Does Archus Trading Ltd provide exempt medical services or standard rated supplies of staff?
Jan Garioch CA discusses a recent case, Archus Trading Ltd v HMRC, which saw the FTT consider whether exemption could apply in the arrangements to provide medical services at HMP Kilmarnock. It ignored HMRC’s interpretation of its own guidance and focused on facts.
Archus Trading Ltd (Archus) made supplies to Ayrshire and Annan Health Board (the Board) and the VAT dispute centres upon whether these are exempt supplies of medical services as argued by Archus or taxable supplies of staff as argued by HMRC.
It was common ground that section 2C of the National Health Service (Scotland) Act 1978 placed a statutory obligation on the Board “to provide or secure the provision of primary medical services as respects their area” and that the prison HMP Kilmarnock fell into the Board’s geographical area. The Board invited tenders stating that it would establish HMP Kilmarnock Medical Practice in accordance with the Act and sought “to enter into a contract of service agreement with appropriately qualified and experienced general medical practitioners to provide the GP medical services to the prison in hours and out of hours.”
Having won the tender, Archus was incorporated in 2012 with five qualified GPs as the five shareholders and directors. Archus entered a contract with the Board and key points within this lengthy document were that it had to provide GP clinics, an out of hours service, remote prescribing and GP attendance as required. Archus was responsible for monitoring the performance of the doctors and had to hold adequate insurance against liability arising from negligent performance of clinical services. It was paid a fixed annual sum with no reference to VAT.
Views from the Board, Archus and HMRC
The Board provided its view, stating that Archus operates under a service contract. Unlike a GP practice which has to operate core hours within its contract, Archus provided GPs at HMP Kilmarnock during the times deemed to be most efficient and had control over whether or not they see patients. Archus was not supervised directly and beyond the requirements set out in the contract, provided medical services as it deemed fit.
Archus also argued that it is the provider of medical services and the contract arrangements reflect that. If the contract were for supply of staff, then control of individual doctors would pass to the Board and there would be no call for indemnity insurance.
The opposing view from HMRC was that the contractual arrangements between the parties is not determinative and that the Tribunal must take a realistic view of the arrangements that are in place. HMRC stated that the obligation to provide health care to HMP Kilmarnock rests with the Board and Archus provides staff so that the Board can honour its obligations. In support of their arguments HMRC cited their own Notice 701/57 and referred the Tribunal to para 6.4; “When self-employed locum GPs supply their services to an employment business which makes an onward supply to a third party who is legally responsible for providing health care to the final patient, both the supplies to and from the employment business are taxable. The fact that the locum GPs may be supplied to a prison or other institution where they may not be supervised by any medical staff does not mean that the employment business supplying the locum doctor to the third party is legally responsible for providing healthcare to the final patient.”
The Tribunal’s analysis
The Tribunal dismissed HMRC’s argument on the Board’s obligation to provide healthcare, pointing out that the act obliges the Board to provide or secure that provision. It can therefore fulfil its obligation by arranging for someone else to provide medical care. With regard to the contract, the Tribunal formed the view it was not well expressed and open to interpretation. The Tribunal felt it was rarely if ever taken into consideration. It found that Archus had a free hand to decide what the GPs do, and when and how they do it.
The Board exercised no control on how the appellant delivered medical services and it was Archus which had direction and control of the GPs and which decides all training requirements and all disciplinary matters.
The fact the Archus disciplined the GPs helped the Tribunal reject the argument advanced for HMRC that to the extent there was any autonomy, it was the individual GPs who were autonomous rather than Archus. The fact that direction and control of the GPs did not lie with the Board meant the Tribunal found that HMRC guidance was not relevant. As is often the case, the Tribunal was swayed by facts and relevant legislation and is less impressed when HMRC tell them what it says in their guidance notes.
The Tribunal concluded that the supply made by Archus was the provision of medical care by suitably qualified medical professionals so exemption applies.