This First-tier Tribunal (FTT) concerns recharges relating to joint employees. HMRC challenged the disbursement treatment of the recharged costs of employees, placing emphasis on parts of the agreement to support their case that the charges were consideration for a taxable supply. The FTT considered that the agreement did not fully reflect economic reality and was collaborative in nature and not a supply of services. The arrangement at the centre of this case was entered into in order to save time and money. Historically, where patients required diagnostic procedures (MRI, CT, endoscopy etc.), they would have been referred by their GPs to specified consultants at hospitals. In 2005, the Department of Health (DH) put out for tender contracts to provide GPs with direct access to diagnostic services under which patients could be referred directly for relevant diagnostic procedures to be delivered in a community setting.
Negotiations were protracted and complex. Eventually, DH entered into a single contract with InHealth (London) Ltd (InHealth) which was already in the business of providing diagnostic services. The terms of the DH contract required InHealth to retain tight control over the services provided meaning little of the service delivery was shared with third parties.
The contract did, however, require the operation of a call centre known as the Patient Referral Centre (PRC). As InHealth did not have the expertise to operate a call centre it put the PRC contract out to tender. InHealth selected Agilisys Contact Services Ltd (ACS). Because of the lack of time, the Service Agreement between the parties was, according to witness for the taxpayer, drafted using a sub-contract ‘off the shelf’ template which contained ‘standard or boiler plate terms not all of which were reflective of the relationship which emerged.’
The FTT noted that it was agreed that the advisors and administrative staff of the PRC were jointly employed. The dispute arose as to the treatment of payments by InHealth to ACS. ACS raised two monthly invoices to InHealth in respect of:
HMRC unsuccessfully argued that the taxpayer position fails to focus on the agreement and relies upon commentary from the taxpayer’s witnesses after the event and that this was a ‘dangerous approach’. The FTT concluded it was necessary to analyse the facts. The key conclusions of the FTT were:
Were the joint employees working solely for ACS? No - The FTT noted the direct involvement of senior InHealth personnel with the recruitment, training, managing and supervision of the joint employees that, although managed by ACS, were under the overall control of InHealth. The evidence was consistent with a collaboration between InHealth and ACS and with the joint employees providing their services to InHealth, as one of their employers.
Was PRC provided by ACS to InHealth? No - The FTT concluded the extent of involvement by InHealth in the operation of the PRC is clearly inconsistent with the Service Agreement. The reality of the situation was that ACS did not provide the PRC to InHealth.
The FTT concluded that the relationship between the two parties cannot be categorised as a supply of services by ACS to InHealth. The FTT described the relationship as a collaborative venture in which ACS provided the infrastructure and science of telephony which represented a supply and InHealth the medical and diagnostic expertise allowing them to jointly select, employ, train and manage the joint employees with the costs of those joint employees being recharged by ACS to InHealth as disbursements. To access the decision, click here.
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