In Window to the Womb (Franchise) Ltd, D I Harries Ltd, DJC Studios Ltd, and the Commissioners for Her Majesty’s Revenue and Customs  UKFTT 201 the First Tier Tax Tribunal ruled that ultrasound scanning services constituted an exempt supply of medical care. HMRC lost the tax tribunal appeal over the VAT treatment of supplies of ultrasound scanning services to pregnant women, which the appellants claimed should be exempt as supplies of medical care, but which HMRC argued were standard rated.
These appeals are lead cases and concern the VAT treatment of supplies of certain ultrasound scanning services to pregnant women. The issue in each appeal is whether the supplies are standard rated for VAT purposes as HMRC contend, or exempt as the appellants contend. The appellants say that they are exempt as supplies of medical care.
The issues of law common to each appeal were stated as follows in a direction released on 22 October 2018:
“ … whether certain supplies made by the appellants at particular times are exempt from VAT either:
(a) as supplies of services constituting the provision of medical care by a person registered or enrolled in the register kept under the Health and Social Work Professions Order 2001 pursuant to Item 1 Group 7 Schedule 9 Value Added Tax Act 1994, or
(b) as the provision of care or medical or surgical treatment and, in connection with it, the supply of any goods, in any hospital or state regulated institution pursuant to Item 4 Group 7 Schedule 9 Value Added Tax Act 1994.”Window to the Womb (Franchise) Ltd, D I Harries Ltd, DJC Studios Ltd, and the Commissioners for Her Majesty’s Revenue and Customs  UKFTT 201
The HMRC decisions under appeal
The decisions under appeal were as follows:
(1) A decision addressed to the appellant dated 21 December 2016 to the effect that supplies of scanning services made by franchisees of the appellant are standard rated. Decisions to the same effect were addressed to the franchisees.
(2) Assessments to VAT dated 20 April 2017 to the franchisees in the sum of £3,341 for period 01/17 and to DJC in the sum of £24,106 for periods 07/14 to 01/17.
(3) A decision addressed to the appellant dated 26 March 2018 to the effect that supplies of scanning services made by franchisees of the appellant should continue to be standard rated.
WTTW operates a franchise model for businesses which supply various packages of ultrasound scans for pregnant women. Harries and DJC are franchisees. The appellants contend that what is being supplied in each case is a supply of medical care. The respondents contend that in each case what is being supplied is a “bonding experience” or a “reassurance scan” for pregnant women based on viewing the fetus and being provided with images.
Tribunal Judge Jonathan Cannan was satisfied that the appellants’ supplies are indeed exempt supplies of medical care and therefore allowed the appeal.
The Tribunal cited the leading Court of Justice judgment in this area in d’Ambrumenil and another v Customs and Excise Commissioners; Unterpertinger v Pensionversicherungsanstalt der Arbeiter  STC 650 (“d’Ambrumenil”). It is well established from d’Ambrumenil and other case law in the CJEU that the purpose of the exemption is to reduce the cost of medical care and that medical care must have a therapeutic aim. It is clear that the focus is on whether the principal purpose of the supply is therapeutic and/or prophylactic in nature. In order to fall within the exemption for medical care, the principal purpose of the service must be to diagnose, monitor, treat or prevent illness. One purpose of a supply may be to provide a medical diagnosis, but it is the principal purpose which is determinative. It is not sufficient if the medical care is incidental or ancillary to the principal purpose.
On the facts of the case, the Tribunal was satisfied on the evidence before it that the principal purpose of typical customers of the appellants for First Scans is the diagnosis, prevention or monitoring of a medical condition. The appellants’ supplies of First Scans are therefore exempt as a supply of medical care.
In line with the judgment in d’Ambrumenil, the scanning service constituted an exempt supply of medical care.
What happens at a First Tier Tax Tribunal Hearing?
All Basic, Standard and Complex cases are determined by a Hearing. Usually two people sit on the tribunal: a legally qualified judge and a non-lawyer member (for example an accountant). Each party, their witnesses and their legal representatives are entitled to attend the hearing. In Basic and Standard cases, HMRC will be represented by a “presenting officer” from its Appeal and Reviews Unit. In complex cases, either a solicitor or barrister will represent HMRC.
