Learning Centre (Romford) Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 June 2017 |
| Neutral Citation | [2017] UKFTT 492 (TC) |
| Date | 13 June 2017 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Barbara Mosedale
Mr E McNicholas, Counsel, appeared for the appellant
Ms N Barnes, Counsel, for the first two days of the hearing; and Mr J Davey QC and Ms N Barnes, Counsel, for the final two days of hearing, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Welfare services exemption – Whether appellant “state-regulated” as staff DBS checked – Whether UK's implementation of exemption in breach of principle of fiscal neutrality – Appeal allowed.
In the appeal of Learning Centre (Romford) Ltd TAX[2017] TC 05946, the First-tier Tribunal (FTT) upheld the taxpayer's appeal, finding that the UK's implementation of the “welfare services” exemption offended the principle of fiscal neutrality and rendered the UK legislation invalid.
The dispute arose from the refusal by HMRC to allow the appellant to cancel its VAT registration with retrospective effect on the basis that its supplies were properly exempt from VAT. The issue for the FTT was to determine whether the appellant's supplies were exempt and had been exempt since its first registration in September 2009.
The FTT heard that the appellant company provided day care to vulnerable adults with learning difficulties, who were referred to as “students”. The company provided the students with education, activities, and entertainment during working hours Monday to Friday, providing meals and, where required, assistance with eating, administering medication, and personal care. It also provided transport to bring the students from and to their homes. HMRC accepted that what the appellant provided was “welfare services” within the meaning of VATA 1994, Sch. 9, Grp. 7, note (6). However, exemption from VAT for welfare services, and goods supplied in connection with those services, was available under item 9 of Grp. 7 only where it was supplied by a charity, a state-regulated private welfare institution or agency or a public body. It was common ground that the appellant was not a charity or a public body, but the appellant maintained that it was a state-regulated private welfare institution, firstly, because it was state-regulated in the sense that its staff were regulated by the Disclosure and Barring Service (DBS) and, secondly, under the directly effective provision of EU law which, according to the appellant, the UK welfare services exemption had failed to properly enact.
The meaning of “state regulated” is defined in note 8 to Grp. 7 as “approved, licensed, registered, or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act, other than a provision that is capable of being brought into effect at different times in relation to different local authority areas”. The appellant maintained that it was regulated because its staff were DBS checked and it could only employ persons who were DBS checked. HMRC did not agree that this amounted to state-regulation within the meaning of item 9 because the DBS checks were made on individual employees and not on the company and because the checking procedure did not regulate the services provided by the appellant. Having considered the parties' contentions, the FTT concluded that whilst the appellant might be regulated in a general sense, it was not state-regulated in the sense intended by note 8 to Grp. 7. In particular, there was no approval of the welfare services provided, no licensing of the appellant to provide those services and no registration or exemption from registration.
The FTT turned to the appellant's second contention that its services were exempt under the directly effective provision of EU law which, it claimed, the UK welfare services exemption had failed to properly enact. Item 9 of Grp. 7 implemented art. 132(1)(g) of EC Directive 2006/112, the 2006 VAT directive, which provided exemption for “the supply of services … by bodies governed by public law or by other bodies recognised by the member state concerned as being devoted to social wellbeing”. The appellant's case was that the EU law exemption was directly effective and, therefore, that its supplies were exempt, irrespective of the terms of UK legislation. HMRC argued that a taxpayer can rely on the provisions of the Directive as directly conferring exemption only where the UK has failed to properly implement the Directive. In their view, there was no such failure.
The FTT considered evidence on the apparent inconsistency in the application of the VAT exemption in the UK. Whilst item 9 applied uniformly across all the UK, in practice its interaction with devolved laws on social care regulation, had led to discrimination in that a supply of day care welfare services in Scotland and Northern Ireland qualified for exemption, but a similar supply in England and Wales remained taxable. HMRC maintained that there was an objective difference between the services provided in Scotland and the services provided in England, in that the former could only be made by the regulated entities and the latter only by unregulated entities. The FTT refused to accept that this was a valid distinction as the services provided could be identical. The law was discriminatory because in England day care providers did not have the possibility of being regulated and, consequently, were unable to qualify for exemption. In the judgment of the FTT, the UK had unlawfully exercised the discretion conferred on it by art. 132(1)(g) in choosing the regulation of welfare facilities as the criteria by which suppliers devoted to social wellbeing were “recognised” for exemption. That was because the law on regulation had been devolved, leading to contrasting regional regulatory requirements and resulting in discrimination in VAT treatment between suppliers offering identical services but being situated in different regions of the UK.
