May 10 2017

ECJ Sides With Taxpayer In UK College VAT Exemption Dispute

The European Court of Justice has ruled in favor of the taxpayer in a case concerning the value-added tax treatment of certain catering and entertainment services provided by a UK college as part of the higher education courses it provided.

Following court decisions against the UK tax agency, HM Revenue and Customs said it would appeal and released Brief 39 (2014) setting out its position.

The case concerned the VAT liability of restaurant meals provided to the public and charges for concerts and other performances put on by students as part of their further education courses. Both the Upper Tribunal and the First Tier Tribunal ruled in favor of Brockenhurst College.

The First Tier Tribunal had concluded that the supplies in question were exempt as being closely linked to education because:

The College was an eligible body and so its principal supplies were exempt supplies of education;
The supplies were integral and essential to those principal exempt supplies;
The supplies were made at less than their cost;
The supplies were not advertised to the general public. Instead, there was a database of local groups and individuals who might wish to attend the restaurant or performances; and
The supplies were not intended to create an additional source of income for the College.
HMRC disagreed with the conclusion on the basis that the supplies were outside the education exemption because the students were not the beneficiaries of the supplies in question but only benefitted from making them as part of their learning.

On appeal, the Upper Tribunal again rejected HMRC's argument and agreed with the FTT. It held that the supplies were closely related to the exempt supplies of education because they enabled the students to enjoy better education. The requirement in the domestic law for the supplies to be for the direct use of a student was met because they were of direct benefit to that student, the UT ruled.

The ECJ agreed that VAT exemption should apply "provided that those services are essential to the students' education and that their basic purpose is not to obtain additional income for that establishment by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT, which it is for the national court [the Court of Appeal] to determine."

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