Following the judgment of the House of Lords in the joined cases of Fleming/Condé Nast in 2008, many NHS Trusts submitted VAT claims to HMRC for input VAT which had been under-recovered, or output VAT which had been over-declared, in prior accounting periods.

Some types of claim have been accepted by HMRC, such as those for output VAT which was over-declared on catering income. These accepted claims have been paid out in part, where HMRC have agreed that the claimant Trust has entitlement to earlier periods. There may still be scope for further payments pending the entitlement appeals. Other claims have been rejected, including those for input VAT on drugs and prostheses supplied to private patients. These claims relied on the earlier decision of the Court of Appeal in the joined cases of Wellington Private Hospital /BUPA in 1997. The Court held that supplies of drugs and prostheses to private patients qualified as separate, zero-rated supplies of goods, meaning that VAT incurred on the purchase of these items could be recovered as input VAT.

HMRC has rejected these claims on the grounds that the Court’s decision is undermined by subsequent case-law, and therefore cannot be applied retrospectively. Following an appeal, the FTT has now agreed with HMRC, in its recently released judgment in the Nuffield Health case. Rejecting Nuffield’s appeal against HMRC’s refusal of its VAT claim, the FTT held that there was no meaningful separation between the supply of the care elements of the service and the supply of drugs/prostheses as a part of that supply. As such, Nuffield was providing a single, exempt, supply of health care to the patient.

The Nuffield appeal was the lead case for all appeals against HMRC’s rejection of Wellington/BUPA VAT claims, including NHS appeals. It remains to be seen whether Nuffield will appeal this decision to the Upper Tribunal. We will keep you informed if there are any further developments.