Tag Archives: exempt

VAT: Latest from the courts – option to tax, TOGC and deposits

By Marcus Ward 26 March 2018

Timing is everything

The First Tier Tribunal (FTT) case of Clark Hill Ltd (CHL) illustrates the detailed VAT considerations required when selling property. Not only are certain actions important, but so is timing. If a business is one day late taking certain actions, a VAT free sale may turn into one that costs 20% more than anticipated. That is a large amount to fund and will obviously negatively affect cashflow and increase SDLT for the buyer, and may result in penalties for the seller.

The case considered three notoriously difficult areas of VAT, namely: the option to tax, transfers of going concerns and deposits.

Background

CHL owned four commercial properties which had opted to tax. CHL sold the freehold of these properties with the benefit of the existing leases. As a starting point VAT would be due on the sale because of the option. However, the point at issue here was whether the conditions in Article 5 of the Value Added Tax (Special Provisions) Order 1995 were met so that the sale could be treated as a transfer of a business as a going concern (TOGC) and could therefore be treated as neither a supply of goods nor a supply of services for VAT purposes, ie; VAT free. The point applied to two of the four sales. The vendor initially charged VAT, but the purchasers considered that the TOGC provisions applied. CHL must have agreed and consequently did not charge VAT. HMRC disagreed with this approach and raised an assessment for output tax on the value of the sale.

TOGC

In order that a sale may qualify as a TOGC one of the conditions is that; the assets must be used by the transferee in carrying on the same kind of business, whether or not as part of any existing business, as that carried on by the transferor in relation to that part. It is accepted that in a property business transfer, if the vendor has opted to tax, the purchaser must also have opted by the “relevant date”. If there is no option in place at that time HMRC do not regard it as “the same kind of business” and TOGC treatment does not apply.

Relevant date

If the purchaser opts to tax, but, say, one day after the relevant date, there can be no TOGC. The relevant date in these circumstances is the tax point. Details of tax points here

Basically put, a deposit can, in some circumstances, create a tax point. In this case, the purchaser had paid a deposit and, at some point before completion of the transfer of the property, the deposit had been received by the seller or the seller’s agent. The seller notified HMRC of the option to tax after a deposit had been received (in two of the relevant sales). The issue here then was whether a deposit created a tax point, or “relevant date” for the purposes of establishing whether the purchaser’s option to tax was in place by that date.

Decision

The judge decided that in respect of the two properties where the option to tax was not notified until after a deposit had been paid there could not be a TOGC (for completeness, for various other reasons, the other two sales could be treated as TOGCs) and VAT was due on the sale values. It was decided that the receipt of deposits in these cases created a relevant date.

Commentary

There is a distinction between opting to tax and notifying that option to HMRC which does not appear to have been argued here (there may be reasons for that). However, this case is a timely reminder that VAT must be considered on property transactions AND at the appropriate time. TOGC is an unique situation whereby the seller is reliant on the purchaser’s actions in order to apply the correct VAT treatment. This must be covered off in contracts, but even if it is, it could create significant complications and difficulties in obtaining the extra payment. It is also a reminder that VAT issues can arise when deposits are paid (in general) and/or in advance of an invoice being issued.

We recommend that VAT advice is always taken on property transactions ad at an early stage. Not only can situations similar to those in this case arise, but late consideration of VAT can often delay sales and can even cause such transactions to be aborted.

VAT: Timeshare is exempt

By Marcus Ward 19 February 2018

Latest from the courts

The Fortyseven Park Street Ltd (FPSL) Upper Tribunal case.

Brief technical overview

In general terms the provision of a “timeshare” in the UK is standard rated for VAT. This is because HMRC regard supplies of this type to be similar to hotels, inns, boarding houses and are treated as “serviced flats” (other than those for permanent residential use). The appellant sought to argue that what it provided was not “similar” to a hotel or boarding house.

Background

The issue in the FPSL case was whether “Fractional Interests” (akin to timeshares) in a property amount to an exempt supply of that property. The Fractional Interests entitled FPSL’s clients up to 21 days a year in block of apartments in Mayfair.

