Upper Tribunal rules on application of education exemption from VAT

03 Dec 2013

The Upper Tribunal has dismissed an appeal by Finance and Business Training (FBT), a business education provider in Birmingham, against HMRC’s refusal to treat its provision of Masters courses as exempt under Schedule 9, Group 6, Item 1 VATA 1994.

That exemption covers supplies of education and vocational training if made by an “eligible body”. Note 1 defines that term so as to include “a United Kingdom university” as well as any “college” or “institution” of such a university.

The issue was whether FBT was an “eligible body” when providing the disputed Masters Courses. FBT provided those courses in association with the University of Wales, which was itself an “eligible body”. FBT also provided other education and vocational training (including professional accountancy training) independently. It accepted that it was not an “eligible body” when providing the latter category of education, but it argued that it was a “college” or “institution” of the University of Wales when providing the Masters courses in association with that University.

In the Upper Tribunal, Mr Justice Morgan held that the FTT had been right to reject that argument. He confirmed that it was not legally possible for an educational provider to be both an “eligible body” in respect of some of its activities and not an “eligible body” in respect of the remainder of its activities. The exemption did not permit a supplier to distinguish between the different capacities in which it acted when determining whether the supplier was an eligible body or not. There was no support for such an approach in either the language of Schedule 9, Group 6, Item 1 VATA or in the language of the underlying exemption in Article 132(1)(i) of the Principal VAT Directive. Nor was FBT’s approach supported by either the purpose of those provisions or the tenor of the relevant authorities. In those circumstances, FBT was not an “eligible body” when providing the Masters courses and was not entitled to exemption in relation to them.

Why is it relevant? On Morgan J’s approach, it will be difficult (although not impossible) for an education provider to establish that it is an “eligible body” and entitled to exemption if it both  supplies courses in association with a university as well as other courses independently. Whether it can do so will depend on whether it can show that it is sufficiently integrated in the university, which in turn requires it to show that a substantial portion of its activities are connected with the university.

Melanie Hall QC represented FBT.

Raymond Hill represented HMRC.