Introduction

The case of Mercy Global Consult Ltd v Adegbuyi-Jackson & Ors ([2023] EWCA Civ 1073) adjudicated by the England and Wales Court of Appeal (Civil Division) on October 4, 2023, addresses critical issues surrounding Value Added Tax (VAT) exemptions related to the supply of staff versus the supply of services. The central parties involved include Mercy Global Consult Ltd (MGC) as the claimant and multiple defendants, including Mr. Adegbuyi-Jackson and related corporate entities, as appellants. The crux of the dispute lies in MGC's allegation of significant VAT fraud and the defendants' attempt to preclude liability through the VAT Defence based on exemptions provided under the Value Added Tax Act 1994 (VATA).

Summary of the Judgment

The Court of Appeal upheld the lower court's decision, dismissing the appellants' applications to amend their defenses and to have the VAT Defence tried as a preliminary issue. The primary reasoning was anchored in the precedent set by Mainpay Ltd v Revenue and Customs Commissioners [2022] EWCA Civ 1620. The court reaffirmed the distinction between the supply of staff and the supply of services those staff provide, emphasizing that such a distinction is pivotal in determining VAT obligations. Consequently, the VAT Defence advanced by the appellants, asserting that MGC's services fell under VAT exemptions, was deemed precluded by the established legal standards.

Analysis

Precedents Cited

The judgment extensively referenced several critical cases that delineate the boundaries between supplying staff and supplying services:

• Reed Personnel Services v CCE [1995] STC 588
• Adecco UK Ltd v Revenue and Customs Commissioners [2018] EWCA Civ 1794
• Moher v Revenue and Customs Commissioners [2012] UKUT 260 (TCC)
• Stichting Regionaal Opleidingen Centrum Noor-Kennemerland/West-Friesland (Horizon College) v Staatssecretaris van Financiën [EU:C:2007:343]
• Mainpay Ltd v Revenue and Customs Commissioners [2022] EWCA Civ 1620
• Reed Personnel Services v CCE [1995] STC 588

These cases collectively reinforced the legal foundation that differentiates the supply of staff from the supply of services, underscoring that such a distinction is not merely doctrinal but has tangible implications for VAT liabilities.

Legal Reasoning

The court's legal reasoning hinged on interpreting Items 1 and 4 of Group 7 of Schedule 9 to the VATA, which align with Article 132(1) of Council Directive 2006/112/EC. The judgment stressed that for supplies to qualify for VAT exemptions under these provisions, the nature of the supply must be carefully assessed. Specifically, the court emphasized that:

• A supply of staff is distinct from a supply of services performed by those staff.
• If the supply is characterized as staff, it does not qualify for the VAT exemption and is instead subject to standard VAT rates.
• The essence of the supply, whether it is staff or services, must be determined based on the commercial and economic reality rather than the contractual nomenclature alone.

In applying these principles, the court found that MGC's operations, as characterized by the contractual arrangements and the nature of the relationships with seconded employees and end-users, constituted a supply of staff. Therefore, the VAT Defence was invalid as it attempted to reclassify these supplies under exempt categories.

Impact

This judgment reinforces the necessity for businesses engaged in secondment and temporary staffing to meticulously assess and document the nature of their supplies in relation to VAT obligations. It serves as a cautionary precedent that merely providing staff who perform services does not automatically qualify for VAT exemptions. The decision clarifies the boundaries of VAT law in the context of staffing services, potentially influencing future cases where the characterization of supplies could determine significant tax liabilities.

Complex Concepts Simplified

Supply of Staff vs. Supply of Services

Supply of Staff: This refers to providing personnel to another entity without transferring the rights to the services they perform. Essentially, it's the provision of employees who remain under the control and direction of the original employer.

Supply of Services: This involves providing services performed by individuals who may be under the direction and control of the receiving entity, effectively transferring the obligation to perform those services.

VAT Exemptions under VATA

Under Items 1 and 4 of Group 7 of Schedule 9 to the VATA, certain healthcare-related services are exempt from VAT. However, the exemption applies specifically to the provision of medical care or treatment, not merely to the supply of healthcare professionals.

Per Incuriam

A legal term meaning "through lack of care." A decision is made per incuriam when it is made in ignorance of some relevant law or authority, thereby not being binding on future cases.

Conclusion

The Mercy Global Consult Ltd v Adegbuyi-Jackson & Ors judgment significantly clarifies the differentiation between the supply of staff and the supply of services under VAT law. By upholding the precedent established in Mainpay Ltd v Revenue and Customs Commissioners, the Court of Appeal cemented the principle that VAT exemptions are not applicable to the mere provision of staff, even if those staff perform exempt services. This decision underscores the importance of accurately characterizing supplies in compliance with VAT regulations and serves as a crucial reference point for similar cases in the future. Businesses must now navigate these distinctions with greater precision to mitigate tax liabilities effectively.