Leisure, Independence, Friendship and Enablement Services Ltd v The Commissioners for HM Revenue and Customs
| Jurisdiction | England & Wales |
| Judge | Floyd LJ,Newey LJ,Lord Justice Arnold |
| Judgment Date | 25 March 2020 |
| Neutral Citation | [2020] EWCA Civ 452 |
| Date | 25 March 2020 |
| Docket Number | Case Nos: A3/2019/0793, A3/2019/0809 |
| Court | Court of Appeal (Civil Division) |
[2020] EWCA Civ 452
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
Mann J and Judge Herrington [2017] UKUT 484 (TCC)
Nugee J and Judge Herrington [2019] UKUT 2 (TCC)
Royal Courts of Justice
Strand, London, WC2A 2LL
Lord Justice Floyd
Lord Justice Newey
and
Lord Justice Arnold
Case Nos: A3/2019/0793, A3/2019/0809
Jonathan Bremner QC (acting pro bono instructed by Hogan Lovells LLP acting pro bono) for L.I.F.E Services Ltd
Eamon McNicholas (instructed directly) for The Learning Centre (Romford) Ltd
Jonathan Davey QC and Natasha Barnes (instructed by General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 12–13 February 2020
Approved Judgment
Introduction
These two appeals by Leisure, Independence, Friendship and Enablement Services Ltd (“LIFE”) and The Learning Centre (Romford) Ltd (“TLC”) against two decisions of the Upper Tribunal (Tax and Chancery Chamber) (“the UT”) raise two main issues. First, is LIFE a “state-regulated private welfare institution or agency” within Schedule 9 Group 7 Item 9 (“Item 9”) of the Value Added Tax Act 1994 (“ VATA 1994”) which implements Article 132(1)(g) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax (“the Principal VAT Directive”)? This issue only arises on LIFE's appeal. Secondly, does Item 9 comply with the principle of fiscal neutrality in EU law? This issue arises on TLC's appeal. It also arises on LIFE's appeal if the first issue is decided adversely to LIFE.
In the first decision under appeal, by Mann J and Judge Timothy Herrington dated 18 December 2017 [2017] UKUT 484 (TCC) (“UT1”), the UT held that LIFE was not a “state-regulated private welfare institution or agency” within Item 9 and that Item 9 did comply with the principle of fiscal neutrality subject to a point concerning the effect of devolution within the UK which was left over for further argument. The further argument on that point was heard at the same time as a separate appeal to the UT concerning TLC in which the same question arose. In the second decision under appeal, by Nugee J and Judge Herrington dated 23 January 2019 [2017] UKUT 484 (TCC) (“UT2”), the UT held that the devolution arrangements did not mean that Item 9 breached the principle of fiscal neutrality. As a consequence, the UT allowed appeals by the Respondents (“HMRC”) against two earlier decisions of the First-tier Tribunal (Tax Chamber) (“the FTT”): a decision concerning LIFE by Judge Charles Hellier and William 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) (“FTT2”).
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 and TLC are subject to VAT at the standard rate. LIFE and TLC contend that their supplies are exempt from VAT.
EU legislation
Article 132(1)(g) sits within Chapter 2, headed “Exemptions for certain activities of public interest”, of Title IX, headed “Exemptions”, of the Principal VAT Directive. Article 132(1)(g) provides:
“Member States shall exempt the following transactions:
…
(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other bodies recognized by the Member State concerned as being devoted to social wellbeing”.
The predecessor provision to Article 132(1)(g) was Article 13A(1)(g) of Council Directive 77/388/EC (“the Sixth VAT Directive”). Article 13A(1)(g) provided:
“Without prejudice to other Community provisions, Member States shall exempt…:
…
(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned.”
Domestic legislation
Item 9 sits within Group 7, headed “Health and Welfare”, of Schedule 9, headed “Exemptions”, of VATA 1994. Item 9 states:
“The supply by –
(a) a charity,
(b) a state-regulated private welfare institution or agency, or
(c) a public body.
of welfare services and of goods supplied in connection with those welfare services.”
