Royal Surrey NHS Foundation Trust, R (on the application of) v The Commissioners for HMRC

A published HMRC concession may be relied on where the taxpayer’s circumstances fall clearly within its terms. Its scope must be determined from the concession itself, read in its statutory and factual context, rather than by importing the ordinary VAT rules.

For goods, the relevant intention was that of the recipient at the time of supply. The concession was not confined to confectionery or to goods capable only of business use. Where HMRC misunderstood the concession, treated “purchase” as synonymous with VAT “supply”, relied on an irrelevant supplier’s intention and failed to address material evidence, its decision was unlawful.

The claimant NHS Trust acquired two specialist radiation-therapy machines through NHS Supply Chain. Supplies between members of the NHS VAT Division were treated as outside the scope of VAT, and no VAT invoice was issued. The Trust sought repayment under an HMRC concession permitting alternative evidence of input tax for business activities.

HMRC refused the claim, contending that the machines had been acquired for non-business healthcare use, that the supplier’s intention was relevant, and that the First-tier Tribunal provided an alternative remedy. Before supply, however, the Trust’s Board had approved a business model under which the machines would be supplied to its wholly owned subsidiary for taxable healthcare services. The issues were the scope of the concession, the relevant intention and time, the admissibility of later evidence, and jurisdiction.

1. The claim succeeded. The decision of 31 March 2021 was quashed, and the Court declared that the Trust was entitled to the benefit of the concession in HMRC Note 1/98.
2. The concession was an extra-statutory derogation from the ordinary VAT regime. It provided for alternative evidence where an NHS VAT Division member acquired goods from NHS Supply Chain for business activities. The reference to confectionery was an example, not a restriction. The concession did not require the goods to be incapable of non-business use.
3. The relevant question was the recipient’s intention at the time of the VAT-relevant supply. The Trust’s intention had changed by 1 March 2018, when its Board approved the business model involving supply of the machines to Healthcare Partners Limited. That was before delivery and payment. “Purchase” was not a statutory term and could not automatically be equated with “supply”. NHS Supply Chain’s intention was not relevant on the facts, and the concession contained no requirement that the Trust notify Supply Chain of its change of intention.
4. The First-tier Tribunal had no jurisdiction. The claim concerned entitlement under the extra-statutory concession, not recovery of input tax under the Value Added Tax Act 1994. The judicial review was therefore not a collateral attack on the earlier VAT decision.
5. It was proper to consider the explanatory evidence filed in the judicial review. The evidence explained, rather than contradicted, the earlier material, and refusing to consider it would have been unjust. This was not a prohibited rolling review.
6. HMRC made public law errors by misunderstanding the concession, treating the supplier’s intention as central, equating purchase with supply, failing to ask the correct question about the time of supply, and failing properly to engage with the Trust’s evidence. On the evidence, the contrary conclusion was unsustainable.