19510
VALUE ADDED TAX – exempt supplies – health and welfare – services supplied by chiropodists who were not registered – whether services directly supervised by a person who was registered – mostly yes – appeal on this issue allowed in principle – VATA 1994 s31 and Sch 9 Grp 7 Item 1(c) and Note (2)
VALUE ADDED TAX – exempt supplies – health and welfare – services supplied by chiropodists who were not registered and who were not directly supervised by a person who was registered – whether the way in which Article13A1(c) had been implemented in the United Kingdom contravened the principle of fiscal neutrality – no – appeal on this issue dismissed – Sixth Directive (77/388/EEC) Art 13A1(c)
LONDON TRIBUNAL CENTRE
E MOSS LIMITED
Appellant
-and-
THE COMMISSIONERS OF HER MAJESTY’S
REVENUE AND CUSTOMS
Respondents
Tribunal: DR A N BRICE (Chairman)
MRS R A WATTS-DAVIES MHCIMA FCIPD
Sitting in public in London on 22 and 23 November 2005
and 5 January 2006
Michael Sherry of Counsel, instructed by KPMG LLP, for the Appellant
Caroline Neenan of Counsel, instructed by the Acting Solicitor for HM Revenue and Customs, for the Respondents
© CROWN COPYRIGHT 2006
DECISION
The appeal
1.E Moss Limited (the Appellant) appeals against two decisions of what is now Her Majesty's Revenue and Customs (the Respondents). The two decisions were dated 1 August 2003 and 3 June 2005 respectively. The first decision related to the period from May 2000 to June 2002 and the second decision related to the period from July 2002 to February 2005. The Appellant had claimed the sums of £734,656 and £655,944 which, it said, had been overpaid as value added tax because supplies of the services of unregistered chiropodists, which had been treated as standard-rated, should have been treated as exempt because the supplies were made under the direct supervision of registered chiropodists.
2.The two disputed decisions refused the Appellant’s claims on the ground that the supplies of chiropody made by the Appellant were not exempt because the supplies were made by persons who were not registered and who were not directly supervised by persons who were registered.
The legislation
3.Article 13 of the Sixth Directive (77/388/EEC) contains the exemptions. Article 13A contains the exemptions for certain activities in the public interest. The relevant parts of Article 13A1 provide:
“1.Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse: …
(c)the provision of medical care in the exercise of the medical and paramedical professions as defined by the Member States concerned,”.
4.Section 31 of the Value Added Tax Act 1994 (the 1994 Act) provides that a supply is an exempt supply if it is of a description specified in Schedule 9. Group 7 of Schedule 9 specifies certain supplies of health and welfare. Before 9 July 2003 the relevant parts of Item 1 of Group 7 specified:
“1.The supply of services by a person registered or enrolled in any of the following:
(c)any register kept under the Professions Supplementary to Medicine Act 1960;”.
5.After 9 July 2003 Item 1(c) did not refer to any register kept under the Professions Supplementary to Medicines Act 1960 but referred instead to “the register kept under the Health Professions Order 2001”.
6.Note (2) to Group 7 provides:
“(2)Paragraphs (a) to (d) of Item 1 … include supplies of services made by a person who is not registered or enrolled in any of the registers or rolls specified in those paragraphs where the services are wholly performed or directly supervised by a person who is so registered or enrolled.”
The issues
7.The Appellant owns the business of Scholl. At the relevant time Scholl employed chiropodists some of whom were registered and some of whom were not. The Appellant argued that most of the unregistered chiropodists were directly supervised by registered chiropodists and so the supplies made by the unregistered chiropodists were exempt within the meaning of Note (2) and Item 1(c) of Group 7 of Schedule 9. The Appellant accepted that in some cases an unregistered chiropodist might not in fact have been directly supervised by a registered chiropodist and so the exemption in Note (2) and Item 1(c) of Group 7 of Schedule 9 would not apply. However the Appellant argued that, in such cases, the supplies were exempt under Article 13A1(c) of the Sixth Directive as were the supplies of all unregistered chiropodists. .
8.Thus the issues for determination in the appeal were:
(1)whether the supplies made by the unregistered chiropodists were directly supervised by registered chiropodists and so were exempt under Note (2) and Item 1(c) of Group 7 of Schedule 9; and
(2)whether the supplies made by all the unregistered chiropodists, even if they were not directly supervised by registered chiropodists, were exempt under Article 13A1(c) of the Sixth Directive
The evidence
9.Two bundles of documents were produced by the parties. Oral evidence was given on behalf of the Appellant by:
Ms Elizabeth Nelson, the Head of Buying and Marketing for Scholl; between April 2003 and March 2004 Ms Nelson was the executive responsible for the clinical side of Scholl’s business;
Ms Margaret Anne Wales; Ms Wales is currently a Regional Podiatric Manager with Scholl and previously was a Regional Senior Clinician; she has a diploma in podiatric medicine and is a Member of the Society of Chiropodists and Podiatrists. She is a registered podiatrist.
