Two nursing agency taxpayers have lost their appeals at the Court of Appeal (CoA) after arranging for a judicial review of the assessments raised by HMRC. Both agencies had, since 2004 considered that they were supplying nursing staff as agents and therefore only charged VAT on their commissions. In 2010 an extra-statutory concession was issued by HMRC granting a choice to nursing agencies to either exempt their supplies or to continue charging VAT on the whole supply (the cost of the nurse plus the commission) where the agency acted as principal. By the time of the CoA hearing it was common ground that the agencies were in fact acting as principals and not as mere agents.
Back in 2004 HMRC had sent a letter to one of the taxpayers that it was appropriate for them to charge VAT on the commission element only where they were acting as agent. The taxpayer had relied on this letter. HMRC raised assessments for underdeclared VAT in 2016 for the periods from either 2013 or 2014 amounting to almost £1.9m in respect of one agency.
The agencies sought reliance on the nursing agency concession that is detailed in VAT Notice 701/57 that details where a nursing agency is acting as principal it has a choice between exempting the supply or charging VAT on the whole amount. They hoped to apply this concession on a retrospective basis, i.e., change the VAT treatment of the invoices issued in the periods the assessments related to.
The CoA found that the concession didn’t have retrospective effect, it required that at the point of invoicing a decision can be made between exemption or not exempting the supply. There were no clear words to indicate the retrospective nature of the concession. The concession also didn’t deal with the issue of how to counteract errors made by the agencies in under-charging for VAT, as they had only charged VAT on the commission element, despite acting as principal.
The CoA dismissed the taxpayers appeal noting that the severe financial implications incurred reflected on the taxpayers’ inability to keep pace with changing legislation and practice.
The decision can be found at: First Alternative Medical Staffing Ltd v The Commissioners of HMRC – Find case law (nationalarchives.gov.uk)
Please let us know if you have any questions on VAT compliance or any concession made by HMRC. This case shows how important it is to stay on top of any changes in legislation or practice. Continuing processes in a similar manner as before without regular review of those processes can lead to very costly errors. We can assist by reviewing your VAT compliance processes to ensure they are compliant with law and practice as it currently stands.