The First Tier Tribunal (FTT) determined that here were three main issues:

The FTT decided that the supplies of the Fractional Interests fell within the exemption from VAT provided for the leasing or letting of immovable property.
However, the FTT further found that the land exemption was excluded because the grant of the Fractional Interests was the provision of accommodation in a similar establishment to an hotel.
The therefore FTT dismissed FPSL’s argument that under the principle of fiscal neutrality the supplies of the Fractional Interests should be treated in the same way (exempt) as more traditional timeshare interests.

Decision

The UT decided that the relevant interests provided amounted to an exempt supply of the property. This was on the basis that the judges concluded that the grant of the Fractional Interest was the grant of a right to occupy a residence and to exclude others from enjoying such a right, and was thus within the concept of the “letting of immovable property”. It was also found that the supply was a passive activity and not outside the land exemption by reason of FPSL having added significant value to the service despite providing; certain additional facilities, services (eg; concierge) and benefits to clients – this was not, it was decided, a situation where the appellant had actively exploited the asset to add value to the supply (which may have made it taxable). The UT also ruled that as the concierge was provided by a third party, it could not be combined to form a single supply made by FPSL thus emphasising the fact that this was a more passive activity.

It was noted that there was a distinction in this case from supplies of boutique hotels (which are standard rated hotel accommodation) because residents were contracting for the supply of a long-term right to occupy an apartment and not a series of short-term stays and that the high amount paid for the Fractional Interest brought with it certain financial obligations which are not found in the hotel industry.

Commentary

This is an interesting case and the decision somewhat surprising. There is a subtle distinction between what was provided here and serviced flats or hotel accommodation, but the UT found it sufficient to apply exempt treatment. If you, or your clients may be affected by this decision, please contact us.

VAT: Doctors and healthcare professionals

By Marcus Ward 29 January 2018

VAT and Doctors

I have noticed that I am receiving more and more queries in this area and HMRC does appear to be taking an increased interest in healthcare entities. This is hardly surprising as it can be complex and there are some big numbers involved.

(This article refers to doctors, but applies equally to most healthcare professional entities.)

The majority of the services provided by doctors’ practices are VAT free. Good news one would think; no need to charge VAT and no need to deal with VAT records, returns and inspections.

However, there is one often repeated question from practices; “How can we reclaim the VAT we are charged?”

The first point to make is that if a practice only makes exempt supplies (of medical services) it is not permitted to register for VAT and consequently cannot recover any input tax. Therefore we must look at the types of supplies that a practice may make that are taxable (at the standard or zero rate). If any of these supplies are made it is possible to VAT register regardless of the value of them. Of course, if taxable supplies are made, the value of which exceeds the current turnover limit of £85,000 in a rolling 12-month period, registration is mandatory.

Examples of services and goods which may be taxable are:

Drugs, medicines or appliances that are dispensed by doctors to patients for self-administration
Dispensing drugs against an NHS prescription (zero-rated)
Drugs dispensed against private prescriptions (standard-rated)
Medico legal services that are predominately legal rather than medical – for example negotiating on behalf of a client or appearing in court in the capacity of an advocate
Clinical trials or market research services for drug companies that do not involve the care or assessment of a patient
Paternity testing
Certain rental of rooms/spaces
Car parking
Signing passport applications
Providing professional witness evidence
Any services which are not in respect of; the protection, maintenance or restoration of health of a patient.

So what does VAT registration mean?

Once you join the “VAT Club” you will be required to file a VAT return on a monthly of quarterly basis. You may have to issue certain documentation to patients/organisations to whom you make VATable supplies. You may need to charge VAT at 20% on some services. You will be able to reclaim VAT charged to you on purchases and other expenditure subject to partial exemption rules (see below). You will have to keep records in a certain way and your accounting system needs to be able to process specific information.

