- Bookmark
- Share
- CaseIQ
Pearl Chemist Ltd v Revenue & Customs (VAT - ZERO-RATING : Drugs, medicines, aids for the handicapped)
Factual and Procedural Background
The Appellant, a pharmacy business operating multiple retail pharmacies and dispensing prescriptions including private prescriptions, appealed against a VAT assessment made by the Respondents relating to the zero-rating of prescription medicines dispensed on private prescriptions. The assessment, dated 15 April 2016, demanded VAT and interest totaling £156,782.41 for the period from 1 May 2012 to 30 May 2014. The Appellant sought a review of this decision, which was concluded in March 2017, followed by an appeal filed in April 2017.
The dispute centered on whether the Appellant was entitled to zero-rate supplies of medicines dispensed pursuant to prescriptions written by doctors registered both within and outside the UK. The facts were largely undisputed. The Appellant had arrangements with companies providing online medical screening services, where prescriptions issued by UK-registered doctors and doctors registered in other European Economic Area (EEA) states were dispensed by the Appellant. The Appellant treated all such supplies as zero-rated.
A key factual point was that one prescribing doctor was registered with the UK General Medical Council (GMC), while another was registered in Romania and practiced in the Czech Republic, and was not registered with the GMC. Both doctors issued prescriptions for identical medicines dispensed by the Appellant.
Legal Issues Presented
- Whether a doctor registered in an EEA state but not registered with the UK General Medical Council qualifies as a "registered medical practitioner" for the purposes of VAT zero-rating under Group 12 Schedule 8 of the Value Added Tax Act 1994.
- Whether the exclusion of medicines prescribed by non-UK registered doctors from zero-rating breaches the EU principle of fiscal neutrality.
- If such a breach exists, what remedy, if any, is available to the Appellant.
Arguments of the Parties
Appellant's Arguments
- The term "registered medical practitioner" should be given its ordinary meaning, encompassing doctors lawfully registered in any EEA state, not limited to the UK.
- Zero-rating applies to medicines dispensed on lawful prescriptions, and since EEA doctors lawfully issue prescriptions under UK law, their prescriptions should qualify for zero-rating.
- Excluding non-UK registered doctors breaches the EU principle of fiscal neutrality, discriminating between identical supplies and consumers.
- The Tribunal should adopt a conforming construction of the legislation consistent with EU law, applying the Marleasing principle to interpret national law in light of EU law.
- Although EU Treaty rights on freedom of movement and establishment were initially raised, these were not pursued at hearing.
Respondent's Arguments
- The definition of "registered medical practitioner" in the Interpretation Act 1978 applies, restricting the term to doctors registered with the UK General Medical Council.
- The VAT zero-rating provisions have historically focused on the identity of the prescriber, not merely the lawfulness of the prescription.
- The exclusion of non-UK registered doctors does not breach the principle of fiscal neutrality, and if it did, the Tribunal cannot rewrite legislation to provide a remedy.
- The Appellant does not have a directly enforceable EU right to zero-rating.
- Differences in regulatory regimes justify different VAT treatment where they affect consumer choice.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Floor v Davis (Inspector of Taxes) [1976] STC 457 | Determination of contrary intention to displace Interpretation Act presumptions. | Used to assess whether the Interpretation Act definition of "registered medical practitioner" applied or was displaced by contrary intention. |
| Ryanair Ltd v Revenue and Customs Commissioners [2013] STC 1360 | Application of "always speaking" principle to adapt statutory interpretation to technological changes. | Considered but not accepted to apply to the term "registered medical practitioner" in this context. |
| Harrier LLC v HMRC [2011] UKFTT 725 (TC) | Interpretation of zero-rating provisions to include new products within original legislative purpose. | Referenced to support arguments on purposive construction and adaptation of zero-rating provisions. |
| Rank Group Plc v HMRC (Cases C-259/10 and C-260/10) [2012] STC 23 | Principle of fiscal neutrality requiring similar supplies to be taxed equally unless objectively justified. | Applied to determine whether supplies on prescriptions by UK and non-UK doctors were similar and whether differential VAT treatment breached fiscal neutrality. |
| Ideal Tourisme SA v Belgian State (Case C-36/99) [2001] STC 1386 | Relationship between Article 110 VAT Directive and fiscal neutrality; member states’ discretion to maintain zero-rating categories. | Confirmed that member states may maintain zero-rating categories as at 1991 but cannot extend them; supported Respondents’ position on scope of zero-rating. |
| Sub One Ltd (t/a Subway) v Revenue and Customs Commissioners [2014] STC 2508 | Limits on fiscal neutrality principle not overriding national socio-political decisions on zero-rating boundaries. | Used to illustrate that fiscal neutrality cannot extend zero-rating beyond national legislation’s scope but requires consistent treatment within categories. |
| Marleasing SA v La Comercial Internacional de Alimentacion SA (Case C-10/89) | Requirement for national courts to interpret national law in conformity with EU law where possible. | Considered for whether the Tribunal could adopt a conforming construction to remedy breach of fiscal neutrality. |
