The Commissioners For Her Majesty's Revenue And Customs V. The Board Of Governors Of The Robert Gordon University In Respect Of A Decision Of The Vat Tribunal

JurisdictionScotland
JudgeLord Penrose,Lady Paton,Lord Macfadyen
Judgment Date06 March 2008
Neutral Citation[2008] CSIH 22
Published date06 March 2008
Date06 March 2008
CourtCourt of Session
Docket NumberXA124/05

EXTRA DIVISION, INNER HOUSE, COURT OF SESSION

Lord Macfadyen

Lady Paton

Lord Penrose

[2008] CSIH 22

XA124/05

OPINION OF THE COURT

delivered by LORD PENROSE

in

Appeal

under section 11 of the Tribunals and Inquiries Act 1992

by

THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS

Appellants;

against

THE BOARD OF GOVERNORS OF THE ROBERT GORDON UNIVERSITY

Respondents:

in respect of a decision of the VAT and Duties Tribunal for Scotland dated 1 November 2005 and communicated to the appellants on 2 November 2005

_______

Act: J.R. Campbell, Q.C.; Shepherd & Wedderburn LLP

Alt: Tyre, Q.C.; McGrigors LLP

6 March 2008

[1] By agreement dated 11 and 19 November 1996 (the "1996 Agreement") entered into between the Secretary of State for Scotland, acting through the National Health Service Management Executive, and the Robert Gordon University ("RGU"), RGU agreed to provide and to perform certain specified services related to the training of students in nursing and midwifery to standards that would lead to the award of a Diploma in Nursing or in Midwifery, or its equivalent, and that would lead also to registration with the United Kingdom Central Council for Nursing Midwifery and Health Visiting. It is agreed between the appellants, the Commissioners for Her Majesty's Customs and Revenue ("HMRC"), and RGU that the provision of those services under the 1996 Agreement constituted a supply for the purposes of Value Added Tax, and that the supply was an exempt supply in terms of item 1 of Group 6 of Schedule 9 to the Value Added Tax Act 1994, which implemented for domestic purposes Article 13A(1)(i) of the Directive 77/388, the Sixth Directive. So far as material, item 1 of Group 6 exempts from VAT:

"The provision by an eligible body of -

(a) education...; or

(b) vocational training".

RGU was at all material times an eligible body.

[2] By Assignation dated 24 and 27 May 2002, entered into between RGU and Univation Limited, it was provided:

"We, the Governors of the Robert Gordon University... in right of the Provider's part of the Agreement hereinafter assigned in consideration of the assumption of the obligations and liabilities under the said Agreement and with the consent and concurrence of the Scottish Ministers, as the successors of the Secretary of State for Scotland (hereinafter referred to as 'the Purchasers') do hereby assign, transfer and make over to and in favour of Univation Limited... (hereinafter referred to as 'the Assignees') the whole obligations to provide pre-registration nursing and midwifery education services and the right to receive sums due by the Purchaser (as defined in the Agreement aftermentioned) in relation thereto all in terms of the Agreement between the Secretary of State for Scotland and ourselves, the said The Governors of the Robert Gordon University dated Eleventh and Nineteenth November Nineteen hundred and ninety six, as extended to 31 August 2005... in relation to the provision of pre-registration nursing and midwifery education services (but excluding our whole rights to the Equipment and the Undertaking (as defined in the Agreement) which are retained by us, the said The Governors of the Robert Gordon University and are not transferred to the Assignees), together with by way of inclusion and not exclusion our whole right, title and interest in and to the Agreement to the extent aforementioned, including the right to receive sums due in terms of the condition 4.1 2 of the Agreement, and the obligations to provide the services set out in annex B to the Agreement; and that as from and after the first day of June 2002 (hereinafter referred to as 'the effective date')".

[3] Univation Limited has not at any time been an eligible body. It was at all material times a wholly owned subsidiary of RGU. Univation adopted its current objects by resolutions dated 12 July 1995 and 22 May 2001. Prior to 22 May 2001, its objects were, in brief, to carry on business as onshore and offshore engineering, scientific and management consultants and advisers, including research and development and other related activities. On 22 May 2001 it amended its objects to include: "business as a training provider". The company did not become an eligible body by extending the scope of its objects to include training or education. The training service it supplied generally, and in particular the services it undertook to supply in terms of the Assignation, could not constitute an exempt supply for VAT purposes.