Because doctors usually provide services which attract varying VAT treatment, a practice will be required to attribute VAT incurred on expenditure (input tax) to each of these categories. Generally speaking, only VAT incurred in respect of zero-rated and standard-rated services may be recovered. In addition, there will always be input tax which is not attributable to any specific service and is “overhead” eg; property costs, professional fees, telephones etc. There is a set way in which the recoverable portion of this VAT is calculated. VAT registered entities which make both taxable and exempt supplies are deemed “partly exempt” and must carry out calculations on every VAT return.

Partial Exemption

Once the calculations described above have been carried out, the resultant amount of input tax which relates to exempt supplies is compared to the de-minimis limits (broadly; £625 per month VAT and not more than 50% of all input tax). If the figure is below these limits, all VAT incurred is recoverable regardless of what activities the practice is involved in.

VAT registration in summary

Benefits

Recovery of input tax; the cost of which is not claimable in any other way
Potentially, recovery of VAT on items such as property, refurbishment and other expenditure that would have been unavailable prior to VAT registration
Only a small amount of VAT is likely to be chargeable by a practice
May provide opportunities for pre-registration VAT claims

Drawbacks

Increased administration, paperwork and staff time
Exposure to VAT penalties and interest
May require VAT to be added to some services provided which were hitherto VAT free
Likely that only an element of input tax is recoverable as a result of partial exemption
Uncertainty on the VAT position of certain services due to current EU cases
Potential increased costs to the practice in respect of professional fees.

Please contact us if any of the above affects you or your clients.

VAT – There is no such thing as a free lunch

By Marcus Ward 3 January 2018

Latest from the courts

In the Court of Appeal case of ING Intermediate Holdings Ltd the issue was whether the provision of “free” banking actually constituted a supply for VAT purposes.

Background

The appeal concerned the recoverability of input tax. ING wished to recover (via deduction against the outputs of a separate investment business) a proportion of VAT expenses incurred in connection with a “deposit-taking” business. ING contended that this activity did not involve any VATable supply. HMRC contended, and did so successfully before both prior tribunals, that it is more than a deposit-taking business and involved the provision of banking services.

The issue

The relevant services were supplied to the public, and the user of the services were not charged a fee. Consequently, the essential issue was; whether the “free” banking services were provided for consideration and, if so, how that consideration ought to be quantified for VAT purposes. If there was a consideration, there was a supply, and that supply would be exempt; thus not providing a right to recovery of input tax for the appellant.

Technical

There is no definition of consideration in either the EC Principal VAT Directive or the VAT Act 1994. In the UK, the meaning was originally taken from contract law, but the European Court of Justice (ECJ) has confirmed that the term is to be given the Community meaning and is not to be variously interpreted by Member States. The Community definition used in ECJ cases is taken from the EC 2nd VAT Directive Annex A13 as follows even though this Directive is no longer in force:

“…the expression “consideration” means everything received in return for the supply of goods or the provision of services, including incidental expenses (packing, transport, insurance etc), that is to say not only the cash amounts charged but also, for example, the value of the goods received in exchange or, in the case of goods or services supplied by order of a public authority, the amount of the compensation received.”

NB: In order for there to be consideration, it must be able to be quantifiable and able to be expressed in monetary terms.

Decision

The CA decided that although there was no distinct charge to the users of the service, there was a supply of services for a consideration. That consideration was the difference between what the customer obtained from the relevant account, and what he could have obtained from an account which was not free, but provided better returns (the interest rate offered must have contained some deduction for the services provided). This was capable of being expressed in monetary terms (although it is interesting to note that the CA stated that it would be undesirable to say which method should be applied, although the court was “entirely satisfied” that it could be done).

Consequently there was a supply for VAT purposes and ING’s appeal was therefore dismissed.

Commentary

HMRC quite often argue that there is a supply when in fact, there is no supply. However, they did have a decent argument in this case and I understand that they are likely to apply this to a number of other long running disputes. Please contact us if you consider that this case could affect your business or your client’s business.

VAT: New rules for online sellers of goods

By Marcus Ward 6 December 2017

The European Commission announced on 5 December 2017 that it will introduce simpler and more efficient rules for businesses that sell goods online.