| Vodafone 2 v Revenue and Customs Commissioners (No 2) [2009] STC 1480 | Principles governing conforming construction of national legislation to comply with EU law. | Guided the Tribunal’s approach to limits and scope of conforming construction under Marleasing principle. |
| Benion on Statutory Interpretation (7th ed.) | Footnotes in legislation are part of the Act and must be construed accordingly. | Supported Respondents’ argument that footnote referencing the Interpretation Act definition was part of the legislation. |
| Evan Warnink BV v J Townsend & Sons (Hull) Ltd [1982] 3 All ER 312 | Authority on footnotes forming part of legislation and affecting operative provisions. | Distinguished by the Tribunal as not directly applicable to the present footnote. |
| Royal College of Nursing of the United Kingdom v Department of Health and Social Security [1981] AC 800 | Purposive interpretation considering the state of affairs known to Parliament at enactment. | Referenced in support of purposive interpretation arguments. |
| R (Quintavalle) v Secretary of State for Health [2003] 2 AC 687 | Statutory interpretation adapting to scientific advances consistent with original legislative purpose. | Referenced to support purposive interpretation and "always speaking" principle. |
| Optigen Ltd v Customs and Excise Commissioners; Fulcrum Electronics Ltd v Customs and Excise Commissioners; Bond House Systems Ltd v Customs and Excise Commissioners (Joined cases C-354/03, C-355/03 and C-484/03) [2006] STC 419 | Requirement for objective tests in legislation and legal certainty in tax matters. | Referenced in discussion of limits to interpretation and legal certainty. |
| Revenue and Customs Commissioners v Isle of Wight Council (Case C-288/07) [2008] STC 2964 | Legal certainty must be strictly observed in tax rules with financial consequences. | Referenced in discussion on limits of interpretation and fiscal neutrality. |
Court's Reasoning and Analysis
The Tribunal began by examining the statutory construction of "registered medical practitioner" in the VAT zero-rating provisions, focusing on Group 12 Schedule 8 of the Value Added Tax Act 1994 and its Note 2B. The term is not explicitly defined therein but is footnoted as defined in the Interpretation Act 1978, which restricts it to doctors registered with the UK General Medical Council (GMC).
The Appellant argued for a broader, ordinary meaning encompassing EEA-registered doctors, relying on the legislative history of zero-rating provisions and the "always speaking" principle allowing statutes to adapt to technological and legal changes. The Respondents countered that the footnote’s reference to the Interpretation Act was deliberate and binding, linking zero-rating to UK registration.
After detailed analysis of the legislative history, statutory interpretation principles, and relevant case law (notably Floor v Davis), the Tribunal concluded that the Interpretation Act definition applied and that the term "registered medical practitioner" was confined to UK-registered doctors. The Appellant's proposed broader interpretation was rejected as inconsistent with the legislative scheme and history.
Turning to the EU principle of fiscal neutrality, the Tribunal applied the test from Rank Group Plc v HMRC to determine whether supplies dispensed pursuant to prescriptions from UK-registered and non-UK registered doctors were similar from the consumer’s perspective and met the same needs. The Tribunal found that the supplies were identical or similar, and that the difference in VAT treatment constituted a prima facie breach of fiscal neutrality.
However, the Tribunal acknowledged that Article 110 of the Principal VAT Directive and related case law permit member states to maintain zero-rating categories as they existed on 1 January 1991 and to discriminate between supplies on different sides of a boundary drawn by national law. The Tribunal found that the UK had drawn the boundary between prescriptions issued by UK-registered doctors (zero-rated) and those by non-UK registered doctors (standard rated).
The Tribunal examined whether the breach of fiscal neutrality was objectively justified or whether a remedy was available. It found no objective justification for the difference in VAT treatment but concluded that the Tribunal could not rewrite or amend the legislation to extend zero-rating to prescriptions issued by non-UK registered doctors, as this would cross the boundary from interpretation to impermissible amendment. The Tribunal considered the Marleasing principle on conforming construction but found that the legislative scheme and history indicated a deliberate exclusion of non-UK registered doctors, which must be respected.
Consequently, despite finding a breach of fiscal neutrality, the Tribunal held it was unable to provide an effective remedy and must uphold the VAT assessment.
Holding and Implications
The Tribunal DISMISSED THE APPEAL and affirmed the Respondents’ VAT assessment.
The holding establishes that for VAT zero-rating under Group 12 Schedule 8 of the Value Added Tax Act 1994, only prescriptions issued by doctors registered with the UK General Medical Council qualify as those of a "registered medical practitioner." Prescriptions issued by doctors registered solely in other EEA states do not qualify, even if the medicines dispensed are identical and serve the same consumer needs.
Although this differential treatment breaches the EU principle of fiscal neutrality, the Tribunal concluded it cannot provide a remedy by interpreting the legislation to include non-UK registered doctors, as this would amount to impermissible legislative amendment. The decision thus upholds the existing statutory framework and leaves any change to Parliament. No new legal precedent was established beyond the application of existing principles of statutory interpretation and EU law.
Alert