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VAT in the education sector

21st Dec 2020
VAT Consultant vatadvice.org
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The First Tier Tribunal recently heard an appeal in University of Southampton Students’ Union (USSU). This concerned whether the sale of coffee and hot food from its shop could be exempt from VAT.

The USSU decision followed the Upper Tier in Loughborough Students’ Union. Both taxpayers were represented by VATangles. In light of the Loughborough decision, USSU amended its grounds of appeal. HMRC amended its Statement of Case. I would presume there are other potential appeals in the pipeline.

There was discussion regarding HMRC’s amended Statement of Case, and whether they were entitled to change their position. HMRC had made a substantial change to their argument, in that they no longer accepted USSU’s argument that it was a provider of vocational training. HMRC had earlier accepted this argument.

Comment: this is a matter of Tribunal procedure and simple courtesy. If either party shifts position in a significant way, it is important that this is highlighted to the other party and advised to the Tribunal. The Tribunal does not like legal ‘ambushes’! HMRC were perhaps fortunate that the Tribunal allowed them to rely on their amended Statement of Case.

Having worked through that preliminary matter, the Tribunal then considered three factors to determine the substantive matter:

(1)          whether USSU made principal supplies of education or vocational training for the purposes of Group 6,

(2)          whether the supplies of hot food and coffee from USSU’s shop were “closely related” supplies for the purposes of exemption under Item 4, and

(3)          whether USSU meets the definition of an “eligible body” as set out in Note (1)(e).

In order to be successful, USSU had to win on all three points. As it turned out, USSU failed on all three.

  1. Vocational training

USSU delivered courses on academic representatives training, clubs/societies committee training, preparation for candidates for elected positions, training on using LinkedIn, a safety/welfare programme, food safety, and hygiene training, and safety bus driver training. Apart from the fact that training provided for no charge is not a supply at all, the Tribunal held that these courses did not prepare a student for a trade, profession, or vocation. It was not sufficient that the courses provided ‘life skills.’

  1. Closely related

The FTT followed the ECJ in Brockenhurst College and the Upper Tier in Loughborough in saying that ‘closely related’ has quite a strong meaning (para 87). In contrast, supplies of coffee and hot food were sold from the Student Union shops to students and other persons on campus. These supplies were not ‘closely related’ to supplies of education or vocational training made by USSU.

  1. Eligible body

USSU argued that it fulfilled both limbs of Note 1(e) to exempt Group 6, which defines an eligible body:

               (i) is precluded from distributing and does not distribute any profit it makes; and

(ii) applies any profits made from supplies of a description within this Group to the continuance or improvement of such supplies.

It argued that the second limb should be understood by the wording of the EU Principal VAT Directive, arts 132, 133, 134. In particular, art 133 (a) reads that: “the bodies in question must not systematically aim to make a profit, and any surpluses nevertheless arising must not be distributed, but must be assigned to the continuance or improvement of the services supplied.”

On this issue, the Tribunal considered the ECJ decision in Kennemer Golf & Country Club in relation to the meaning of non-profit making. Although the UK legislation does not quote verbatim the words of the PVD, the Tribunal held that it does fairly implement its words and meaning. USSU had failed to demonstrate that it fulfilled the second limb of Note 1(e).

Comment: We have come across a number of education providers where these questions have to be asked. Sometimes Trustees have assumed that ‘standard’ charitable non-profit wording in their Constitution will protect them from a VAT assessment. The bad news is that it will not.

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