The High Court has released its judgment in a recent case brought by GSTS Pathology LLP and others, against HMRC’s decision to change the VAT treatment of out-sourced pathology services.
GSTS is a public-private joint venture between Serco Ltd and two NHS Trusts, which was established to supply out-sourced pathology services to the NHS. HMRC had previously advised the joint venture that its pathology services were standard-rated for VAT, and that NHS customers could recover this VAT under the contracted-out services (‘COS’) rules. However, in January 2013 HMRC withdrew its earlier ruling, and stated that such services must instead be treated as VAT-exempt.
GSTS appealed against the withdrawal of the ruling to the First-Tier Tribunal (FTT). It also sought an interim injunction from the High Court delaying HMRC’s implementation of the new VAT liability, pending the outcome of the FTT appeal.
Mr Justice Leggatt granted the injunction, noting that HMRC’s withdrawal of its previous ruling was not supported by any material change in the facts, or in the law. He also commented that the European Court of Justice decision in the case of L.u.P GmbH did not, as HMRC said it did, extend the definition of exempt medical care to laboratory tests ordered by a medical practitioner. Furthermore, although the judgment was released in 2006, HMRC had failed to update its published guidance to reflect this interpretation of the L.u.P case.
HMRC has now released Revenue & Customs Brief 16/2013, apparently in response to these comments, which confirms its revised policy and states that existing VAT guidance will be updated ‘in due course’. However, the High Court injunction prevents HMRC from prospectively enforcing this policy against GSTS until three months after the FTT hands down its decision in the main tax appeal.
It remains to be seen whether the FTT will accept HMRC’s change in policy, and we will provide a further update when the FTT reaches its decision.