Midlands Partnership University NHS Foundation Trust, R (on the application of) v The Commissioners for HMRC

For VAT purposes, contractual payments by a local authority to an NHS foundation trust for specified health services may constitute consideration even where the services are publicly funded, free to users and connected with statutory public-health duties.

Economic activity requires an objective, fact-sensitive assessment of whether services are supplied for the purpose of obtaining income on a continuing basis. Profit-making is not required. The relevant comparison is with typical activity in the market, not necessarily with a profit-seeking entrepreneur.

An NHS foundation trust acts as a public authority under Article 13 only where the activity is carried out under a special legal regime which has a real impact on how it is conducted and differentiates it from private operators.

The claimant NHS foundation trust provided health visiting, sexual health and infection prevention and control services to local authorities under contracts following tender processes. The local authorities paid specified sums, while the services were free to members of the public.

HMRC decided that the supplies were business activities for VAT purposes. The trust sought judicial review, arguing that the supplies were not for consideration under Article 2 of the Principal VAT Directive, were not economic activities under Article 9, or were supplied by the trust acting as a public authority under Article 13.

The claim was transferred from the Administrative Court to the Upper Tribunal. The central questions were whether the contractual payments were consideration, whether the supplies were economic activities, and whether the trust was subject to a special legal regime.

1. Consideration. The contracts imposed reciprocal obligations: the trust had to provide specified services and the local authority had to pay. The contractual relationship, including service standards, payment provisions and termination rights, established the necessary direct link. Public funding, statutory public-health duties, free provision to patients, wider NHS benefits and payments below cost did not alter that conclusion. The local authority was the relevant recipient, even though the ultimate beneficiaries received the services free of charge. The supplies were therefore for consideration under Article 2 of the Principal VAT Directive.
2. Economic activity. The question under Article 9 was whether the supplies were made for the purpose of obtaining income on a continuing basis. That required a wide-ranging and objective assessment of all the circumstances. The absence of a profit-making purpose, the trust’s non-profit status, public funding and occasional losses were not determinative. The contracts’ duration, substantial monthly payments, tendering process and competition with other providers showed the requisite purpose of obtaining income. The supplies were economic activities.
3. Public authority status. Under Article 13, the relevant test was whether the activity was carried out under a special legal regime, rather than under the same legal conditions as private operators. The relevant legal powers, rules or restrictions had to have a real operative impact on the way the activity was lawfully carried out. The provisions relied on either applied to local authorities or the Secretary of State, imposed no relevant obligation on the trust, or applied equally through contractual requirements to private providers. The trust was not acting under a special legal regime.
4. The alternative issue of significant distortion of competition did not arise. If it had arisen, the Tribunal would have been bound by Northumbria Healthcare NHS Foundation Trust v HMRC to reject HMRC’s proposed approach based merely on actual competition.
5. The judicial review grounds were rejected and the claim was dismissed.

• Administrative Court: permission for judicial review was granted by Ouseley J on 16 January 2023.
• Upper Tribunal (Tax and Chancery Chamber): the claim was subsequently transferred to the Upper Tribunal and dismissed.