Meaning of appealable decision

The FTT has held that the recipient of supplies may bring an appeal against a decision made by HMRC in correspondence concerning the correct VAT liability of those supplies: Isle of Wight NHS Trust and others v HMRC [2023] UKFTT 23. On the facts of the case, HMRC’s reply amounted to a “decision” and the various bodies concerned had standing to appeal that decision.

The question whether a response from HMRC is sufficiently clear to amount to a final decision on a matter will be highly fact dependent. However, the decision is important in showing that HMRC’s rejection of the taxpayer’s technical analysis of the VAT treatment of particular supplies was sufficient to amount to an appealable decision. That was the case despite the fact that the appellants were the recipients of those supplies rather than the suppliers responsible for charging and accounting for the output VAT in dispute.

Background

The case concerns the correct VAT treatment of the supply, being a supply of staff, of locum doctors to NHS hospitals. VATA 1994 Schedule 9 Group 7 Item 5 exempts “The provision of a deputy for a person registered in the register of medical practitioners”. The NHS Trusts involved in this case disagreed with the decision of the FTT in Rapid Sequence v HMRC [2013] UKFTT 432 (TC) (“Rapid”) and argue that Item 5 ought to be construed in a way that exempts supplies of locum doctors as staff.

In support of their position, the appellants wrote to HMRC in 2021 asking HMRC to review their policy as set out in section 6.5 of VAT Notice 701/57 which states ‘Where a locum doctor is supplied by an employment business or similar body to a third party (like a GP Practice) which controls and directs him or her, it is a supply of staff. Supplies of staff do not fall within the exemption and are therefore taxable, with VAT being charged at the standard-rate.’

The letter, which was accompanied by a 28 page technical submission with 13 appendices addressing the reasons why the supply of locum doctors should be properly exempt from VAT, asked HMRC to review and correct their policy and confirm that VAT exemption is applicable to such supplies.

HMRC issued a short response to that letter indicating that “HMRC does not share the views set out in your letter/report”. On the basis of that reply, the appellants sought to bring an appeal to the FTT under VATA 1994 s.83(1)(b) VATA arguing that s.83(1)(b) is capable of encompassing appeals on all questions relating to the chargeability of supplies of goods and services.

HMRC sought to have that appeal struck out, arguing that:

(i) the FTT had no jurisdiction because HMRC had not made an appealable decision, they simply issued a letter which responded to what HMRC viewed as a speculative, theoretical and general enquiry which was not intended to be, and was not, a decision. They had made no decision on the VAT liability on a specific supply or for a particular taxpayer, and

(ii) even if the FTT did have jurisdiction, the appellants lacked the necessary standing to appeal.

Decision of the FTT

The FTT has accepted the arguments of the appellants that the reply by HMRC to their letter constituted an appealable decision.

The FTT noted that for a decision to be within the scope of s.83(1)(b), it does not require a specific amount of VAT to have been determined by HMRC. Reading the letter and response as a whole, it was clear that they 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. It was equally clear that HMRC understood and recognised the issue.

According to the FTT, the crucial words in the response were: “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 striking out applications. However, taken with the wording of the rest of the letter, it was 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.

The fact that HMRC said they did not intend to make a decision was not relevant. That was not the issue; the issue is whether they did, or did not, make an appealable decision.

The FTT went on to find that each of the appellants in this case, in principle, had standing to bring an appeal. There were three categories of NHS Trust appellant. Those named in the original letter and who had provided a schedule of VAT paid on such supplies. Those named in the letter but which had not provided such a schedule. And thirdly, those who were not in the original letter but had since joined in the appeals. The FTT was clear that each had sufficient financial or other interest to appeal as recipients of such supplies. In addition, the FTT held that the third category of appellants had standing despite the fact the decision was not addressed to them directly. It was clear from s.83G(1)(a)(ii) that someone other than a taxpayer who has been notified of a decision can bring an appeal if they have standing.

The FTT also rejected HMRC’s argument that the correct approach to be taken by the appellants in this case was to bring claims for repayment against their suppliers. The FTT noted 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.

Comment

It is clear from this case that the question whether correspondence from HMRC amounts to an appealable decision will be fact specific. However, in this case, the indication from HMRC that they disagreed with the technical analysis put forward in a lengthy letter was sufficient to amount to a decision that could be appealed.

The decision highlights the difficulty in obtaining what HMRC would consider an appealable decision until HMRC has either issued an assessment or rejected a claim. Neither instance is particularly appealing to taxpayers where the VAT treatment of a particular transaction has not yet been determined as they run the risk of incurring a “deliberate” behaviour penalty in both instances should their view of the law ultimately be held as incorrect.

HMRC in the case argue that the proper approach in this instance was to apply for a non-statutory clearance. The Tribunal rightly highlights the practical difficulties in this approach for the taxpayer as HMRC will not provide advice or a decision through that service unless HMRC consider there to be a genuine point of uncertainty.

A revamped system for ruling requests which are anonymised and issued publicly in a similar form to a business brief would be of significant benefit to taxpayers, save HMRC time in responding to the same points multiple times creating the risk of inconsistencies between individual officers and avoid the current uncertainty where companies in the same industry may be at a competitive disadvantage depending on the rulings they have received.

It is unhelpful that HMRC sought to advance the argument that the correct route for a recipient of a supply is to litigate with individual suppliers regarding the VAT liability. As the Tribunal helpfully sets out – this is not an effective remedy unless and until HMRC provides a clear view that such supplies are exempt. Indeed the recipient of the supply is explicitly unable to challenge the quantum and secure a repayment as they are unable to make a section 80 claim and it is unclear even if such a claim is made whether they have the appropriate standing to maintain the appeal.

One potential pitfall for recipients (and potentially suppliers) to navigate is that without the quantum being detailed there is no prospect that HMRC will repay the VAT without a section 80 claim being lodged. Historically where the quantum was detailed in the event of a successful appeal by the recipient of a supply, HMRC were obliged to follow the approach set out in Williams and Glyn's Bank Ltd v C & E Comrs [1974] VATTR 262 where it is stated that “the Commissioners give effect to such decision by repaying the tax”. This case predated the introduction of section 80 though. It is therefore worth remembering that section 80 is subject to a time limit and “protective” appeals may need to be filed by the supplier to protect the recipient’s position. Suppliers may also wish to protect their own position given the mismatch between the six year time limit for commercial claims and four year time limit for section 80 claims