In most cases it is very obvious what services you are supplying to you customers. However, when it comes to VAT, even subtle differences in the nature of the supplies being made can have a very significant impact on the VAT treatment to be applied. Leaving aside place of supply and some other rules for now, it is critical to first determine exactly what you have agreed to actually do, or supply, to your customer per the contract/agreement. Understanding the nature and all the elements of the supply is the first step to determining if VAT is even applicable - are the supplies within the scope of VAT and if yes what is the applicable VAT rate?
Section 3 of the Irish VAT Consolidation Act 2010 is our starting point and it details when VAT applies (other than some deeming provisions which we will not consider for the purposes of this article).
The legislation states that VAT should apply where there is a supply of goods or services, for consideration, and the supply is made by taxable person, acting in the course of business.
Even in this apparently simply sentence there are quite a few conditions to be met. Once all of the conditions precedent to a supply taking pace are met, it is important to consider what is the precise nature of the supply in detail. Is it a supply of a good or service or perhaps both? Considering this will help determine what is the actual supply for which consideration has been paid and then, the rate of VAT applicable.
There is a body of case law at an EU and Irish/UK level on these fundamentals in the past. However, one example of this issue we have seen arise frequently is in situations where there a subcontractor is engaged. The issue is whether there is a supply of subcontracted core services or whether there is a supply of staff. This issue is more likely to arise in practice where the last supply in the chain is exempt.
This TAC case considered the appeal in dispute of the entitlement to the exemption from VAT on medical services provided by the taxpayer under paragraph 2(3), Schedule 1 of the VATCA 2010.
Revenue had raised VAT assessments on the basis that the medical exemption was not applicable on the basis that the supply constituted a supply of staff.
The taxpayer, an unlimited company, supplied services to GP practices, through its employee, a registered medical practitioner licenced to practice medicine in Ireland. An association of GPs arranged for the provision of locums to GP practices providing holiday or sick leave cover, and out of hours services to patients. As such, the taxpayer received payment from the association for the provision of medical locum services to local GP practices.
When the Appellant’s employee saw patients, he performed the “normal GP functions and made appropriate decisions”. The Appellant considered the medical services of its employee to be provided directly to the patient and the association of GPs had no involvement in the provision of medical services to patients under his care.
The TAC found in favour of the taxpayer, as its employee provided medical care to patients presenting to the association of GPs and the only services provided by the association were infrastructure, and back up administrative and financial functions. The Appellant’s services were considered to constitute “Professional medical care services recognised as such by the Department of Health and Children” pursuant to VATCA, Schedule 1, paragraph 2(3) and therefore exempt from VAT.
A similar matter came before the TAC recently in the area of the vocational training exemption.
In this case, Revenue argued that taxpayer was providing either a mere supply of staff or a suite of services rather than solely providing VAT exempt vocational training services on a subcontracted basis. The taxpayer took an opposing view, arguing that it was supplying VAT-exempt vocational training services on a subcontracted basis.
The Commissioner held in this case that the VAT exemption should apply, ruling in favour of the taxpayer.
Although a UK case and not binding on the Irish courts, it is worth mentioning the City Fresh case. This case also involved medical services provided on a subcontracted basis.
The UK courts found in favour of the taxpayer and ruled the VAT exemption also applied in this case on the basis the services came within the relevant exemption should apply.
In the courts findings they highlighted that the difference between making a supply of services and a supply of staff “can be a fine distinction for VAT purposes”. Useful criteria and commentary is contained in the case on how to approach the matter.
This is particularly important and potentially costly if the recipient who is likely a business making exempt supplies, with no VAT recovery entitlement, receives services subject to VAT. This will result in the supplier charging VAT which will not be recoverable by the recipient for the services.
This can often lead to the supplier having to adjust the price of the supplies to take into account the irrecoverable VAT cost being incurred by the recipient.
Therefore, it is critical to determine the precise nature of the supplies being made.