Professor Steven West, BSc, DPodM, FChS, MPodA, MIPEMS. Professor West is a Professor of Healthcare at the University of the West of England and also holds the post of Pro-Vice Chancellor of the Faculty of Health and Social Care at the same University. Professor West has acted as a consultant for Scholl for over twenty years in the area of the education, training and recruitment of chiropodists.
10.Oral evidence was given on behalf of the Respondents by:
Mr Alistair Henderson, an Officer of HM Revenue and Customs; Mr Henderson is currently employed as a National Business Manager in the Large Business Service and his duties include managing the indirect tax affairs of the Appellant; and
Mr Andrew John Littlewood, an Officer of HM Revenue and Customs; Mr Littlewood is currently employed by the Respondents as a Taxation Specialist in the Large Business Service.
The facts
11.From the evidence before us we find the following facts.
The Appellant and its business
12.The Appellant carries on the business of dispensing chemists and providers of health care services. In May 2000 the Appellant acquired the business of Scholl which at the time provided services of chiropody and foot care through fifty-five shops. The Appellant's main activities remain the retailing and dispensing of medicines and appliances and the Scholl shops have not been integrated into the Appellant's accounting systems. This appeal concerns only the supplies of the services of chiropody made by the Scholl shops.
The chiropody profession and its regulation
13.At the time of the period of the commencement of the claim the subject of this appeal (namely May 2000) Item 1 of Group 7 of Schedule 9 of the 1994 Act referred to any register kept under the Professions Supplementary to Medicine Act 1960 (the 1960 Act). Section 1 of the 1960 Act established a Council for Professions Supplementary to Medicine and provided that, for each of the stated professions, there should be a board with the general function of promoting high standards of professional education and conduct. Chiropody was one of the stated professions. Section 2 provided that it should be the duty of each board to prepare and maintain a register of the persons entitled under the Act to be registered and who applied to be registered. Section 3 set out the conditions under which a person was entitled to be registered. Section 6 provided that a person who was registered was entitled to use the title of registered chiropodist. Other sections of the 1960 Act contained provisions about the approval of courses and disciplinary provisions. Thus, at that time, a registered chiropodist was a person who was registered under the provisions of the 1960 Act.
14.As a condition of registration a registered chiropodist had to graduate from a recognised training course which involved three years of full-time study. The three-year course contained instruction in anatomy, physiology, pathology, surgical conditions, diagnostics, prescriptions, pharmacology and treatments. A registered chiropodist was trained to apply complex diagnostic techniques to identify non-obvious foot disease and to apply appropriate treatments, including cryo-therapy involving the use of liquid nitrogen and the use of local anaesthetics. Only registered chiropodists could perform biomechanical assessments; give prescriptions, or administer local anaesthetics.
15.In 1999 the 1960 Act was repealed by the Health Act 1999 (the 1999 Act). Section 60(1) of the 1999 Act provided that Her Majesty by Order in Council could make provision modifying the regulation of stated professions including chiropodists. The Health Professions Order 2001 SI 2002 No. 254 (the 2001 Order) was made under the provisions of section 60 of the 1999 Act and came into force piecemeal after 12 February 2002. The 1994 Act was amended with effect from 9 July 2003. The 2001 Order now regulates the stated professions including chiropodists and podiatrists. The Order created a new regulatory body, the Health Professions Council (the Council) which replaced the Council for Professions Supplementary to Medicine. Article 5 of the Order requires the Council to establish and maintain a register of members of the relevant professions, including chiropodists and podiatrists. A person can only be entered in the register of chiropodists and podiatrists if he or she qualifies for registration. The Council must also establish from time to time standards of education, training, conduct and performance for members of the relevant professions and ensure the maintenance of those standards. The Council now regulates twenty-one health care professions, including chiropody.
16.We saw a document issued by the Council in July 2003 entitled "Standards of Proficiency - Chiropodists and Podiatrists". This document described skills and standards which governed registered chiropodists and also contained provisions about continuing registration. We also saw another document published by the Council in 2003 entitled "Standards of conduct, performance and ethics". This was directed at health care professionals generally.
17.Initially only a person registered as a chiropodist under the 1960 Act or the 2001 Order could practice as a chiropodist in the National Health Service (although an unregistered person could practice as a foot care assistant in the National Health Service). Within the National Health Service a registered chiropodist could also specialise in, for example, diabetes, dermatology or vascular diseases. However, outside the National Health Service there was no legal restriction on the use of the title chiropodist and unregistered persons could call themselves chiropodists and could supply the services of a chiropodist.
18Following the introduction of the 2001 Order, and for a transitional period until 9 July 2005, the provisions about registration were revised. Unregistered chiropodists could become registered if they complied with conditions relating to their experience, even though they may not have attended the three-year training course normally attended by registered chiropodists. The conditions relating to experience included practice for three out of the last five years, suitable references and proof of safe practice. Since 9 July 2005 the use of the title chiropodist has been confined to registered persons and it has been unlawful for any person to practice as a chiropodist without being registered under the 2001 Order.
