Background

The case concerned a company that made supplies of medical care and prostheses to patients in hospitals. The company contended that it made separate supplies of exempt healthcare and zero rated prostheses and therefore could claim input VAT on the purchase of the prostheses.

HMRC disagreed, arguing that the company was making a single supply of exempt medical care, which included the supply of the prostheses so the input VAT was not eligible for reclaim.

Result

The Tribunal considered whether the supply of the prostheses and other supplies and goods were so closely linked that it would be artificial to split them and treat each element as a separate supply.

It concluded that the supply was a single supply of medical care, mainly because each supply was ‘necessary for the other and meaningless without the other’. This decision means that the company is not entitled to claim the input VAT incurred on the purchase of prostheses.

Why is this decision so important?

This case reinforces the importance of the single and mixed supply rules for VAT. Clearly, there could be a direct impact if your organisation purchases or sells goods or services which are similar to those concerned in the above case – but further, it demonstrates the significance of considering VAT early.  VAT is a large proportion of NHS spend and budgeting for it effectively from the outset correctly is crucial.

If your organisation has any upcoming high value contracts on which VAT has not been considered, please feel free to contact us on the FREE VAT Helpline for advice and assistance.