Spectrum Community Health CIC v The Commissioners for HMRC

In determining whether a transaction comprises one supply or several, the court must first identify the supplies by considering all the circumstances and the perspective of the typical consumer, ordinarily the recipient of the supply. Only then should the supply or supplies be characterised for exemption purposes.

Elements that would be taxable if supplied separately may share the exemption of a single composite supply where the predominant element is exempt. The medical-care exemption in Article 132(1)(c) does not prevent the ordinary CPP/Levob analysis from applying. Goods outside the narrow exception for goods physically and economically indissociable from medical care may therefore form part of an exempt composite supply.

Spectrum provided, or subcontracted, integrated primary healthcare services in prisons under contracts with NHS England. The services included medical consultations, pharmacy services, prescription drugs and contraceptive products.

The First-tier Tribunal held that Spectrum made a single composite supply of primary healthcare or health and social care. It rejected the argument that the drugs and contraceptives were separate taxable supplies and concluded that the composite supply was exempt medical care under Article 132(1)(c) of the Principal VAT Directive.

Spectrum appealed on four grounds: the order in which the FTT addressed the issues; the effect of EC v UK and Klinikum; the identity of the typical consumer; and an alleged Edwards v Bairstow error. The central questions were whether there was one composite supply and, if so, whether its elements could share the medical-care exemption.

1. Appeal dismissed. The FTT made no error of law in concluding that Spectrum supplied a single composite package of primary healthcare services.
2. The orthodox sequence is first to determine whether the transaction comprises distinct supplies or one single supply, and then to determine the VAT treatment of the resulting supply or supplies. This follows the approach in Město. The order of analysis did not create circular reasoning.
3. The principles in CPP and Levob apply to health exemptions. A single composite supply has one VAT treatment, even if its individual elements would have attracted different treatments if supplied separately. The predominant element determines the treatment, applying Město and Gray and Farrar.
4. EC v UK did not decide the treatment of goods forming part of a single composite supply. Its discussion of goods physically and economically dissociable concerned the supply of goods as a separate supply. Nor did Klinikum preclude a composite-supply analysis. The CJEU’s reasoning recognised that a single supply might be possible, although separate supplies by separate persons prevented that analysis on the facts before it.
5. The relevant perspective was that of the typical consumer or recipient of the supply. The contractual analysis and the economic and commercial reality showed that NHS England, rather than the prisoners, received Spectrum’s supply. The FTT was therefore entitled to assess the transaction from NHS England’s perspective.
6. The factual indicators relied on by Spectrum did not compel a finding of multiple supplies. Different personnel, locations, times, specifications, identifiable costs and subcontracting were consistent with an integrated healthcare package. The analysis could, however, require reconsideration for a materially different contractual period.
7. The alleged Edwards v Bairstow error was not established. The FTT’s conclusion was reasonably open on the accepted facts. The appeal was dismissed.

• First-tier Tribunal (Tax Chamber): held that Spectrum made a single composite supply of primary healthcare or health and social care, including drugs and contraceptives, and that no separate taxable supply arose.
• Upper Tribunal (Tax and Chancery Chamber): dismissed Spectrum’s appeal and upheld the FTT’s decision.