The Notes to Group 7 include the following:
“(6) In item 9 ‘ welfare services’ means services which are directly connected with—
(a) the provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons,
(b) the care or protection of children and young persons, or
(c) the provision of spiritual welfare by a religious institution as part of a course of instruction or a retreat, not being a course or a retreat designed primarily to provide recreation or a holiday,
and, in the case of services supplied by a state-regulated private welfare institution, includes only those services in respect of which the institution is so regulated
…
(8) In this Group ‘ state-regulated’ means 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.
Here ‘Act’ means –
(a) an Act of Parliament;
(b) an Act of the Scottish Parliament;
(c) an Act of the Northern Ireland Assembly;
(d) an Order in Council under Sch 1 to the Northern Ireland Act 1974;
(e) a Measure of the Northern Ireland Assembly established under section 1 of the Northern Ireland Assembly Act 1973;
(f) an Order in Council under section 1(3) of the Northern Ireland (Temporary) Provisions Act 1972;
(g) an Act of the Parliament of Northern Ireland.” The facts found by the FTT: LIFE
I take the following account almost verbatim from FTT1 at [7]–[14].
LIFE is a limited liability company which is a profit-making organisation. It provides day care services for adults with a broad spectrum of disabilities, principally learning problems. Its clients include those with severe autism, Down's syndrome, severe behavioural difficulties, learning disabilities, and Crohn's disease.
The services are supplied at various locations provided by LIFE. The locations may change from day to day during each week. LIFE's clients are picked up from their houses early in the day and taken to the relevant location, and transported back home at the end of each day. Sometimes some help is provided at the time of pick up or return, but substantially all of LIFE's services are provided away from the residences of its clients.
While at LIFE's premises the clients engage, with more or less assistance from LIFE's staff depending on the nature of their disability, in a range of activities which vary from day to day and from client to client. These activities include cooking, forms of exercise (walking and swimming and sometimes horse riding often dressed up as games to make them more appealing), help with everyday living (such as learning to turn on a light switch), money skills, social skills, feeding, washing and personal hygiene, oral health, and toileting.
The services are provided to a client under a formal care plan agreed with the social services department of Gloucestershire County Council (“the Council”) following an assessment of the client's needs and the setting of a personal budget for the provision of care and support pursuant to section 26 of the Care Act 2014 (“CA 2014”).
If the individual is (or those who care for him or her are) able to manage money and certain other conditions are satisfied, the budgeted amount will be paid to him or her (or those who care for him or her) under sections 31 and 33 of CA 2014 (as explained below, such sums are referred to as “direct payments”). In that case, where LIFE provides services, it will invoice the individual and be paid by the individual or the person who holds the money. In this case the contract for LIFE's services will be between the individual and LIFE, although the Council will exercise “some oversight” of the arrangements and the services LIFE provides.
Where neither the individual nor anyone who cares for him or her is able to deal with money, the Council will manage the budget. In that case, the contract for LIFE's services will be between the Council and LIFE, although there will be a care plan setting out the individual's needs and the goals for their care which would be signed by LIFE, the Council and any carer. LIFE will invoice the Council which will make payment to LIFE.
LIFE also provides care services to individuals in residential homes, but as I understand it these services are not the subject of the present appeal.
The FTT found at [11] that the Council monitored and inspected LIFE's service provision under “guidelines which are similar to, and possibly more exacting, than those applied by the Care Quality Commission (‘CQC’)” and that LIFE's outcomes were “reviewed regularly” by the Adult Social Care Directorate of the Council. No doubt due to the nature of the case then being advanced by LIFE, the FTT did not specify what guidelines it was referring to or the legal basis upon which the Council monitored and inspected LIFE's services.
The FTT also found at [93] that LIFE was “registered with the local authority” and that “in relation to supplies to individuals, the [C]ouncil was involved in...
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