Jan Garioch CA discusses the Upper Tribunal case Mainpay Ltd v HMRC
Jan Garioch CA discusses the case of Mainpay Ltd v HMRC, where the appellant sought to overturn the FTT’s decision that a company supplying consultants and specialist GPs does not qualify for the VAT exemption that arises from supplying medical care.
It was accepted by both sides that all of the doctors were on the register of medical practitioners and that the care they provided was given in hospitals. Mainpay assumed responsibility for pensions and sick pay in respect of the doctors and it outsourced the processing of payroll, timesheets and invoicing to a company called Aducco Ltd. Mainpay funded its obligations from its charges to A&E, and, after paying the doctors, together with settling tax and deductions, Mainpay was left with a 4% gross margin. For part of the period subject to the appeal, the contract between Mainpay and the doctors was described as a “contract for services”, but from 2013 Mainpay used a contract which stated it was a “contract of service giving rise to a contract of employment”.
The issue at stake here was whether the supplies were of staff and liable to VAT or of medical care and therefore exempt.
First Tier Tribunal (FTT) proceedings
The FTT found that Mainpay supplied staff rather than medical care. Its reasoning was that control over the framework in which the doctors operated was the key test and it was unpersuaded that Mainpay passed that test. Even when the tighter contract was introduced in 2013, it did not accept that Mainpay could oblige the doctor to do an assignment. The contract provided only that the doctor was obliged to consider any suitable assignments obtained by Mainpay. The FTT did not find any evidence of contact between Mainpay and the doctors except in relation to payroll matters. It found no evidence that Mainpay had ever had any contact with the NHS trusts, which were the ultimate customers, and it found no evidence that Mainpay arranged professional indemnity cover for its practitioners. The rate of pay received by the doctors was negotiated between A&E and the NHS Trusts without involvement from Mainpay.
The appeal to the Upper Tribunal (UT)
Mainpay appealed to the UT, arguing that the FTT had applied the wrong test. Mainpay’s alternative contention was that the economic activity of the doctors forms part of Mainpay’s economic activity. Since clinical decision making is part of the doctor’s economic activity, then Mainpay argued that its own economic activity also involves exercising control over clinical decision making. Mainpay further argued that even if the FTT was correct to define the test as control of the framework in which consultants operate, then the FTT did not apply the test correctly. Its conclusion was beyond the reasonable range and was inconsistent with the purpose of the exemption to reduce the cost of medical care.
The UT’s findings
The UT stated the key question for them to answer was whether Mainpay provided medical care and gave close consideration to the legislation - VATA Sch 9Grp7 I(a) - and case law thereon. It rejected Mainpay’s argument that control over clinical decision making was the key test, finding that such a test would be impractical to apply in the context of highly skilled and specialist workers. Taken to the limits of its logic, Mainpay’s argument means there could never be a supply of staff in respect of highly skilled workers. That, according to the UT, would be a strange conclusion which in of itself undermines Mainpay’s submission. Instead, the UT found that in economic and commercial reality Mainpay, an organisation with no medical qualification or expertise, cannot be deemed to exercise any degree of control over the clinical decision making of the doctors.
The UT also disagreed with Mainpay over the level of care taken by the FTT in reaching its decision. It found that the FTT examined all relevant evidence and did not err in its analysis. The UT was not persuaded to extend the scope of exemption simply on the basis that by doing so the cost of medical care would be reduced, complaining that is an entirely circular argument that would promote too wide an interpretation of exemptions. It held it was not a breach of fiscal neutrality that Mainpay’s services did not receive the same VAT treatment as a self-employed consultant supplying his services directly to an NHS Trust. The UT did not see the self-employed consultant as a relevant comparator with Mainpay’s supply to A&E, which was onward supplied to the NHS Trust. A&E could not be said to receive medical care. In light of all the evidence, the UT rejected Mainpay’s appeal.