Mainpay Limited v The Commissioners for His Majesty’s Revenue and Customs

The medical-care exemption from VAT applies only where the supply in question is itself medical care with a therapeutic aim. It does not extend merely because qualified medical professionals perform services further along the transactional chain.

The nature of a supply is determined from its commercial and economic reality, with the contracts as the usual starting point. Operational control and integration into the recipient’s organisation may show that the supplier provides staff rather than medical care.

Neither the objective of reducing healthcare costs nor fiscal neutrality can extend an exemption beyond its statutory wording. Legal form and the presence of an intermediary are not decisive, but the services must remain medical care or be qualitatively equivalent to it.

Mainpay employed doctors and supplied them to an agency, which placed them with NHS Trusts. The doctors worked within the Trusts’ operational framework and provided treatment to the Trusts’ patients. HMRC assessed Mainpay’s supplies to VAT at the standard rate.

The First-tier Tribunal found that Mainpay supplied staff rather than medical care. The Upper Tribunal dismissed Mainpay’s appeal in [2021] UKUT 0270 (TCC).

Mainpay appealed on the grounds that the tribunals had applied the wrong test, misunderstood the purpose of the medical exemption and fiscal neutrality, and erred regarding specialist GPs. The central issue was whether Mainpay’s supply fell within article 132(1)(c) of the Principal VAT Directive (2006/112/EC), implemented by Group 7 of Schedule 9 to the Value Added Tax Act 1994.

1. The appeal was dismissed. The commercial and economic reality was that Mainpay supplied staff to the agency, not medical care. The doctors were under the control, direction and supervision of the NHS Trusts during their assignments. They formed part of the Trusts’ organisations, through which the Trusts provided medical care to patients.

2. A supply of staff is conceptually distinct from a supply of the services which those staff perform. The First-tier Tribunal was entitled to consider whether Mainpay supplied staff or medical services because those characterisations were mutually exclusive. If Mainpay supplied staff, the supply was taxable under section 4 of the Value Added Tax Act 1994.

3. The tribunals had not adopted an erroneous test based on control. The framework within which highly skilled professionals work is relevant even though nobody controls their individual clinical decisions. Place and hours of work, local policies, and the recipient’s operational direction may establish sufficient control and integration. The framework of control was one factor in assessing the transaction’s commercial and economic reality.

4. Article 132(1)(c) of the Principal VAT Directive (2006/112/EC) requires the supply itself to be medical care. Medical care consists of services having a therapeutic aim, including the diagnosis, treatment or cure of disease or ill-health. Kügler did not establish that mere involvement in medical services performed by qualified persons was sufficient.

5. The supplier’s legal form is immaterial, and an intermediary in a chain does not necessarily prevent exemption. Those principles did not assist Mainpay because its own supply was not medical care. The consultants provided their medical services to the NHS Trusts, not to Mainpay for onward supply.

6. Article 10 removes employees’ activities from treatment as independent economic activity. It does not confer every activity or attribute of an employee upon the employer, nor does it necessarily make an employee’s activities part of the employer’s supplies for VAT purposes.

7. The purpose of reducing healthcare costs and the principle of fiscal neutrality could not enlarge the exemption beyond its terms. A self-employed doctor or personal service company would qualify only if the particular supply constituted medical care or was qualitatively equivalent to medical care. The specialist-GP ground also failed because the evidence was insufficient.

1. Court of Appeal (Civil Division): The court unanimously dismissed Mainpay’s appeal in [2022] EWCA Civ 1620.

2. Upper Tribunal (Tax and Chancery Chamber): Mellor J and Judge Guy Brannan dismissed the appeal from the First-tier Tribunal in [2021] UKUT 0270 (TCC).

3. First-tier Tribunal: Judge Jonathan Cannan and Mr Julian Stafford held that Mainpay supplied taxable staff rather than exempt medical care. The decision is identified as TC/2016/03030; no neutral citation is stated.