Loughborough Students Union
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 June 2017 |
| Neutral Citation | [2017] UKFTT 518 (TC) |
| Date | 23 June 2017 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Peter Kempster
Mr Noel Tyler (VATangles VAT Consultancy) appeared for the Appellant
Mr Christopher Shea (HMRC Appeals Unit) appeared for the Respondents
Value added tax – Exemption – Education – Principal VAT Directive (2006/112/EC), art. 132–134 – VATA 1994, Sch. 9, Grp. 6 – Sales from campus shops.
[1] The Appellant (“LSU”) appeals against a decision by the Respondents (“HMRC”) dated 14 September 2015 to deny a claim for repayment of output tax for the VAT periods 10/11 to 04/15 in the net amount of £117,334 (“the Disputed Decision”). The Disputed Decision was upheld by formal internal review dated 3 December 2015.
[2] The claim relates to sales of stationery, art materials and other items by LSU's shops in the relevant periods. LSU contends that these sales were exempt supplies for VAT purposes, and had previously been erroneously treated as standard rated.
[3] Loughborough University (“the University”) was established in 1966 by Royal Charter, which states “There shall be a Students' Union of the University.” The Statutes of the University state: “There shall be a Students' Union of the University and Ordinances shall prescribe the constitution, functions, privileges and other matters relating to such Union.” LSU is an entity separate from the University, and is separately VAT-registered. LSU is also the Union for students from two other educational establishments: Loughborough College (a further education college) and RNIB Vocational College.
[4] Clause 2(a) of LSU's Constitution states LSU's objects:
The Union's objects are the advancement of education of Students at Loughborough University, Loughborough College and the RNIS Vocational College (Loughborough) for the public benefit by:
i) enriching and enhancing the educational experience of its members as people as well as intellects, and in particular to providing opportunities for members to develop their personal maturity, leadership, and communications and other skills.
ii) acting as the principal body representing its members' views and interests within their institutions, to the local community and nationally.
iii) enhancing the student community and student well being providing social, cultural. sporting and recreational activities and forums for discussions and debate.
iv) to ensure that students experiencing problems with student life can get the support and help they need and seek to minimize the likelihood of these problems occurring.
[5] Clause 2(b) states LSU's powers, including:
To further its objects, but not to further any other purpose, the Union may:
…
(xiv) raise funds and invite and receive contributions from any person provided that the Union shall not carry out any taxable trading activities in raising funds
…
(xxv) trade in the course of carrying out any of its objects
…
[6] LSU operates a range of commercial activities on the campuses of the University and Loughborough College, mainly bars and catering but also four retail outlets: the shop in LSU's headquarters on the University campus, another (called Purple Onion) on the University's campus village, and two (recently consolidated into one) on the College campus. The shops are open at least five days per week during term time. Although most of the customers are students, there is no restriction on others using the shops; there is no distinction at point of sale between student and nonstudent sales. One of the College campus shops sells art materials.
[7] Articles 132 to 134 of the Principal VAT Directive (2006/112/EC) provide (so far as relevant):
1. Member States shall exempt the following transactions:
…
i) the provision of children's or young people's education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects;
…
Member States may make the granting to bodies other than those governed by public law of each exemption provided for in points … (i), … of article 132(1) subject in each individual case to one or more of the following conditions:
a) the bodies in question must not systematically aim to make a profit, and any surpluses nevertheless arising must not be distributed, but must be assigned to the continuance or improvement of the services supplied;
b) those bodies must be managed and administered on an essentially voluntary basis by persons who have no direct or indirect interest, either themselves or through intermediaries, in the results of the activities concerned;
c) those bodies must charge prices which are approved by the public authorities or which do not exceed such approved prices or, in respect of those services not subject to approval, prices lower than those charged for similar services by commercial enterprises subject to VAT;
d) the exemptions must not be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT.
…
The supply of goods or services shall not be granted exemption, as provided for in points … (i), … of article 132(1), in the following cases:
a) where the supply is not essential to the transactions exempted;
b) where the basic purpose of the supply is to obtain additional income for the body in question through transactions which are in direct competition with those of commercial enterprises subject to VAT.
[8] Section 31(1) VAT Act 1994 provides that “A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 …”. Schedule 9 provides (so far as relevant):
Item No
1 The provision by an eligible body of–
(a) education; … ; or
(c) vocational training.
…
4 The supply of any goods or services (other than examination services) which are closely related to a supply of a description falling within item 1 (the principal supply) by or to the eligible body making the principal supply provided–
a) the goods or services are for the direct use of the pupil, student or trainee (as the case may be) receiving the principal supply; and
b) where the supply is to the eligible body making the principal supply, it is made by another eligible body.
…
NOTES
(1) For the purposes of this Group an “eligible body” is–
…
(b) a United Kingdom university, and any college, institution, school or hall of such a university;
(c) an institution (i) falling within section 91(3)(a), (b) or (c) or section 91(5)(b) or (c) of the Further and Higher Education Act 1992; …
(e) a body which–
i) is precluded from distributing and does not distribute any profit it makes; and
ii) applies any profits made from supplies of a description within this Group to the continuance or improvement of such supplies;
…
[9] Mr Tyler submitted as follows for the Appellant.
[10] LSU had to prove:
1) That LSU is a body entitled to the education exemption in art 132; and
2) That sales by LSU to students of goods such as stationery, art materials and other items are supplies closely related to the provision of education and/or vocational training.
[11] The relevant provision in art 132 is paragraph (1)(i). Article 133 allows member states to apply permitted restrictions in determining eligible bodies. Those EU provisions had been imperfectly transposed into UK domestic legislation – for example, the requirement in item 4 of Group 6 that the supply must be “by or to the [person] making the principal supply” was not a requirement of the Directive: Stichting Regionaal Opleidingen Centrum Noord-Kennemerland/West-Friesland (Horizon College) v Staatssecretaris van Financiën ECASVAT(Case C-434/05) [2010] BVC 281.
[12] The University is an eligible body by reason of note 1(b) to Group 6. The College and the RNIB Vocational College are eligible bodies by reason of note 1(c)(i) to Group 6. Those three bodies make the principal supplies of education and/or vocational training.
[13] Article 133 permitted the UK to restrict eligible bodies, including the condition in art 133(a). Each of the restrictions in art 133 must be applied in full or not at all. That had not been correctly reflected in note 1(e) to Group 6 (cf note 2A to Group 10, concerning sporting activities). The UK law was more prescriptive: (i) it stated that as well as the body not distributing any profits, it must also be precluded from distributing any profits; and (ii) its description of what any surplus must be used for was more prescriptive.
[14] In the First-tier Tribunal case of Loughborough Students' Union TAX[2012] TC 02017 part of the dispute had concerned the applicability of the cultural services exemption (Group 13 of Sch 9) to various events held for students by LSU. The relevant provision there was note 2 to Group 13:
For the purposes of item 2 “eligible body” means any body (other than a public body) which–
a) is precluded from distributing, and does not distribute, any profit it makes;
b) applies any profits made from supplies of a description falling within item 2 to the continuance or improvement of the facilities made available by means of the supplies; and
c) is managed and administered on a voluntary basis by persons who have no direct or indirect financial interest in its activities.
[15] The Tribunal recorded (at [7]): “The respondents conceded that the union qualifies for the exemption so far as notes 2(a) and 2(b) are concerned.” That could be taken as a finding of fact by the Tribunal that LSU satisfied notes 2(a) and 2(b) to Group 13.
[16] In the current proceedings HMRC accepted that LSU satisfied note 1(e)(i) to Group 6 (“a body which is precluded from distributing and does not distribute any profit it...
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