Independent VAT Consultant
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VAT: Staff or medical services?

Did a company consisting of five doctors supply staff or medical services? It was medical services which were VAT exempt, says the court.

6th Apr 2020
Independent VAT Consultant
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The VAT challenge of deciding if a business is providing a standard rated supply of staff or an exempt supply of medical services has kept the courts busy for many years.

It all comes down to the issue of whether the individuals doing the work are under the control of the business they work for or are instead making their own decisions about how to supply medical services. As long as the medical service is linked to the health of the patient, and is carried out by a qualified medical practitioner, it will be exempt from VAT.


A private hospital engages a company to carry out four hip replacements for separate patients. This is a supply of exempt medical services by the company. 

The same hospital engages a locum dentist from the company – the dentist will be directed by the hospital as to the work she does, and payment for her services will be made on an hourly basis. This arrangement reflects a supply of staff because the dentist comes under the control and instruction of the hospital. 

The contract

Archus Trading Ltd (TC7557) was incorporated in May 2012, its shareholders and directors were five qualified doctors who had the responsibility of supplying services to Ayrshire and Arran Health Board (the “Board”) in providing a GP service for inmates of HMR Kilmarnock. 

The contract referred to the company “providing staff to the NHS so that the NHS can meet its obligations in relation to the health of inmates of HMR Kilmarnock.” It is this paragraph that seems to have led HMRC to the conclusion that the company was providing a standard rated supply of staff and should be registered for VAT. In other words, the Health Board was providing the medical services and not the appellant. 

Taxpayer argument 

The commercial reality of the arrangement was very different from the above paragraph in the contract:

  • Archus carried out health assessments of prisoners when they first arrived – there were also ongoing GP consultations and prescriptions of medication, and the company provided an out of hours medical care as well. It organised all of these facilities without interference from the Board

  • The company had its own insurance policy to cover potential neglect, and was also responsible for its own training needs and recruiting locums to help with the work

  • It had the right to use subcontractors as long as the subcontractor had proper negligence insurance as well

  • The GPs (directors) could work from home if they wanted and choose when they worked

  • The Board “exercised no control in relation to how the Appellant delivered medical care in the prison”.

The decision

Although the Board had the responsibility to provide medical care to the inmates, it had the contractual right to delegate this responsibility to a third party, which it did with Archus. The commercial reality was that the directors of Archus had the autonomy to carry out work as needed and the Health Board had no “line management” responsibility.

As the tribunal noted, the contract between the parties was “largely ignored by the Board’s management” and the commercial reality was Archus was supplying medical services that were exempt from VAT. The appeal was allowed.

Learning points 

The message from this case is clear: when it comes to the dilemma of whether staff or medical services are being supplied, it all comes down to whether the people working for the supplier come under the instruction of its customer, or whether it can make its own decisions about the work carried out and is therefore supplying exempt medical services.

As the court noted: “the contractual structure is not determinative” and the principal issue is “the question of direction and control of the doctors.”

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