Court of Appeal dismisses challenge to VAT education exemption

19 Jan 2016

The Court of Appeal has today dismissed Finance and Business Training (FBT)’s appeal against HMRC’S refusal to recognise its university standard courses as being entitled to the education exemption from VAT.

Article 132 of the Principal VAT Directive requires Member States to exempt a number of specified types of education, including university education. However, the education has to be provided either by bodies governed by public law “or by other organisations recognised by the Member State concerned as having similar objects”. The UK has exempted education provided by universities and “any college, institution, school or hall of such a university”.

FBT was a profit-making enterprise which largely provided non-university level financial and business training. However, it also provided a number of Masters Courses under a validation agreement with the University of Wales. FBT argued before the First-tier Tribunal that it acted as a college of the University when providing the Masters courses and that they were therefore exempt from VAT. The FTT and the Upper Tribunal rejected that argument.

Before the Court of Appeal, FBT argued that the EU Law principle of fiscal neutrality required the UK to exempt its university-level courses on the basis that FBT was entitled to be recognised as an eligible body when supplying those courses, even though it did not have that status when supplying non-university courses. It argued that fiscal neutrality was breached because other eligible bodies benefitted from such treatment. It also argued that it was being discriminated against because it was a commercial provider, contrary to Case C-319/12 MDDP, that Parliament had failed to implement the Sixth Directive and that the domestic implementation breached the principle of legal certainty. FBT asserted a directly effective right to exemption, the precise scope of which it was claimed could only be determined by the CJEU.

However, the Court of Appeal agreed with HMRC that, in this context, fiscal neutrality did not simply require that the services provided (university education) be the same, but also that the suppliers have similar objects. Article 132 PVD gave Member States power to determine whether a body had similar objects to a body governed by public law and the UK had exercised that power in an EU law compliant manner by requiring colleges and halls of universities to be integrated into the universities’ activities – and therefore to be imbued with their objects – in order to be regarded as having “similar objects”.

FBT could not bring itself within that group as it could not show that it was an integrated part of the University of Wales. It only had a short-term relationship with the University, its relationship was one of partnership and not integration and FBT also had other activities which did not involve the University. The relationship was not close enough.

The Court of Appeal declined FBT’s request for a reference to the Court of Justice and refused permission to appeal to the Supreme Court.

Both parties were represented by counsel from Monckton Chambers. Melanie Hall QC and Elizabeth Kelsey represented FBT and Raymond Hill represented HMRC.