VAT: Rough justice at dog grooming school

The VAT exemption for private tuition hangs on whether the subject being taught is a subject “ordinarily taught in a school or university”. There have been several cases over the years ranging from belly dancing (Cheruvier TC3148) through to martial arts.

Teaching new tricks

The taxpayer in this case was originally registered for VAT, but wrote to HMRC in December 2017 to advise it wanted to de-register on the basis the majority of sales were exempt under private tuition rules and referred to a competitor who had obtained a ruling from HMRC as the basis to deregister.  The business was a City & Guilds-approved centre for training and the courses were equivalent of GCSE and AS/A level equivalents.

HMRC visited and reviewed the business and in September 2018 confirmed the deregistration with effect from December 2017.

In October 2018, the taxpayer submitted a retrospective claim for £102,301 relating VAT charged on what were now confirmed as exempt supplies.

July 2019, HMRC wrote to the taxpayer and stated that despite agreeing the deregistration, HMRC had changed its mind and the supplies were standard rated. HMRC also reinstated the VAT registration, albeit from April 2019.

The business appealed to HMRC and supplied significant evidence that its courses are genuine, lead to a recognised qualification and that the subject was “ordinarily taught in a school or university”.

Legislation

Private tuition of a subject ordinarily taught in a school or university can be an exempt supply.  Private tuition means teaching by a sole trader or partnership; it can’t apply to a limited company. HMRC Notice 701/30 section 6 explains in more detail.   

Four legs

The first tier tribunal (FTT) examined four arguments.

 1.  HMRC argued the course was recreational in nature. This argument failed, as the FTT was satisfied that the students were working towards a recognised qualification. While dog grooming may be seen as a recreational activity, it was not the case here.

2.  The taxpayer noted the definition of “ordinarily taught in schools and universities” extends to further education colleges (VATEDU40200). The taxpayer was working with City & Guilds/FEDCs and then FECs, which fall into the definition of “schools or universities”.  The tribunal agreed.

3.  The subject has to be “ordinarily” taught in a school or university. The taxpayer had identified that 88 out of 293 colleges (30%) offered qualifications in dog grooming. In addition, the National Careers Service identifies 87 dog grooming courses as a “bone(a) fide” career/qualification.

4. HMRC argued that the same national careers website offers 251 Pilates courses and Pilates has been established as not being a subject ordinarily taught in a school or university. This thus the website was not indicative of confirming exemption.

FTT decision

The tribunal panel sided with HMRC, and stated in their summary: “We can certainly see the force in the argument that dog grooming is commonly taught in further education colleges in England. However, that is not the test. The test is whether dog grooming is ordinarily taught in a school or university which we take to mean that the relevant activity must be taught at a wide number of schools or universities in the EU.

“We were provided with no evidence that dog grooming is taught in the United Kingdom anywhere other than certain Further Education Colleges in England, and we were provided with no evidence at all about the position in other member states. The appellant has not met the burden of proving that dog grooming is taught in a wide number of schools or universities in the EU.”

Tail turned

The FTT also noted that while it was unfair for HMRC to change its mind about the exemption for dog grooming courses, the tribunal had no “fairness” jurisdiction.

It is interesting that the FTT was not satisfied that 30% was common enough to be ordinarily taught in schools and universities. It may be that 30% isn’t enough by any measure, what would be sufficient, 50% or more than half? 

That the FTT also sought to dilute the 30% by indicating the test was to cover the whole of the EU (at the time when UK was in the EU) as well as the whole of the United Kingdom, not just England.  That narrows the definition of “ordinary” quite substantially. 

Howling mistake?

The case evidences that the private tuition exemption is tight. It does not maintain pace with the changing educational tastes of the modern age.

Also, even where HMRC has agreed to deregister a business and confirmed the VAT status as exempt, that does not seem to stop HMRC from having another bite at the cherry. 

I think the taxpayer got a “ruff” deal here.