Life Services Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 June 2016 |
| Neutral Citation | [2016] UKFTT 444 (TC) |
| Date | 23 June 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Charles Hellier, William Haarer
Tim Brown, counsel, and Peter Baumgardt of Essential VAT Services appeared for the appellant
Charles Bradley, counsel, and Les Bingham appeared for the respondents
Value added tax – Exemption for welfare services – Appellant providing welfare services, but not regulated by statute – (1) Whether exempt under Value Added Tax Act 1994 (“VATA 1994”), Sch. 9, Grp. 7, item 9 – Held no – (2) Whether Directive 2006/112 (the Principal VAT Directive), art. 132 to 134 to be construed as including the supply – Held no – (3) Whether Sch. 9, Grp. 7, item 9 breached the principle of fiscal neutrality in affording exemption to charities supplying the same services – Held yes – Company's appeal allowed.
The First-tier Tribunal (FTT) allowed the appeal against HMRC's decision that exemption did not apply to certain welfare services.
The appellant supplied day-care services for adults with various disabilities. Its clients included those with severe autism, Down's syndrome, severe behavioural difficulties, learning disabilities, and Crohn's disease. The services were supplied at various locations that were provided by the appellant. The locations may change from day to day during each week. The clients were picked up from their houses and taken to the location, and later transported home. Sometimes help was provided at the time of pick up or return, but substantially all of the appellant's services were provided away from the residences of its clients. While at the appellant's premises, the clients engaged in activities, which varied from day to day and from client to client. These activities included cooking, exercise, help with everyday living, money skills, social skills, feeding, washing and personal hygiene, oral health and toileting. Gloucestershire County Council monitored and inspected the appellant's activities. The appellant was paid by the Council (from a budget held by the client) under a contract between the Council, the client and the appellant.
The dispute concerned whether the appellant's supplies of welfare services were exempt under VATA 1994, Sch. 9, Grp. 7, item 9 or under Directive 2006/112 (the Principal VAT Directive), art. 132(1)(g).
The FTT saw no Act of Parliament, under which the Council could register or approve the appellant. Thus, the approval by, or registration with, the Council did not make the appellant state-registered for the purposes of item 9. Hence, the welfare supplies were not within item 9 (para. 37 and 38 of the decision).
Member states may make the granting of exemption under art. 132(1)(g) to bodies, other than those governed by public law, subject to one of four conditions (one of which is that the supplier is non-profit making). Article 134 provides that a supply is not exempt if it is not essential to the transaction exempted, or where the basic purpose of the supply is to obtain additional income through transactions in competition with commercial enterprises.
The FTT rejected the argument that the Principal VAT Directive requires any welfare or social service to be exempted. The appellant must be recognised by the State as being devoted to social welfare before exemption applies to its supplies (para. 50 of the decision).
The concept of fiscal neutrality is that supplies of goods and services, which are similar, and which accordingly compete with each other, may not be treated differently for VAT purposes. The appellant argued that, by recognising in item 9 charities and state regulated welfare institutions, but not recognising the appellant, the UK had failed to have proper regard to the EU principle of fiscal neutrality (equal treatment).
Item 9 provides that a private body may be recognised by being state regulated or being a charity. The FTT held that the state-regulated condition was permissible. However, persons such as the appellant did not fall within the statutory regulatory regime, because they did not supply services at the recipient's home. Thus, the only way a private body, making such supplies, can qualify for exemption is if it is a charity. The FTT held that this test did not have “regard to the nature of the activity and the aims for which it is carried on, so that it is classified by reference to predetermined, objective and abstract criteria which take account of the nature of the business, its organisational structure and the manner in which it is conducted”. The FTT held that, although item 9 recognised charities, there needs to be recognition of the term “devoted to social welfare” or social wellbeing in art. 132(g). The criterion in VATA 1994, Sch. 9, Grp. 7 effectively specified bodies, which are entitled to the exemption, without regard to devotion to social welfare. Thus, by recognising charities, but not recognising the appellant, item 9 breached the principle of fiscal neutrality. Thus, the appellant's supplies of welfare services were exempt and its appeal succeeded (para. 95 to 98 of the decision).
This is a victory for businesses that provide care and welfare services, which would be exempt if provided by charities or state-regulated bodies. In this case, the supplier was exempt from registration under the care legislation, and thus not regulated. Nonetheless, the FTT decided that it was against fiscal neutrality to deny exemption, since EU law did not stop such a supplier falling into the relevant category.
The principle of fiscal neutrality requires equal VAT treatment of similar supplies which are in competition, i.e. parity of treatment to avoid distorting competition and to provide a fair and level playing-field between competing suppliers. Thus, a member state must treat two similar bodies in the same way for VAT purposes. A breach of the principle occurs when two relevantly similar bodies are treated differently for VAT purposes. The principle of fiscal neutrality is not a rule of primary law, but a principle of interpretation, which is applied concurrently with the principle on which it is a limitation. Thus, the principle of fiscal neutrality cannot override the clear words and intentions of EU law. So, if the VAT Directive clearly provides for a different VAT treatment of similar supplies that cannot be overridden by the principle of fiscal neutrality. However, if a member state introduces conditions that are not explicitly in a VAT Directive, they could be attacked using the principle of fiscal neutrality.
[1] This appeal relates to the appellant's supplies of welfare services. The issue is whether they fall to be treated as exempt from VAT under the provisions of item 9 Group 7 Schedule 9 VAT Act 1994, or under the provisions of article 132(1)(g) of the Principal VAT Directive.
[2] The appeal was heard in two parts. At the first hearing the tribunal was composed of Mr Haarer and Judge Hellier; at the second hearing, the tribunal was, with the consent of the parties, composed of Judge Hellier alone.
[3] At the first hearing Mr Baumgardt represented the Appellant and Mr Bingham HMRC. At that hearing the tribunal heard oral evidence from Mr Howley, a director of the appellant, and was addressed on the law by the parties. After that hearing the tribunal concluded that there was one issue which was relevant to the appeal which had not been fully addressed. It therefore released a Direction in which it made findings of fact, set out its conclusions on the matters which had been argued before it, and made directions relating the outstanding issue.
[4] This decision incorporates the findings and conclusions in that Direction. The conclusions reached by Mr Haarer and Judge Hellier in the Direction released after the first hearing are described in this decision as findings and conclusions of both of us.
[5] At the second hearing some further evidence was admitted. At that hearing Mr Brown represented the Appellant and Mr Bradley HMRC
[6] There was no dispute about the following facts which are drawn principally from the oral evidence of Mr Howley at the first hearing.
[7] The appellant is a limited company which is not a non-profit making organisation.
[8] The appellant 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.
[9] The services are provided at various locations provided by the appellant. The locations may change from day to day during each week. The clients of the appellant 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 the appellant's services are provided away from the residences of its clients.
[10] While at the appellant's premises the clients engage, with more or less assistance from the appellant'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.
[11] Under guidelines which are similar to, and possibly more exacting than, those applied by the Care Quality Commission (“CQC”), Gloucestershire County Council monitors and inspects the appellant's service provision The appellant's outcomes are reviewed regularly by the Adult Social Care Directorate of the Council.
[12] On the basis of the evidence of Mr Howley at the first hearing the Direction set out as findings that:
The services are provided to clients under a formal care plan...
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