In the judgment of the FTT, the UK's welfare services exemption did not correctly transpose art. 132(1)(g) because the UK did not have regard to the need for fiscal neutrality and the need for all private bodies in the UK providing the same service to be treated in the same manner for VAT purposes. Since the UK's implementation of the welfare services exemption was unlawful, the appellant was entitled to rely on the direct effect of art. 132(1)(g) and as a body devoted to social wellbeing its supplies were and always had been exempt. The appellant was, therefore, entitled to cancel its VAT registration retrospectively from a date to be agreed between the parties.
This is the designated lead case in a dispute affecting a large number of welfare service providers that are currently refused exemption on the ground that they are not a “state-regulated private welfare institution or agency” within item 9 of Grp. 7 of the exemption schedule. Providers have been forced to operate on an uneven playing field which has led to different VAT treatment for identical services depending on the perceived status and location of the provider. It is not yet known whether HMRC intends to appeal the decision, but, since the judgment of the FTT has direct effect only on the appellant, the judgment of a higher court would help to clarify the position and create binding authority for the many affected UK businesses.
For commentary on the exemption applicable to welfare services see the CCH Indirect Tax Reporter at 50-770.
[1] On 15 August 2014, the appellant (“TLC”) applied to be de-registered with respect to value added tax with retrospective effect from 1 September 2009 on the basis that it considered its supplies to be exempt. On 8 October 2014, HMRC notified it by letter that its application was refused. That refusal is the decision which is the subject of this appeal.
[2] The appellants' directors felt that HMRC had failed to properly consider their application: Mr Spence had written a long and detailed letter addressing (some) of the VAT issues in this case: HMRC's reply, however, entirely failed to acknowledge any of the issues he raised and just said HMRC would not de-register the company as it was not below the deregistration threshold. However inept this decision letter, HMRC's position was that the relevant VAT issues had been thoroughly ventilated in prior correspondence. In any event, the question for this appeal is whether the appellant's supplies were exempt, and not HMRC's failure to give full reasons in its decision letter.
[3] As all parties accept that this appeal is about whether or not the appellant's supplies were exempt and had been exempt since its first registration on 1 September 2009. If its supplies were exempt, it should never have been registered and should now be retrospectively de-registered; if its supplies were not exempt, HMRC were correct to refuse to deregister the appellant.
[4] This case is a lead case under rule 18. The common or related issues of law was stated to be:
what is the meaning of a “state-regulated private welfare institution or agency” within item 9 of Group 7 of Schedule 9 of the Value Added Tax Act 1994 and in particular what is the effect of Note (8) to that group; and
whether item 9 and Note (8) correctly transpose the Directive and in particular whether the “organisations recognised by the Member State concerned as being devoted to social wellbeing” referred to in article 132(1)(g) of the Principle VAT Directive includes more bodies within its scope than item 9 and Note (8).
[5] The case was originally listed for 2 days in June 2016 but the hearing did not complete within the allotted time due to issues being raised by the appellant for which HMRC had not had time to prepare, in particular, the question of different VAT treatment of the same welfare supplies between (a) local authorities and private entities and (b) entities in England, Wales, Scotland and Northern...
To continue reading
Request your trial
-
Leisure, Independence, Friendship and Enablement Services Ltd v The Commissioners for HM Revenue and Customs
...Haarer dated 23 June 2016 [2016] UKFTT 444 (TC) (“FTT1”) and a decision concerning TLC by Judge Barbara Mosedale dated 13 June 2017 [2017] UKFTT 492 (TC) 3 The overall effect of the two UT decisions is to uphold HMRC's case that supplies of day care services to vulnerable adults by LIFE a......
-
Revenue and Customs Commissioners v The Learning Centre (Romford) Ltd; Revenue and Customs Commissioners v L.I.F.E. Services Ltd
...the grounds that TLC's supplies were taxable. TLC appealed to the FTT against HMRC's decision. By a decision released on 13 June 2017 ([2017] TC 05946) the FTT (Judge Barbara Mosedale) allowed TLC's appeal on the grounds that the UK's welfare services exemption did not correctly transpose t......
-
Revenue and Customs Commissioners v L I F E Services Ltd
...in those jurisdictions. This apparent discrepancy will be considered by the UT in the pending case of Learning Centre (Romford) Ltd [2017] TC 05946. DECISION Introduction [1] This is an appeal by HMRC against a decision of the First-tier Tribunal (“FTT”) (Judge Charles Hellier and Mr Willia......
-
YMCA Birmingham and Others
...BVC 2,194 Bath Festival Woking Museum and Arts and Crafts Centre FTT [2014] TC 03315 Woking Museum Learning Centre (Romford) Ltd FTT [2017] TC 05946 Learning Centre (Romford) HMRC notices [13] I was referred to extracts from HMRC Notices, which it is convenient to set out here. [14] HMRC No......