Judgment summary
This is an appeal by HMRC against a case management decision of the First-tier Tribunal (Tax Chamber) issued on 4 March 2025, which had granted Healthspan Limited permission under Rule 15(1)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 to adduce expert evidence in its substantive VAT appeal (paras 1, 3).
The underlying dispute concerns two claims for overpaid output VAT totalling £56,165,421.49 relating to "food supplements", which Healthspan argues should be zero-rated as "food of a kind used for human consumption" under Group 1 Item 1 of Schedule 8 to VATA 1994 (para 2).
The Upper Tribunal (Judge Swami Raghavan and Judge Nicholas Paines KC) held that the FTT erred in law in its identification and application of the test for admitting expert evidence, and in its assessment of prejudice to HMRC. The appeal was allowed, the FTT Decision was set aside, and the Upper Tribunal remade the decision itself, granting permission for expert evidence only on the limited topic of the nutritional profile of the disputed products (paras 55, 74, 81-82).
Background
Healthspan's substantive appeal concerns 316 different products grouped into four categories: "Recognised Food Supplements" (e.g. turmeric capsules, garlic tablets, peppermint capsules), "Recognised Food Extract Supplements" (e.g. cod liver oil, fish collagen, edible algae), "Supplements Providing Essential Nutrients" (e.g. vitamin C, folic acid, multivitamins), and "Other items which possess a health or nutritional benefit" (e.g. herbal and traditional medicines, probiotics and enzymes) (para 20).
The substantive dispute concerns the correct approach to the phrase "food of a kind used for human consumption" in Item 1 of Group 1 of Schedule 8 to VATA 1994. HMRC relies on an "ordinary man" multifactorial approach; Healthspan contends for a definition based on nutritional purpose or nutritional content, relying among other things on Staatssecretaris van Financiën v X (C-331/19) (paras 2, 21-22).
On 24 October 2023, Healthspan applied for permission to adduce expert evidence addressing three areas: the scientific understanding of food, the nutritional profile of the claim products, and the extent to which the claim products fit with the modern diet (paras 23-24). The FTT granted the application on 4 March 2025, taking the view it was in the interests of justice and fairness to do so, that the tribunal would derive assistance from the evidence if Healthspan's interpretation were correct, and that there was no material detriment to HMRC because HMRC could later challenge admissibility or seek its own expert evidence (para 26).
Core dispute
HMRC appealed on two grounds: first, that the FTT erred in law in its identification and application of the test for admitting expert evidence, submitting that by analogy with CPR 35 of the Civil Procedure Rules the FTT should have asked whether the evidence was "reasonably required" to resolve the proceedings, rather than merely whether it would assist the tribunal; second, that the FTT failed to address HMRC's case and gave inadequate reasons (para 4, 27).
Healthspan argued that the FTT's focus on whether the tribunal would derive assistance from the evidence, together with its reliance on fairness and full participation in the proceedings, was a lawful exercise of discretion at the permission stage, and that there was no material difference in substance between an "assistance" test and a "reasonably required" test (paras 29, 32).
Court findings
The Upper Tribunal held that an "assistance" test and a "reasonably required" test are not the same, and that the structured approach in British Airways plc v Spencer and Declan Colgan Music Ltd v UMR Recordings, Inc. should apply: first asking whether expert evidence is necessary for an issue, then whether it would assist, and, if it would assist but is not necessary, whether it is reasonably required to resolve the proceedings, viewed holistically and with regard to proportionality (paras 33-34).
The Tribunal accepted that, although the Civil Procedure Rules do not apply to the FTT, the discipline in CPR 35.1 provides a useful backdrop to the exercise of the FTT's discretion under Rule 15, consistent with the approach taken in The Royal Borough of Kensington and Chelsea v CD [2015] UKUT 396 (AAC) and endorsed in Sherrington v HMRC [2020] UKFTT 0128 (TC) (paras 35-37).
The Tribunal found that the FTT did not apply this approach: its reasoning focused on the interests of justice and fairness and whether the evidence would assist, without addressing whether the evidence was reasonably required viewed in the context of the proceedings as a whole, and without identifying with sufficient precision the pleaded issues to which the proposed expert evidence was directed (paras 50-53). The FTT also erred in its assessment of prejudice, having failed to take into account the cost and burden to HMRC of responding to the expert evidence once permission was granted (para 54). Ground 1 was therefore made out and the error was material (paras 55-56).
On Ground 2, the Tribunal found the FTT's reasons inadequate in certain respects, in particular its failure to explain why it rejected HMRC's "reasonably required" approach and its failure to engage with HMRC's submissions on precision and linkage to the pleaded issues, although this added little to the result given the conclusion on Ground 1 (paras 59, 61).
Outcome
The appeal was allowed and the FTT Decision was set aside (para 82). The Upper Tribunal decided to remake the decision itself rather than remit it to the FTT, since the application concerned permission in principle on existing material, no expert report yet existed, and no further findings of primary fact were required (paras 62-63).
Applying the structured "reasonably required" approach, the Tribunal granted Healthspan permission to adduce expert evidence only in relation to the nutritional profile of the disputed products, including explaining the nutritional needs of the human body and how the products satisfy them, but not extending to the meaning of the statutory term "food", justification of a preferred legal definition, regulation or perception by government or scientific bodies, or an opinion on the ultimate VAT classification (paras 69, 74, 81).
Permission was refused for expert evidence on "the scientific understanding of food" and on "the extent to which the claim products fit with the modern diet", on the grounds that this evidence was not necessary, was unlikely to assist the tribunal in a permissible way, and was not reasonably required to resolve the proceedings (paras 72, 80-81).
Major issues / areas of contention
- Whether the FTT applied the correct legal test for granting permission to adduce expert evidence under Rule 15(1)(c) of the FTT Rules
- Whether the CPR 35 discipline of restricting expert evidence to that 'reasonably required to resolve the proceedings' applies by analogy to FTT case management decisions
- Whether an 'assistance' test differs from a 'reasonably required' test
- Whether the FTT identified with sufficient precision the pleaded issues to which the proposed expert evidence was directed
- Whether the FTT properly assessed prejudice to HMRC, including the cost and burden of responding to expert evidence
- Whether the FTT's reasons were adequate
- Whether the Upper Tribunal should remit the application to the FTT or remake the decision itself
- The scope of expert evidence to be permitted across the three proposed topics: scientific understanding of food, nutritional profile of the products, and fit with the modern diet