This is a classic minefield. When is UK VAT due on staff or is it healthcare and exempt? There is no doubt that VAT is applied inconsistently in the temporary staff market so some people must be getting it very wrong. While the Archus case below was successful, and was based on quite compelling facts, nevertheless HMRC’s challenge went all the way to tribunal. This points towards HMRC looking closer at these types of situations so please be aware and take steps to protect yourself.
This issue has been highlighted again in the First Tier Tribual’s recent decision in favour of Archus Trading Ltd (TC 07557 [2020] UKFTT 0061). This case explored the differences between a supply of staff and a supply of services. Despite the contract between Archus and the recipient being particularly unhelpful, the Tribunal looked through and beyond the contract to interpret what was really happening. This approach pretty much saved Archus’ bacon.
What was the argument about?
In Scotland, where Archus operated, Health Boards are responsible for the provision of healthcare to prisoners. The argument related to Archus’ contract with a health board to provide such services and how VAT should apply.
HMRC argued that because the obligation to provide healthcare rests with the Board, almost by default, this meant that Archus made a VATable supply of staff. However, Archus argued the reality was very different. The Tribunal agreed and decided its services constituted the provision of medical care and therefore VAT exempt.
Key factors in Archus being successful were that it undertook a significant element of the service design without input from the Board. The Board had no line management responsibility for the GPs. In addition any disciplinary issues about doctors were dealt with by Archus and not the Board.
The Tribunal accepted that while Archus worked on a collaborative basis with the Board nevertheless the direction and control of the GPs and locums rested with Archus, whose level of autonomy could not have been greater. Therefore, there was no VATable supply of staff and Archus’ services were exempt supplies of healthcare.
Interestingly there has been a very recent decision released by the ECJ on similar arguments. This has yet to be translated into English so we will look forward to learning and sharing more about this.
This argument here centred on whether a supply attracts UK VAT on staff or is it Healthcare and exempt. This same argument could affect a huge number of operators. If you are involved in temporary staff you will stand a good chance of being sat on a time bomb, so please get in touch to explore how we can help de-fuse potential problems.