Kickboxing classes were found not to be commonly taught in schools across the EU and were therefore standard-rated.
In the 1984 film Karate Kid, Mr Miyagi admonished Daniel: ‘I say; you do. No questions’. However, with VAT, there are always questions, such as in the case of Premier Family Martial Arts LLP v HMRC [2020] UKFTT 1 (TC).
The taxpayer, PFMA, is a partnership established by Mr Foran and his wife. It provided kickboxing classes for people of all ages over three locations with some 1,600 students. HMRC issued a decision concluding that the supplies of kickboxing classes were standard-rated rather than exempt and, therefore, PFMA was liable to be registered for VAT.
The relevant law is article 132(1)(j) of Directive 2006/112/EC, which provides for exemption of ‘tuition given privately by teachers and covering school or university education’. HMRC accepted that the kickboxing classes involved ‘tuition given privately’ but not that it was ‘covering school … education’.
The First-tier Tribunal (FTT) posed four questions:
Question 1 was whether they should consider kickboxing specifically or martial arts as a whole. The FTT noted that kickboxing is not recognised by Sports England as a sport unlike other martial arts and concluded there were common skills but significant differences which would make it inappropriate to conflate them.
Question 2 was whether it is necessary for kickboxing only to be taught in a single school or to be commonly taught. This issue was hard fought by PFMA who submitted that there is no minimum number of schools in the legislation and any such hurdle would confine the exemption to established activities and impose an unreasonable burden in taxpayers when assessing their VAT liability. However, the FTT found that although the ‘commonly taught’ wording was imprecise, it was a task for national courts to determine.
Question 3 was whether PFMA had met the burden of proving kickboxing was commonly taught at schools in the EU. The fact that kickboxing did not form part of the national curriculum gave rise to a rebutable presumption that it was not commonly taught (in that country). There was insufficient evidence of kickboxing being taught as part of the school curriculum in the UK or EU so the appeal failed.
Question 4 was redundant but asked whether kickboxing was ‘purely recreational’. The FTT complained about the lack of clarity in the case law. Ultimately, it was found to be a multi-factorial test and a matter of overall impression and the FTT found that the teaching of kickboxing was not purely recreational.
In this case, the tribunal interpreted article 132(1)(j) as referring to an activity which is taught commonly at schools in the EU. There is no reference in the Directive or in CJEU decisions to ‘commonly taught’. VATA 1994 uses the words ‘ordinarily taught’ which was correctly construed as taught ‘widely’ rather than addressing the frequency at which it may be taught at one school. However, for a neutral tax, it would be a remarkable burden on the taxpayer to know the prevalence of a particular activity in schools across the EU before self-assessing their tax liability. This legal certainty argument has proven unsuccessful twice in the FTT on the belief that for most cases the answer will be obvious. Advisers will find this of little comfort when facing obstinate HMRC rulings, keeping in mind the ‘open and shut cases’ dicta of Megarry LJ in John v Rees [1970] 1 Ch 345.
Furthermore, regarding evidence, litigators may note the use of quasi-expert survey evidence in this case. Parties should be weary of proffering informal expert evidence without sturdy statistical expertise, as it may prove a hindrance rather than a help when subject to scrutiny.
This case noted the continued difficulties with the ‘purely recreational’ test. Whenever a lawyer sees the courts afforded discretion through a ‘multi-factorial assessment’, they should raise an eyebrow of inquisition. In Tranter (t/a Dynamic Yoga) v HMRC [2014] UKFTT 959, the tribunal explained that to avoid being ‘purely recreational’, the ‘transfer of knowledge and skills’ must mean transferring more knowledge than simply how to do the activity in question.
This certainly conforms with the teachings of Mr Miyagi, who said ‘lesson not just karate only, lesson for whole life. Everything be better.’
Home >Articles > VAT on, VAT off: the Premier Family Martial Arts decision
VAT on, VAT off: the Premier Family Martial Arts decision
Kickboxing classes were found not to be commonly taught in schools across the EU and were therefore standard-rated.
In the 1984 film Karate Kid, Mr Miyagi admonished Daniel: ‘I say; you do. No questions’. However, with VAT, there are always questions, such as in the case of Premier Family Martial Arts LLP v HMRC [2020] UKFTT 1 (TC).
The taxpayer, PFMA, is a partnership established by Mr Foran and his wife. It provided kickboxing classes for people of all ages over three locations with some 1,600 students. HMRC issued a decision concluding that the supplies of kickboxing classes were standard-rated rather than exempt and, therefore, PFMA was liable to be registered for VAT.
The relevant law is article 132(1)(j) of Directive 2006/112/EC, which provides for exemption of ‘tuition given privately by teachers and covering school or university education’. HMRC accepted that the kickboxing classes involved ‘tuition given privately’ but not that it was ‘covering school … education’.
The First-tier Tribunal (FTT) posed four questions:
Question 1 was whether they should consider kickboxing specifically or martial arts as a whole. The FTT noted that kickboxing is not recognised by Sports England as a sport unlike other martial arts and concluded there were common skills but significant differences which would make it inappropriate to conflate them.
Question 2 was whether it is necessary for kickboxing only to be taught in a single school or to be commonly taught. This issue was hard fought by PFMA who submitted that there is no minimum number of schools in the legislation and any such hurdle would confine the exemption to established activities and impose an unreasonable burden in taxpayers when assessing their VAT liability. However, the FTT found that although the ‘commonly taught’ wording was imprecise, it was a task for national courts to determine.
Question 3 was whether PFMA had met the burden of proving kickboxing was commonly taught at schools in the EU. The fact that kickboxing did not form part of the national curriculum gave rise to a rebutable presumption that it was not commonly taught (in that country). There was insufficient evidence of kickboxing being taught as part of the school curriculum in the UK or EU so the appeal failed.
Question 4 was redundant but asked whether kickboxing was ‘purely recreational’. The FTT complained about the lack of clarity in the case law. Ultimately, it was found to be a multi-factorial test and a matter of overall impression and the FTT found that the teaching of kickboxing was not purely recreational.
In this case, the tribunal interpreted article 132(1)(j) as referring to an activity which is taught commonly at schools in the EU. There is no reference in the Directive or in CJEU decisions to ‘commonly taught’. VATA 1994 uses the words ‘ordinarily taught’ which was correctly construed as taught ‘widely’ rather than addressing the frequency at which it may be taught at one school. However, for a neutral tax, it would be a remarkable burden on the taxpayer to know the prevalence of a particular activity in schools across the EU before self-assessing their tax liability. This legal certainty argument has proven unsuccessful twice in the FTT on the belief that for most cases the answer will be obvious. Advisers will find this of little comfort when facing obstinate HMRC rulings, keeping in mind the ‘open and shut cases’ dicta of Megarry LJ in John v Rees [1970] 1 Ch 345.
Furthermore, regarding evidence, litigators may note the use of quasi-expert survey evidence in this case. Parties should be weary of proffering informal expert evidence without sturdy statistical expertise, as it may prove a hindrance rather than a help when subject to scrutiny.
This case noted the continued difficulties with the ‘purely recreational’ test. Whenever a lawyer sees the courts afforded discretion through a ‘multi-factorial assessment’, they should raise an eyebrow of inquisition. In Tranter (t/a Dynamic Yoga) v HMRC [2014] UKFTT 959, the tribunal explained that to avoid being ‘purely recreational’, the ‘transfer of knowledge and skills’ must mean transferring more knowledge than simply how to do the activity in question.
This certainly conforms with the teachings of Mr Miyagi, who said ‘lesson not just karate only, lesson for whole life. Everything be better.’
