Customs have published a Business Brief (13/05 note 4) relating to the VAT Tribunal’s decision in the case of University Court of the University of Glasgow.

In this case, the Tribunal considered whether arrangements for the University to provide medically-registered staff to work at NHS Trusts was a supply of staff (taxable at the standard-rate) or a supply of medical care (exempt from VAT). On the balance of the facts, the Tribunal concluded that the supplies in question were taxable supplies of staff.

This case does not establish any new principles of VAT law in that pure supplies of staff which come under the direction of the party receiving the supply are always taxable no matter what duties they perform. Where an employer provides the ‘services’ of its staff, the VAT liability follows the nature of the services, e.g. exempt medical services or standard-rated accounting or admin services, etc.

The crucial issue for the NHS is that Customs went on to confirm in their Business Brief that VAT incurred on supplies of staff cannot generally be recovered under the Contracted-out services direction.

VAT recovery under the contracted-out services direction is only allowed on the ‘services’ of staff (e.g. typing, secretarial, admin, accounting, nursing, etc) and not the pure supplies of staff.

It would therefore be prudent to review the contractual arrangements for supplies of medical or non-medical staff (e.g. secondments), to see whether VAT will now be due in light of this decision and whether it is eligible for recovery. It would also be prudent to review supplies made by the NHS to consider whether output tax should be charged.