It announced that there has been agreement by Economic and Finance Ministers of EU Member States on a series of measures to improve how VAT works for online companies in the EU. It is intended that the new system will make it easier for consumers and businesses, in particular start-ups and SMEs, to buy and sell goods cross-border online. It will also help Member States to recoup the current estimated €5 billion of VAT lost on online sales every year.

The new rules will progressively come into force by 2021 and will:

Simplify VAT rules for start-ups, micro-businesses and SMEs selling goods to consumers online in other EU Member States. VAT on cross-border sales under €10,000 a year will be handled according to the rules of the home country of the smallest businesses, giving a boost to 430 000 businesses across the EU. SMEs will benefit from simpler procedures for cross-border sales of up to €100,000 annually. These measures will enter into force by 1 January 2019.
Allow all companies that sell goods to their customers online to deal with their VAT obligations in the EU through one easy-to-use online portal in their own language. Without the portal, VAT registration would be required in each EU Member State into which they want to sell – a situation cited by companies as one of the biggest barriers for small businesses trading cross-border.
For the first time, make large online marketplaces responsible for ensuring VAT is collected on sales on their platforms that are made by companies in non-EU countries to EU consumers. This includes sales of goods that are already being stored by non-EU companies in warehouses (so-called ‘fulfilment centres’) within the EU which can often be used to sell goods VAT free to consumers in the EU.
Address the problem of fraud caused by a previously misused VAT exemption for goods valued at under €22 coming from outside the EU which can distort the market and create unfair competition. Previously, fraudsters had been able to mislabel high value goods in small packages as having a value under the threshold of €22, making the goods exempt from VAT and creating an unacceptable gap of €1 billion in revenues which would otherwise have gone to the budgets of EU Member States.

The new rules will ensure that VAT is paid in the Member State of the final consumer, leading to a fairer distribution of tax revenues amongst EU Member States. They will help to cement a new approach to VAT collection in the EU, already in place for sales of e-services, and fulfil a core commitment of the Digital Single Market (DSM) strategy for Europe. The agreement also marks another step towards a definitive solution for a single EU VAT area, as set out in the Commission’s recent proposals for EU VAT reform.

The One Stop Shop for sales of online goods is due to come into effect in 2021 to give Member States time to update the IT systems underpinning the system.

VAT Simplification (We can but hope)

By Marcus Ward 13 November 2017

This month The Office Of Tax Simplification has published a document called “Value added tax: routes to simplification”. This includes 23 recommendations on how VAT may be simplified in the UK. This is the first Office of Tax Simplification review to focus specifically on VAT and it takes a high level look at areas where simplification of either law or administration would be worthwhile.

The report specifically covers the following areas:

VAT registration threshold
VAT administration
Multiple rates
Partial exemption
Capital Goods Scheme
The option to tax
Special accounting schemes

The dominant issue that came out of the report is the level of turnover above which a business is required to pay VAT, known as the VAT threshold. At £85,000, the UK has the highest VAT threshold in the EU. The report considered a range of options for reform, in particular setting out the impact of either raising or lowering the threshold to avoid the current “cliff edge” position (many business restrict growth in order to avoid VAT registration, creating a “bunching” effect. For example, lowering the threshold may create less drag on economic growth but would bring a larger number of businesses into the VAT system. Alternatively, a higher threshold could also result in less distortion but it would clearly raise less tax.

Legislation

It was noted that since the introduction of VAT in the UK, the relevant legislation has grown so that it is now spread across 42 Acts of Parliament and 132 statutory instruments while still retaining some of the complexities of the pre-1973 UK purchase tax system.

Brexit

The report notes that: unlike income taxes, the VAT system is largely prescribed by European Union rules, so Brexit may present an opportunity to consider areas which could be clarified, simplified, or just made easier. It is not clear at present how Brexit will unfold so this review does not embrace aspects of the VAT system which are part of the Brexit negotiations, such as financial services, or focus specifically on cross-border trade.