[4] On 5 June 2002, RGU and Univation entered into an agreement (the "Services Agreement") for the supply by RGU to Univation of certain specified services relating to the implementation of Univation's obligations under the Assignation. The issue between the parties is whether the supply of services under the Services Agreement constituted the provision of education or training by RGU. HMRC contend that the proper characterisation of the whole services supplied is the provision of education. RGU contend that what is supplied comprises no more than a group of resources and facilities which Univation apply in the provision of education or training by the company under the 1996 Agreement as assigned to it.

[5] RGU and HMRC agreed the following findings in fact and invited the VAT and Duties Tribunal for Scotland ("the Tribunal") to adopt them:

"1 The Respondent ('the University') and the Secretary of State for Scotland entered into an Agreement, dated 11 and 19 November 1996 ('the 1996 Agreement'). The terms of said Agreement are as set out in the copy agreement at pages 52-89 of the Joint Bundle of Documents before the Tribunal.

1.1 The effect of the 1996 Agreement was that the University undertook the provision of certain nursing and midwifery teaching in North East Scotland, which had previously been carried out 'in-house' by the NHS. At the time of the formation of the 1996 Agreement, the Scottish Office did not wish any limited companies involved in the process of the provision of nurse education.

1.2 The University supplied nurse and midwife training to the Secretary of State for Scotland pursuant to this Agreement from 1996 to 2002.

2 Univation Ltd ('the Company') was formed by the University in 1995, as a wholly owned subsidiary to provide courses primarily to commercial clients.

2.1 The Company has no employees of its own, but is run by employees of the University. Approximately 20-30 employees are engaged almost full time on work carried out for the Company.

2.2 The Company has a Board of Directors comprising the Principal of the University, Mrs Patricia Briggs (the University's Finance Director, who gave evidence before the Tribunal), the University IT Director, the University's Vice Principal (Professor John Harper), the nurse contract manager and two external members, one from the oil industry and one from the local council. The Managing Director is Vivienne McKinley who has held that post from the Company's inception. She takes primary responsibility for the day to day management of the Company.

3 In 2001, the University decided to construct a new facility to house its Faculty of Health and Social Care (which includes the School of Nursing and Midwifery). As part of that process, it sought instructions from KPMG 'to advise on a VAT efficient structure for the construction and use of the new Faculty ...'. Certain of that advice is set out in a letter of 19 January 2001, and the advice involved a three Phase structure, of which the second was the Nurses Training Phase.

3.1 The Nurses Training Phase proposed by KPMG involved the adoption of what KPMG described as 'a more VAT efficient structure' for the delivery of pre-registration nurses training than that currently operated by the University. That advice was that the University assign its contract with the Scottish Executive to a wholly owned subsidiary so that the training will be liable to VAT at the standard rate, which would allow the University to recover VAT on related costs and improve VAT recovery on general overhead expenditure.

3.2 KPMG further advised: (i) that Univation may be a suitable vehicle 'as it already provides taxable training'; (ii) that it would 'still be necessary to have one or two individuals who are directly concerned in the nursing training contract employed by the training provider'; and (iii) that their understanding was that 'the transfer of undertaking legislation requires that all the employees will have to be notified of the changed arrangement'.

3.3 KPMG further advised that on the assumption that all staff remained as employees of the University it would be necessary to draw up contracts between the University and the nurse training provider for the provision of resources such as staff and the use of equipment. They added, '(It is the supply of such resources which would create increased taxable income for the University'.)

3.4 Following that decision by the University, the University assigned the 1996 Agreement to the Company with the approval of the Scottish Executive, and entered into a Services Agreement with the Company.

4 The terms of the Deed of Assignation, dated 24 and 27 May 2002 are as set out in the copy Deed at pages 14 to 17 of the Joint Bundle of Documents. The University retained its rights in the Equipment and the Undertaking. These terms are defined in the 1996 Agreement, Document 9, Annex A, paragraph 1.26 and paragraph 10 (pp. 59 and 66-68 of the Joint Bundle).

5 The terms of the Services Agreement dated 5 June 2002 between the University and the Company are as set out in the copy Agreement in Document 6 of the Joint Bundle (pp. 18-39).

6 Despite the terms of the 2002 Agreements, the University continues to hold itself out in certain documents as the provider of the relevant nursing and midwifery courses. See (i) the extract from its website, produced as page 345 of the Joint Bundle of Documents; (ii) the 9 January 2004 press release issued by the...

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