This case concerns the treatment of the supply of appliances, such as replacement hip joints and pace makers, referred to collectively as prostheses. In 1997 the Court of Appeal concluded in Wellington Private Hospital & Others (Wellington) that when these prostheses were supplied to patients there was a separate zero rated supply and they were not part of a single supply of exempt medical care. HMRC issued Brief 6/97 and invited capped claims for previously restricted input tax. The UK law was then changed to make it clear zero rating was not available going forward. The Upper Tribunal (UT) has dismissed the taxpayer’s appeal concluding that in light of subsequent Court of Justice of the European Union (CJEU) case law, Wellington was wrongly decided.
Following Fleming, this was one of the many areas where historic claims had been accepted by HMRC, but had been capped. The taxpayer had one of 215 claims going back to 1973. However, HMRC refused these claims. This was on the basis that in light of later CJEU case law, such as CPP and Levob, Wellington had been wrongly decided and there was a single exempt supply. Nuffield Health, became the lead case and was unsuccessful at the FTT in 2013. Nuffield did not appeal and the taxpayer who was the appellant in this UT decision applied under rule 18(4) of the FTT rules not to be bound by the Nuffield decision, arguing that the FTT in Nuffield was wrong.
The UT has concluded that, particularly in light of Levob, the FTT in Nuffield was right to conclude that Millett LJ’s approach in Wellington was no longer correct. The UT added that the decision was based on the incorrect view that the different elements must be in a principal / ancillary relationship to form a single supply. The UT concluded that the supply of the prosthesis and other services and goods to the typical patient are “so closely linked that they form, objectively, a single, indivisible economic supply which it would be artificial to split.” The supply is a single supply by the taxpayer of hospital and medical care, which includes providing the prosthesis to be fitted by the consultant. The taxpayer argued for a reference to be made to the CJEU but this was declined. The taxpayer’s appeal was dismissed. To access the decision, click here.
Following the UK’s referendum, this highlights an area where EU case law has overturned earlier UK case law and raises the question as to the VAT treatment when the UK leaves the EU.
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