19.Thus the chiropody profession is split between private providers like Scholl and state provision made through the National Health Service. Under the system of registration as it existed under the 1960 Act most registered chiropodists worked in the National Health Service after qualification. The National Health Service deals with the most complex and challenging of foot problems and the foot complaints dealt with within the National Health Service are usually high risk. By contrast, the business of Scholl is the provision of private treatment and advice for relatively minor foot care problems of which the most common are nail care, corns, callouses, veruccae, fungal infections and other non-invasive procedures.
Scholl and its business
20.At present Scholl operates 49 shops throughout the United Kingdom and has a turnover of about £16M each year. 60% of the turnover comes from retail sales (of shoes and foot care products) and 40% of the turnover comes from the clinical side of the business (chiropody and foot care services). Scholl makes supplies of chiropody services through about 220,000 appointments each year. After 1998 Scholl only recruited chiropodists who were registered. All the unregistered chiropodists who were employed by Scholl before 1998 became registered before the end of the transitional period under the 2001 Order, that is before 9 July 2005.
21.At the time of the claims the subject of this appeal (that is, between May 2000 and February 2005) Scholl employed at any one time approximately 120 chiropodists some of whom were registered and some of whom were unregistered. At the relevant time in the Scholl shops the registered and the unregistered chiropodists had the same job title and performed broadly the same functions; however about two and a half per cent of activity had to be undertaken by a registered chiropodist. There is now a policy that every patient has to be seen first by a registered chiropodist. Also, if a patient requires a procedure that can only be provided by a registered chiropodist, then that patient is referred for a consultation to a registered chiropodist. During the time of the claim there were a very few branches where no registered chiropodist was employed. In such a branch appointments requiring a registered chiropodist would be made on a day when a registered chiropodist would visit. When she was a senior clinician Ms Wales used to visit stores with no registered chiropodist every four weeks and would then see patients who needed to see a registered chiropodist.
22.Each Scholl shop is divided into two parts, one for retail sales and the other for clinical services where separate booths or cubicles are provided for treatment. Most stores have three cubicles but some have five. In evidence which we accept Mr Henderson told us that it was not possible to hear what was going on in the cubicles at the Watford store (which he had visited) if the cubicle door was closed. Each chiropodist has a maximum of fourteen appointments each day for half an hour each; however, the average number of daily appointments is about ten. In each store there is a branch manager who is responsible for the retail sales. Chiropodists are subject to two management structures. They report to the branch manager for operational purposes but, for clinical purposes, they are subject to supervision by a senior clinician and/or audit by a clinical auditor. We describe the roles of the senior clinician and the clinical auditor below.
Training of unregistered chiropodists
23.When new chiropodists join Scholl they receive induction training. The induction procedure is carried out by registered chiropodists. We saw a copy of Scholl's Chiropody Induction Manual which had been prepared in that format within the last five years. This is a lengthy document of 123 pages. It includes details of a model clinical audit and a clinical audit checklist; we discuss the clinical audit further below. A chiropodist newly employed by Scholl has a four-week induction period during which some time is spent in the retail part of the store and some time is spent with another chiropodist observing the treatment of patients. The induction manual does not make any reference to the supervision of unregistered chiropodists by registered chiropodists at the same shop.
24.Several years ago (probably in the late 1980s) Scholl developed a training programme directed to its clients’ needs. The training covered both practice and theory. On this course the unregistered chiropodists were trained to carry out simple diagnostic procedures and treatments which were directed towards non-invasive palliative care. They could not undertake x-rays or ultrasound techniques. After three months there was an assessment on both practical and theoretical knowledge and, if a unregistered chiropodist succeeded, he or she became eligible to become an associate member of the Institute of Chiropodists (the Institute). After practising for three years associate members were eligible to become full members. Members of the Institute were regulated by its code of conduct. We saw a copy of the course prospectus for the training programme which was prepared in association with the Institute. This training programme did not lead to registration under the 1960 Act or the 2001 Order. The Institute was not recognised for the purposes of registration; only the Society of Chiropodists and Podiatrists was so recognised. This training programme ceased as from December 2001.
25.Between 2001 and 2004 Scholl held an annual continuing professional development conference where speakers addressed chiropodists on specific topics. The purpose of the conference was to keep chiropodists up-to-date with the latest developments in clinical procedures, diagnostic techniques and treatments. In 2004 it was intended that continuing training should be changed and that each chiropodist would be given a budget to fund attendance on professional courses. This has not yet been implemented and continuing professional development is now given through the dissemination of communications and professional journals together with support for individual chiropodists who want to attend professional courses. Scholl gives its employed chiropodists time off with pay to attend courses which relate to treatment offered by Scholl.