Recomendations

The summary of the 23 recommendations are reproduced here:

The government should examine the current approach to the level and design of the VAT registration threshold, with a view to setting out a future direction of travel for the threshold, including consideration of the potential benefits of a smoothing mechanism.
HMRC should maintain a programme for further improving the clarity of its guidance and its responsiveness to requests for rulings in areas of uncertainty.
HMRC should consider ways of reducing the uncertainty and administrative costs for business relating to potential penalties when inaccuracies are voluntarily disclosed.
HM Treasury and HMRC should undertake a comprehensive review of the reduced rate, zero-rate and exemption schedules, working with the support of the OTS.
The government should consider increasing the partial exemption de minimis limits in line with inflation, and explore alternative ways of removing the need for businesses incurring insignificant amounts of input tax to carry out partial exemption calculations.
HMRC should consider further ways to simplify partial exemption calculations and to improve the process of making and agreeing special method applications.
The government should consider whether capital goods scheme categories other than for land and property are needed, and review the land and property threshold.
HMRC should review the current requirements for record keeping and the audit trail for options to tax, and the extent to which this might be handled on-line.
HMRC should establish a target to update guidance within a short, defined, period after a legal change or new policy takes effect.
HMRC should explore ways to improve online guidance, making all current information accessible, and to gauge how often queries are answered by online guidance.
HMRC should review options to reduce the uncertainty caused by the suspended penalty rules.
HMRC should draw greater attention to the facility for extending statutory review and appeal time limits to enable local discussions to take place where appropriate.
HMRC should consider ways in which statutory review teams can deepen engagement with business and adviser groups to increase confidence in the process, and for providing greater clarity about the availability and costs of alternative dispute resolution.
HMRC should consider introducing electronic C79 import certificates.
HMRC should consider options to streamline communications with businesses, including the process for making payments to non-established taxable persons.
HMRC should looks at ways of enhancing its support to other parts of government (for example, in guidance) on VAT issues affecting their operations.
HMRC should review its process for engaging with business and VAT practitioner groups to see if representation and effectiveness can be enhanced.
HMRC should explore the possibility of listing zero-rated and reduced rate goods by reference to their customs code, drawing on the experience of other countries.
HMRC should consider ways of ensuring partial exemption special methods are kept up to date, such as giving them a limited lifespan.
The government should consider introducing a de minimis level for capital goods scheme adjustments to minimise administrative burdens.
The government should consider the potential for increasing the TOMS de minimis limit and removing MICE businesses from TOMS.
HMRC should consider updating the DIY House builder scheme to include clearer and more accessible guidance, increased time limits and recovery of VAT on professional services.
HMRC should consider digitising the process for the recovery of VAT by overseas businesses not registered in the UK.

Next Steps

The Chancellor of the Exchequer must now respond to the advice given.

Commentary

A lot of the areas identified have long been crying out for changes and the recommendations appear eminently sensible and long overdue. As an example, the partial exemption de minimis limit has been fixed at £7500 pa for 23 years and consequently the value of purchases it covers has reduced significantly with inflation. A complete read of the report with prove rewarding as it confirms a lot of beliefs that advisers have long suspected and highlights areas the certainly do require simplification. I am particularly pleased that the complexities of both partial exemption and TOMS have been addressed. Fingers crossed that these recommendations are taken seriously by the government and the Chancellor takes this advice on-board. I am however, not holding my breath. It is anticipated that the early indications of the government’s thinking may be set out in the next Budget.

VAT: The ECJ decides that bridge is NOT a sport

By Marcus Ward 27 October 2017

Latest from the courts

The English Bridge Union Limited (EBU) case

Further to my article on contract (or duplicate) bridge here which covered the Advocate General’s opinion that it could be considered a sport, the Court of Justice of the EU has ruled that it does not qualify as a sport and therefore certain supplies by The EBU are subject to UK VAT.

The court decided that “…the fact that an activity promotes physical and mental health is not, of itself, a sufficient element for it to be concluded that that activity is covered by the concept of ‘sport’ within the meaning of that same provision….

