Bell's College Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 April 2015 |
| Date | 25 April 2015 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Swami Raghavan, John Cherry
Zahid Bhatti, director of the appellant appeared for the Appellant
Phil Shepherd, HMRC officer, appeared for the Respondents
Value added tax – Exempt supplies – Education – Private college – Whether supplies exempt under Value Added Tax Act 1994 (“VATA 1994”), Sch. 9, Grp. 6, notes (1) and (2) – (1) Whether “school” for purposes of Education Act 1996 – No – (2) Whether “college … of a UK university”– No – (3) Whether supplied teaching of English as a foreign language (EFL) – Yes – Appeal allowed in principle.
In principle, the First-tier Tribunal (FTT) allowed the appeal against HMRC's decision that exemption did not apply to certain supplies of education.
The appellant college was a private limited company. It argued that exemption applied to its supplies of education, because:
1) it is a “school” as defined in the Education Act 1996, s. 4 (on the basis of supplying education to students aged under 19); or
2) it is a “college, institution, school or hall of a UK university” (on the basis of arrangements with universities); and
3) it teaches English as a foreign language (EFL).
The FTT considered whether the appellant was an educational institution providing “secondary education” to a person who has attained the age of 12, but not the age of 19 (para. 83 of the decision).
The FTT held that the appellant was not a “school”. It was not enough that some-one under the compulsory school age limit of 16 attended courses at the appellant. Also, it was not clear that the under 16s were obtaining a full-time education suitable for under 16s. Education of under 19s only counts as “secondary education” if it is carried out where there is also education of under 16s. The fact that under 19s were taught at the appellant did not make it a school (para. 89 to 91 of the decision).
As regards the following factors:
1) presence or absence of a foundation document establishing the appellant as part of a university – the appellant referred to its agreement with MDP in relation to arrangements with Manchester Metropolitan University;
2) financial dependence or inter-dependence – the appellant was unaware of any financial link and paid MDP £1,800 per student;
3) physical proximity – the appellant noted that both the University of Sunderland and Coventry University have London campuses; and
4) obligation to offer a minimum number of university places – the appellant referred to the minimum number of places specified in the contract with MDP (para. 103 of the decision).
The FTT held that there must be sufficient integration with a university (para. 112 of the decision).
The appellant argued that it is a college of a university because of the following:
1) the fact that the appellant was approved by organisations such as ICMA and that students doing approved courses may, having completed the course, get credit for that at certain universities;
2) the fact that certain students may study a whole course at the appellant and on completion may be awarded a university degree;
3) the fact that a student may complete a one-year course, which leads to an award by a university, but having on-line access to a particular university's library;
4) the fact that validation of the appellant was carried out and that universities visited and approved the appellant; and
5) the fact that the appellant offered university type courses or diplomas (para. 114 of the decision).
The FTT held that the progression route did not make the appellant a college of the university. The student applied separately to be accepted onto the university course. They got credit for what they have done, but this was insufficient to make the appellant a college of a university. There was no evidence that students progressed automatically to a particular university having obtained the qualification or in what numbers. Also, the benefit they had was that gained through doing the ICM, CTH or EBMA validated course, which was respected by certain universities. It did not arise as a result of any particular status the partner university had accorded to the appellant (para. 116 of the decision).
The FTT considered whether the appellant had similar objects to a university (para. 125 of the decision).
The FTT held that there was no constitutional or other direct link between the appellant and any university. At best, the appellant was approved to run courses leading to an award of a degree for certain students, but this was a relatively small proportion of students, most of whom were doing diplomas. The appellant was not integrated into the life of any university or vice versa.
Thus, the FTT held that it was not a college or institution of a university (para. 128 of the decision).
Although the FTT saw an argument that courses designed to acclimatise speakers of English, who came from other countries, to the English as used in teaching at the college might not be viewed as teaching English as a foreign language, the fact that the correspondence to the student suggested that students will be assessed and, if found to be below the required level, must undertake a further course envisaged that there might be some students whose standard of English was such that they must attend further courses. That does not suggest the further courses were simply about pronunciation or acclimatisation to English pronounced in a different way, but that they were courses designed to ensure a minimum standard of communication in English for students whose first language was not English (para. 131 of the decision).
The FTT held that, although the appellant was neither a “school” nor a “college … of … a university” within VATA 1994, Sch. 9, Grp. 6, note (1)(a) or (b), it was a body which provided the teaching of English as a foreign language within note (1)(f) (para. 135 of the decision).
Schedule 9, Grp. 6, note (2) provided that supplies by such a body, which consist of anything other than the teaching of English as a foreign language, are not exempt. The FTT asked the parties to try to agree the amount of the assessment, taking into account its decision that the acclimatisation and English for Speakers of Other Languages (“ESOL”) courses fell within the provision for teaching English as a foreign language (EFL).
In the absence of an agreement, the parties may revert to the FTT to seek further directions for determining outstanding matters (para. 136 of the decision).
This is the most recent case on whether a company is a college of a university, which indicates that HMRC are strictly interpreting this VAT exemption. However, a strict interpretation is not the same as a restricted interpretation.
[1] The appellant college is a private company. The appeal concerns whether its supplies of education are exempt under Group 6 Schedule 9 of the Value Added Tax Act 1994 (“VATA 1994”). It argues, contrary to HMRC's view, that:
1) it is a school as defined in the Education Act 1996 (on the basis of supplies of education it says it makes to students under 19); or
2) a college, institution, school or hall of a UK university (on the basis of certain arrangements it has with universities); and
3) that it is a supplier of the teaching of English as a foreign language.
[2] The appellant appeals against HMRC's decision to assess for £207,750 VAT for periods 02/11 and 05/11 under s83(1)(p) VATA 1994 and HMRC's decision to impose penalties of £47,743.75 for periods 02/11 and 05/11 under paragraphs 15(1) and Schedule 24 of the Finance Act 2007.
[3] We heard oral evidence from Mr Zahid Bhatti, a director of the college responsible for admissions and international liaison.
[4] He was cross-examined by HMRC and answered the Tribunal's questions. He was a credible witness.
[5] We had a bundle of documents including correspondence between the parties and various copies of admissions forms and welcome letters to students, letters in relation to work experience arrangements for local students, certificates of accreditation, and extracts from the websites of awarding bodies.
[6] Mr Bhatti brought along a witness statement but with the exception of seven short numbered paragraphs at the start it contained matters of legal argument. As explained to Mr Bhatti at the hearing on 20 November 2013 we considered the arguments contained within this statement as part of the appellant's legal submissions.
[7] The hearing on 20 November 2013 was adjourned to deal with a new argument that the appellant had raised that it was a “school” and directions were issued to allow for amended grounds of appeal, amended statement of case and amended lists of documents.
[8] After the 5 June 2014 hearing, Mr Bhatti applied to put further documents before us. HMRC were invited to make written representations on the application and on the documents as appropriate. (These comprised a copy of an agreement between the appellant and a body called MDP in relation to arrangements with Manchester Metropolitan University and various e-mail correspondence and forms). Although they were not on the appellant's list of documents we were satisfied the appellant had intended to bring them to the 5 June 2014 hearing (but had not been able to for reasons out of his control relating to access to the building due to a tenancy dispute in relation to which we saw supporting documentation). If he had brought them to the hearing we would most likely have allowed them in as they were relevant to the appellant's arguments on the issue before us. Given the explanation for not bringing them to the hearing, the relevance of the documents, the fact the appellant was not professionally represented and the fact that it assisted the Tribunal to see copies...
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