Beynon and Partners v Her Majesty's Commissioners of Customs & Excise

The House of Lords held that the personal administration of drugs by an NHS doctor to a patient forms a single supply of medical services which is exempt from value added tax under the Sixth Directive (article 13 A 1(c)) rather than a separate supply of goods. The court applied the test in Card Protection Plan (Case C-349/96) to determine whether elements of a transaction are ancillary to a principal service and emphasised the regulatory distinction between dispensing under regulation 20 of the National Health Service (Pharmaceutical Services) Regulations 1992 and personal administration under regulation 19(b). The court also held that, even if one treated the administration as a supply of goods, such supplies would not fall within the zero-rating provision applicable to dispensed prescription drugs (Group 12, Schedule 8 and item 1A(a)), and so would be standard-rated. Consequently the appeal was allowed and the tribunal and High Court decisions restored.

The respondents were a VAT-registered general medical practice which sought recovery of input VAT paid on drugs personally administered by doctors (for example vaccines and injections). The Commissioners of Customs and Excise maintained that personal administration was an exempt supply of medical services and not a taxable supply of goods; the practice appealed a Commissioners' ruling to the VAT Tribunal which dismissed the appeal. The High Court (Lawrence Collins J) dismissed the subsequent appeal on a question of law; the Court of Appeal allowed the practice's appeal, treating the administration as a separate supply of goods which was zero-rated. The Commissioners appealed to the House of Lords.

The principal issues framed were:

• whether personal administration of drugs by a doctor constitutes a supply of goods (taxable) or a single supply of medical services (exempt under article 13 A 1(c) of the Sixth Directive); and
• if it did constitute a supply of goods, whether that supply would be zero-rated under the domestic provisions (Schedule 8, Group 12, item 1 and item 1A(a)).

The House of Lords applied the Court of Justice's guidance in Card Protection Plan on how to characterise composite transactions, focusing on the economic reality and the essential features of the transaction and whether one element is ancillary to the principal service. The court emphasised the statutory and regulatory context, notably the distinction in the Pharmaceutical Regulations between dispensing under regulation 20 (which may be authorised and is zero-rated when supplied under that regime) and personal administration under regulation 19(b) (which any doctor may lawfully perform as part of personal medical services). The Lords concluded that personal administration is in economic and practical reality ancillary to and part of the supply of medical services. They further held that, even if the act were characterised as a supply of goods, it would not fall within the narrow wording of the zero‑rating provision for dispensed pharmaceutical goods, and so would be standard‑rated. The House therefore allowed the Commissioners' appeal, restoring the VAT Tribunal and High Court decisions and confirming that registered practices cannot recover input tax on personally administered drugs. The Lords observed that the Department of Health, which was not party to the proceedings, might reconsider its payment arrangements in light of this legal position.

Appeal allowed. The House held that the personal administration of drugs by a doctor to a patient is a single supply of exempt medical services (within article 13 A 1(c) of the Sixth Directive) rather than a separate supply of goods. The court applied the Card Protection Plan test and relied on the regulatory distinction between dispensing under regulation 20 and personal administration under regulation 19(b); it also held that personally administered drugs would not meet the zero-rating provision in Group 12 item 1A(a) and so, if treated as goods, would be standard-rated. Accordingly the tribunal and the decision of Lawrence Collins J were restored.

VAT Tribunal (appeal dismissed); High Court (Ch) Lawrence Collins J: appeal dismissed, [2002] EWHC 518 (Ch); Court of Appeal: appeal allowed, [2002] EWCA Civ 1870; House of Lords: appeal allowed, [2004] UKHL 53.