The First Tier Tax Tribunal will provide 14 days notice of a hearing (rule 31, FTR 2009). Generally, all hearings are held in public (rule 32(1), FTR 2009), but a taxpayer can apply for private hearing on the grounds that a minor is involved; to protect one’s private life; or if it is believed that publicity might affect the hearing being fair and just.
During the hearing itself, the taxpayer’s representative opens the case by presenting the documents, arguments on the law, witness evidence and agreed facts. Following this, HMRC cross-examines the witnesses face-to-face if they seek to challenge witness evidence. HMRC will then present arguments on the law and the taxpayer’s representative will close by replying to these arguments.
We represent you at the Tax Tribunal
The First Tier Tax Tribunal is in essence a fact-finding court, therefore it is imperative to prepare the optimum set of facts in advance and this usually requires the most extensive preparation. We are well-versed in the Hearing procedure itself and presenting our clients’ cases to the Tax Tribunal. We consider the preparatory stage an essential part of the Hearing process and extensively complete the best factual picture from which the First Tier Tax Tribunal will draw its inferences.
It is imperative to collect the relevant evidence in advance (oral and documentary). Moreover, an important part of the process is to agree facts with HMRC in advance of the hearing. The statement of agreed facts in required by the standard directions and in essence takes the form of a chronology of events. The importance of legal representation is apparent as HMRC are increasingly reluctant to agree all the facts in a case, we work with our clients to ensure that both parties can agree to the substantial facts in a case.
Furthermore, nowadays witness evidence is typically provided in the form of a written witness statement. It is important that a taxpayer starts to draft their witness statement as early as possible. The witness statement must be comprehensive and contain all the facts which the appellant wishes the witness to give.
In addition, evidence may be provided by experts- this is typically accountancy evidence. The tribunal prefers the two parties to use a single expert or to encourage their experts to meet to narrow the points of expert dispute. HMRC and the taxpayer provides a list of documents to each other prior to the hearing. It is useful to have a clear, understandable and well-presented set of agreed documents at the hearing.
Our specialist Tax Solicitors and Barristers have successfully represented taxpayers before the First Tier Tax Tribunal. Our Tax Disputes team will typically:
- advise you for a long period of time prior to the hearing;
- advise you on the merits of your case;
- discuss the evidence required;
- prepare the appeal in detail; and
- rehearse your case with you.
Costs of Tax Tribunal Appeals
Costs are generally awarded on the standard basis. Each party will normally be liable for their own costs and cannot be ordered to pay the costs of the other party- even if they are the losing party. As such, a taxpayer will have to fund their own appeal but there is normally no risk in having to pay HMRC’s costs.
However, the First Tier Tax Tribunal may make a Costs Order where either party has acted unreasonably in defending, bringing or conducting the appeal. Therefore, you could be ordered to pay HMRC’s costs if the First Tier Tax Tribunal believes you have acted unreasonably (rule 10(1)(b) FTR 2009).
It is very uncommon for the Tax Tribunal to make an order for costs against an unsuccessful party simply because they should have realised that their case was weak (Invicta Foods v HMRC  UKFTT 456 (TC)). However, in Gekko and Co Ltd v HMRC  UKFTT 0586, costs were awarded against HMRC for its “unreasonable” failure to abide by its litigation and settlement strategy. Moreover, in Sussex Cars Association v HMRC  UKFTT 691the First Tier Tax Tribunal made an order for costs against HMRC because HMRC had acted “unreasonably” in its failure to seek legal advice at an earlier stage in the proceedings.
However, unlike an appeal to the First Tier Tax Tribunal (which involves little risk of substantial costs), a losing appeal to the Upper Tribunal could leave you liable for HMRC’s costs as well as your own. Nevertheless, a taxpayer has the option of opting out of the costs regime. This ensures that neither party will be liable for the costs of the other party.
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