The fact that an activity promoting physical and mental well-being is practised competitively does not lead to a different conclusion. In fact, the Court has ruled that Article 132(1)(m) of Directive 2006/112 does not require, for it to be applicable, that the sporting activity be practised at a particular level, for example, at a professional level, or that the sporting activity at issue be practised in a particular way, namely in a regular or organised manner or in order to participate in sports competitions…

In that respect, it must also be noted that the competitive nature of an activity cannot, per se, be sufficient to establish its classification as a ‘sport’, failing any not negligible physical element.”

As my aged father has always said; it can only be sport if the players wear shorts and sweat…

He may not have been far off you know. I still have difficulty considering pub games as sport, but I am sure there will be many who think that darts and pool are indeed sport. It is also interesting that, inter alia, HMRC consider; baton twirling, hovering (not “hoovering as I first read it) octopush, dragon boat racing and sombo as sport.

VAT HMRC Updates

By Marcus Ward 12 October 2017

HMRC has updated some of its guidance. This includes: VAT manuals (HMRC internal guidance), VAT Notices and VAT Information Sheets and Revenue and Customs Briefs.

Full details here And a brief summary below:

VAT manuals

VAT Land and Property/Construction

VATLP24750 – Supplies between landlords and tenants; provision of finance for the purposes of the option to tax anti-avoidance legislation

VATLP23500 – Guidance on the option to tax anti-avoidance legislation

VCONST15250 and VCONST15610 – Guidance on the differences between care homes and a hospitals

VAT Education

VATEDU53400 – Guidance on “closely related goods” in relation to education services following the case of Brockenhurst College (please see here)

New and revised VAT Notices

702: imports

701/49: finance

700/45: how to correct VAT errors and make adjustments or claims

700/58: treatment of VAT repayment returns and supplements

702/7: import VAT relief for goods supplied onward to another country in the EC

714: zero rating young children’s clothing and footwear

New VAT Information Sheets and Revenue and Customs Briefs

VAT Information Sheets

Revenue and Customs Briefs

Please contact us if any of the above affects you , or you have any queries.

VAT: Latest from the courts – partial exemption attribution

By Marcus Ward 4 October 2017

In court about courts…

In the First Tier tribunal (FTT) case of The Queen’s Club Limited the issue was whether certain input tax was attributable to the company’s taxable activities or, as HMRC contended; to both its taxable and exempt income (so that it was residual). If HMRC were correct an element of the input tax would fall to be irrecoverable via the appellants’ partial exemption calculation. A brief guide to partial exemption here

Background

The Queen’s Club (The Club) is a well-known members’ tennis club in West London. The Club’s tennis facilities are world-class and each year the Lawn Tennis Association hires the Club’s courts to put on the Aegon Championship which is a precursor to the Wimbledon tournament and attracts many of the world’s leading players. It makes exempt supplies of sporting services to its members and also makes taxable supplies of food and drink in its bars and restaurants. It incurred VAT on the costs of refurbishing the bars, restaurant and café facilities on its premises. The Club considers that it is entitled to a full credit for input tax on those expenses as they were wholly attributable to the taxable supply of catering.

The Club’s revenue comes primarily from the membership fees that it charges. For the year 2012-13 the annual membership fee was £1820. By becoming a member of the Club, a person obtains the right to use both its sporting and non-sporting (catering) facilities. It was decided by the FTT that the Club had a discretion, but not an obligation, to provide the café etc to its members, however it was accepted that most members do not use the social facilities. It was agreed that the membership fee was consideration for an exempt supply of services closely linked with sport for the purposes of Value Added Tax Act 1994, Schedule 9, item 10. The Club also receives five main sources of taxable income:

Fees from the LTA to use its courts for the Aegon Championship
Sales of food and drink from restaurant and bars
Sales of sporting and other goods
Provision of the use of the restaurant and bars, usually with catering
Rental income for certain other rooms

The decision

There was no dispute that there was a direct and immediate link between the refurbishment of the restaurant and bars and taxable supplies made from them. The question that divided the parties was whether there was also a direct and immediate link between the refurbishment the exempt membership supplies.

