideration will be given to the contracts between the parties and the economic reality of the situation” appear in the penultimate paragraph of the Reply then that meant that that paragraph is not referring, as Ms Yang argues to the section 80 claims but rather to the whole letter.

The Email and Opening Letter dealt with the question of exemption and section 80 claims as separate matters and that is how I read the Reply. As I have indicated the third paragraph makes it explicit that the question of exemption was considered closed.

There were two arguments that I did not believe should be weighed in the balance. The first was the question of public interest because the NHS Trusts argued that the question of exemption, or not, was a “matter of major public interest”. The Tribunal’s function is simply to find the facts and apply the law as enacted. It is for Parliament, if so minded, to take account of public interest.

The second was the argument for HMRC that they did not intend to make a decision. That is not the issue; the issue is whether they did, or did not, make an appealable decision.

Some aspects of standing, such as financial or other interest, have already been addressed in relation to jurisdiction.

HMRC accepted in their Applications that Judge Mosedale had found at paragraph 65 of Mather that the recipient of a supply can have sufficient interest in the VAT status of a supply to bring an appeal (Williams &Glyn’s Bank [1974] VATTR 262, Cresta Holidays Ltd [2001] EWCA Civ 215, Canterbury Hockey Club [2005] UKVAT V19086).

Plainly the NHS Trusts were, and are, recipients and bore the VAT costs. Given Ms Newstead Taylor’s concession for the purposes of this hearing only that the financial interest had been established, in my view that suffices to establish that the Category 1 and 2 appellants do have standing. Whether that can be proved in due course is another matter and is not an issue for this Tribunal at this stage.

That leaves the Category 3 appellants. Ms Yang relies on the wording of section 83G(1) (a)(ii) VATA (see paragraph 40 above) which she argues makes it explicit that someone other than a taxpayer who has been notified of a decision can bring an appeal if they have standing. I agree. The wording is very clear.

Ms Newstead Taylor argued that HMRC could not possibly know who might lodge an appeal and it could open a floodgate. Firstly, the Opening Letter made it clear that there would be other appellants, as indeed there have been and continue to be. Secondly, as Ms Yang pointed out Group Litigation is by no means unknown in the Tribunal.

Whether or not there is a flood of appellants is not a material consideration; the only question at this juncture is whether the Category 3 appellants can establish standing. Ex facie, an NHS Trust would not lodge an appeal unless it paid for a supply of locum doctors. Therefore, provided it could prove its financial interest, as with the other two categories of appellants, it would have standing. I therefore find that for the purposes of determining the strike-out applications all of the NHS Trusts have standing.

For all these reasons I find that the Reply was an appealable decision in terms of section 83 VATA and the NHS Trusts have standing. Accordingly the Applications are dismissed.

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.