Is the provision of courses for subsidised fees an economic activity?
In Wakefield College v HMRC [2018] EWCA Civ 952 (1 May 2018), the Court of Appeal found that a college was providing education in the course of an economic activity, so that the supplies of construction services it had received were not zero-rated (VATA 1994 Sch 8 Group 5).
The appeal related to the construction of a new building for the college and HMRC’s refusal to authorise Wakefield to issue a zero-rating certificate to the builders. It was accepted that the college was a charity. It was also accepted that, following the construction of the building, the college intended to make use of it for the provision of further and higher education (and has done so since it opened in 2009), and that this was capable of amounting to a relevant charitable purpose.
The issue was whether the provision of further education courses to students paying a fixed but publicly subsidised fee amounted to the carrying out of an economic activity (VATA 1994 Sch 8 implementing the Principal VAT Directive Art 9).
The Court of Appeal observed that whether there is a supply for consideration and whether that supply constitutes an economic activity are separate questions; a supply for consideration is a necessary but not sufficient condition for an economic activity. The first condition requires a legal relationship with reciprocal performance between the supplier and the recipient, the ‘direct link’ referred to in Borsele (Case C-520/14). The economic activity condition means that the supply must be made for the purpose of obtaining an income; this is an objective test.
It was accepted that the first condition was satisfied; the fee paid was consideration for the supply of education. The court found that the economic activity condition was also satisfied. Unlike the municipality in Borsele, for which the supply of transport was ancillary to its main activity, the college’s main activity was the supply of education and the subsidised fees represented a significant part of its undertaking, both in value and in relation to the cost of providing the relevant courses. Furthermore, the fees paid by the students were calculated by reference to the cost of providing the courses and not to the means of the relevant students.
Why it matters: This is a very long-running dispute. The college’s appeal against HMRC’s determination, that the relevant construction costs were not zero-rated, was first heard by the FTT in 2010. In addition, HMRC suggested that about 50 cases (presumably involving similar establishments providing courses for a subsidised fee), involving approximately £120m of VAT, would be affected by this decision. The UT, which had also dismissed the appeal, on slightly different grounds, suggested that the legislation required amendment as the consequences of denying relief may be serious for many institutions.
Also reported this week:
R Gill v HMRC Was a securities trader carrying on a trade?
Is the provision of courses for subsidised fees an economic activity?
In Wakefield College v HMRC [2018] EWCA Civ 952 (1 May 2018), the Court of Appeal found that a college was providing education in the course of an economic activity, so that the supplies of construction services it had received were not zero-rated (VATA 1994 Sch 8 Group 5).
The appeal related to the construction of a new building for the college and HMRC’s refusal to authorise Wakefield to issue a zero-rating certificate to the builders. It was accepted that the college was a charity. It was also accepted that, following the construction of the building, the college intended to make use of it for the provision of further and higher education (and has done so since it opened in 2009), and that this was capable of amounting to a relevant charitable purpose.
The issue was whether the provision of further education courses to students paying a fixed but publicly subsidised fee amounted to the carrying out of an economic activity (VATA 1994 Sch 8 implementing the Principal VAT Directive Art 9).
The Court of Appeal observed that whether there is a supply for consideration and whether that supply constitutes an economic activity are separate questions; a supply for consideration is a necessary but not sufficient condition for an economic activity. The first condition requires a legal relationship with reciprocal performance between the supplier and the recipient, the ‘direct link’ referred to in Borsele (Case C-520/14). The economic activity condition means that the supply must be made for the purpose of obtaining an income; this is an objective test.
It was accepted that the first condition was satisfied; the fee paid was consideration for the supply of education. The court found that the economic activity condition was also satisfied. Unlike the municipality in Borsele, for which the supply of transport was ancillary to its main activity, the college’s main activity was the supply of education and the subsidised fees represented a significant part of its undertaking, both in value and in relation to the cost of providing the relevant courses. Furthermore, the fees paid by the students were calculated by reference to the cost of providing the courses and not to the means of the relevant students.
Why it matters: This is a very long-running dispute. The college’s appeal against HMRC’s determination, that the relevant construction costs were not zero-rated, was first heard by the FTT in 2010. In addition, HMRC suggested that about 50 cases (presumably involving similar establishments providing courses for a subsidised fee), involving approximately £120m of VAT, would be affected by this decision. The UT, which had also dismissed the appeal, on slightly different grounds, suggested that the legislation required amendment as the consequences of denying relief may be serious for many institutions.
Also reported this week:
R Gill v HMRC Was a securities trader carrying on a trade?
