VATGPB3320 - Non-business activities: distortions of competition: key Tribunal decisions

Northumbria Healthcare NHS Foundation Trust v R & C Commrs [2025] UKSC 37 provided details of the relevant factors for determining whether taking a supply outside the scope of VAT under S41A may create a significant distortion of competition.

At paragraph 92 of the decision, it is explained that:

“…the aim of this requirement is to ensure that private operators are not placed at a disadvantage because they are taxed while public bodies are not. The purpose of the competition proviso is to guarantee fiscal neutrality (which, as we have explained, requires two supplies which are similar in the eyes of the consumer to be taxed in the same way) and to ensure that private operators are not placed at a disadvantage because of the non-taxable status of a public authority…”

In reaching its decision the Court drew heavily on and confirmed the principles of Isle of Wight [2009] BVC 684.

The following principles were relied on in reaching the decision:

  • Distortion should be considered in national terms and not by reference to a local market
  • Consideration needs to be given to actual and potential competition, but does not go so far as to include purely theoretical competition
  • Significant means ‘more than negligible’
  • HMRC bear the burden of proof, but this does not mean a detailed economic analysis is always needed.