The judge decided that “In short, viewed objectively, what members obtain when they join the Club is a right of access to world-class sporting facilities together with such additional facilities as the Club decides, in its discretion, to offer. The focus is on the sporting facilities…” and that, viewed objectively, the renovated bars and restaurant are a means by which members are able enjoy the Club’s sporting offering. The overall conclusion was that there was no direct and immediate link between the renovation goods and services and exempt supplies that the Club made.

The decision was that the Club was entitled to credit for the full amount of input tax that it incurred.

Commentary

This case demonstrates that care is always required when costs are attributed to a business’ activities. This is especially important when the costs are significant; particularly when they are incurred on land and property. There tends to be a lot of “debate” with HMRC on such matters and slight nuances can affect attribution. These type of costs are often covered by the Capital Goods Scheme, so care must be taken over a ten year period which adds to the complexity. As always, when considering land and property transactions it pays to obtain professional advice as mistakes are costly. A brief guide to land and property issues here

VAT: Latest from the courts – extent of education exemption

By Marcus Ward 7 August 2017

In the case of SAE Education Ltd (SAE) at the Court of Appeal, the court was required to decide on whether the exemption for education services extended to a “Special Associate College”.

Background

At the relevant time here was relationship between SAE and Middlesex University which has existed since 1998 when the first Memorandum of Co-operation was signed. This was a contractual document which provided for certain BA courses to be taught by SAE at specified campuses as “validated collaborative programs” of the university. Subsequently the university and SAE entered into further Memoranda of Co-operation which replaced the earlier agreement and provided for the validation of additional courses. Tuition was provided by SAE subject to quality assurance safeguards. SAE provided library, computer and other facilities but SAE students would not normally be entitled to access or use of the university’s Learning and Resource Services unless negotiated at extra cost. Nor were they to be entitled to access university’s accommodation and other social welfare services or to apply for financial support from the University’s Access to Learning Fund. They were however, entitled to access the university’s Disability Support Services but again at an additional cost.

In 2010 a decision by the university to grant SAE accredited status was made. This meant that SAE was accredited to validate, monitor and review courses of study leading to university undergraduate awards in certain subjects. This gave SAE the ability to validate the specified programmes itself (although Middlesex University staff continued to be involved in the assessment of the programmes).

The issue

SAE claimed that its supplies were exempt on the basis that it was a college of Middlesex University and therefore an “eligible body” (see below) and that the services supplied were educational as the university outsourced certain courses to it.

HMRC disagreed and assessed for output tax on the appellant’s services on the basis that exemption did not apply and the supplies were standard rated.

Legislation

The relevant legislation: VAT Act 1994, Schedule 9, Group 6, item 1 insists that in order for exemption to apply the provision of education (inter alia) must be by an “eligible body”. The matter to be considered therefore was; is SAE Education Ltd an eligible body. An “Eligible body” is defined in Note (1). It includes a long list of different types of school and higher education establishments but the appeal concerned paragraph (b): “a United Kingdom university, and any college, institution, school or hall of such a university;”

Decision

So was the appellant a UK university, college, instruction, school or hall of such a university? The judges concluded that it was not.

It was decided that although Middlesex University outsourced certain courses to it, and that SAE was appointed as a Special Associate College, this fell short of making it a college in a constitutional or structural sense. In their view a college means entities which are a constituent part of an university. The example given was of Cambridge and Oxford colleges which have been organised for centuries on a federal system under which the colleges and private halls, although legally independent and self-governing, have provided the students of the university and have assumed the primary responsibility for their tuition. The universities themselves are corporations and are regulated by statute with their own separate legal identity and status. “The colleges and private halls are therefore an integral part of the structure of the university and their members make up the university’s teaching staff and students.”

Commentary

It would appear that as a result of the approach in this case, the exemption for education may be more restrictive than previously understood. It is vital that providers of education review their VAT status as soon as possible. I would advise that a VAT consultant is used because this is an area where small details may affect the VAT treatment of the services. The ruling in this case is not helpful.