First Alternative Medical Staffing Ltd & Anor v Revenue And Customs

Factual and Procedural Background

The appeal concerns whether the Appellants, two employment bureaux providing temporary nursing staff to hospitals and care homes, can apply an extra-statutory concession by HM Revenue & Customs ("HMRC"), known as the "Nursing Agencies Concession" ("NAC"), retrospectively to exempt past supplies from Value Added Tax ("VAT"). The dispute relates to VAT assessments for periods between 2013 and 2016, totaling significant sums for both Appellants.

The Appellants operated under the assumption that they were acting as agents for VAT purposes, charging VAT only on their commission element. HMRC assessed them on the basis that they were principals, requiring VAT on the full amounts charged. The Appellants had previously received a 2004 letter from HMRC supporting their agency treatment, but this was later found not to confer a legitimate expectation beyond 2013 due to subsequent HMRC statements.

The NAC, introduced in 2010, permits certain nursing agencies acting as principals to exempt supplies of nursing staff from VAT if specific criteria are met. The Appellants contend they satisfy these criteria, but HMRC disputes this. The central issue is whether the NAC can be applied retrospectively to exempt supplies made before reliance on the concession was asserted.

The Appellants also contend their supplies are exempt under the VAT Act 1994 as supplies of medical care, but that issue is stayed pending the outcome of this judicial review.

Legal Issues Presented

1. Whether the Appellants can rely on the Nursing Agencies Concession retrospectively to exempt past supplies from VAT.
2. Whether the NAC can be relied upon retrospectively as a matter of EU law, including under the principles of legitimate expectation and legal certainty.
3. Whether the Appellants sufficiently exercised any choice required to be made under the NAC to exempt supplies.

Arguments of the Parties

Appellants' Arguments

• The NAC contains no express time limit restricting when reliance may be placed on it, and the absence of such a limit implies it can be applied retrospectively.
• The judge failed to construe the NAC from the perspective of the ordinarily sophisticated taxpayer, who would not perceive any such temporal limitation.
• There is no inherent reason why the choice to exempt supplies must be made prior to supply; retrospective application of such a choice has precedent.
• The wording of the NAC materially differs from the concession considered in R (ELS Group Ltd) v HMRC, making reliance on that case inappropriate.
• The Appellants did not make a choice at the time of supply because they were unaware they were acting as principals, so retrospective application should be permitted.
• Under EU law, retrospective choice regarding exemption is recognized, and legal certainty should not imply a time limit absent clear wording.
• The practical difficulties of undoing VAT charged at the time of supply relate to implementation, not the existence of a legitimate expectation to apply the NAC retrospectively.
• Delta had indicated in 2004 that it wished to treat supplies as exempt if regarded as principal, constituting an election under the NAC.

HMRC's Arguments

• The ordinarily sophisticated taxpayer would understand that to exempt a supply means not to charge or account for VAT at the time of supply, requiring a choice to be made contemporaneously.
• The NAC's language, although different from the concession in ELS, is similarly prospective and does not permit retrospective application.
• The statutory VAT machinery and regulations do not provide for retrospective election to exempt supplies once VAT has been charged and accounted for.
• The supply is indivisible; the NAC does not allow exemption of part of a supply after VAT has been charged on another part.
• Practical difficulties and statutory constraints prevent retrospective application of the NAC, reinforcing a restrictive interpretation.
• Delta's 2004 indication is irrelevant to supplies made from 2013 to 2016, during which the Appellants treated supplies as agency services and did not elect exemption.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
R (ELS Group Ltd) v HMRC [2016] EWCA Civ 663	Interpretation of extra-statutory concessions and whether they can be applied retrospectively.	The court applied the reasoning that such concessions are prospective and require clear wording to permit retrospective application; this reasoning was adopted to construe the NAC.
Re Finucane's application for judicial review [2019] UKSC 7	Criteria for legitimate expectation arising from extra-statutory concessions.	Used to establish that the NAC must be clear and unambiguous to give rise to legitimate expectation.
Paponette v Attorney-General of Trinidad and Tobago [2010] UKPC 32	Standard for clarity and unambiguity in legitimate expectation claims.	Supported the test applied to the NAC's interpretation.
R (Aozora) v HMRC [2019] STC 2486	Perspective of the ordinarily sophisticated taxpayer in assessing legitimate expectation.	Referenced to confirm the appropriate interpretative approach.
VDP Dental Laboratory NV v Staatssecretaris van Financiën (C-144/13)	EU law recognition that a choice regarding exemption may be made retrospectively in certain contexts.	Discussed but found not directly applicable to the NAC's interpretation.
Investment Trust Companies v HMRC [2017] UKSC 29	EU law principle on retrospective tax treatment following court decisions.	Considered but held not to assist in construing the NAC's retrospective effect.

Court's Reasoning and Analysis

The court focused on the construction of the NAC as an extra-statutory concession and its capacity to be applied retrospectively. It began with the principle that such concessions represent HMRC's decision not to collect tax statutorily due and thus should not be given a scope broader than their language permits.

Applying the test of the ordinarily sophisticated taxpayer, the court found that the NAC requires a positive choice to exempt a supply, which necessarily must be made at or before the time of invoicing. To exempt a supply means not to charge or account for VAT on it, and this choice cannot be made after VAT has been charged and accounted for.

The court relied heavily on the Court of Appeal's decision in ELS, which held that extra-statutory concessions are prospective unless clear words indicate otherwise. The NAC's language, although less clear, was similarly prospective, and no clear words permitted retrospective election.

The court also rejected the Appellants' argument that the supply could be divided or that exemption could apply to only part of the consideration. It held the supply was indivisible, and the NAC applies to the entire supply.

Practical and statutory constraints, including the VAT Regulations, prevent retrospective application of the NAC. The inability to unwind VAT charged and accounted for, and the lack of statutory machinery to permit retrospective election, reinforced this conclusion.

Regarding EU law arguments, the court found no material difference from domestic law principles that would alter the conclusion. Cases cited by the Appellants concerning retrospective tax treatment did not assist in construing the NAC.

Finally, the court dismissed the contention that the Appellants had sufficiently exercised a choice to exempt supplies, finding that prior indications (such as the 2004 letter) were irrelevant to supplies made during the assessment periods, during which the Appellants invoiced as agents.

Holding and Implications

The court DISMISSED THE APPEAL.

The direct effect is that the Appellants cannot apply the Nursing Agencies Concession retrospectively to exempt past supplies from VAT. Consequently, they remain liable for the VAT assessments issued by HMRC for the relevant periods. The decision does not establish new precedent beyond confirming the prospective nature of extra-statutory concessions like the NAC. The financial consequences for the Appellants arise from their failure to act on HMRC's subsequent clarifications post-2004 letter, and the ruling underscores the importance of timely election in VAT treatment.