Loughborough Students' Union v Revenue and Customs Commissioners

JurisdictionUK Non-devolved
CourtUpper Tribunal (Tax and Chancery Chamber)
Judgment Date21 October 2013
Neutral Citation[2013] UKUT 517 (TCC)
Date21 October 2013

[2013] UKUT 0517 (TCC)

Judge Greg Sinfield, Judge Edward Sadler

Loughborough Students' Union
and
Revenue and Customs Commissioners

John Tallon QC, instructed by VATangles LLP, appeared for the Appellant

Richard Chapman, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents

Value added tax - Exemptions - (1) Exemption for cultural services - Bodies managed and administered on an essentially voluntary basis - Student union governed by a Council - Salaried sabbatical officers of executive committee as voting, then non-voting, members of the Council - Whether FTT entitled to find students' union not managed and administered on voluntary basis - Yes - Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13, item 1 and Note (2) - Directive 77/388, art. 13A(1)(n) (recast as Directive 2006/112, eu-directive 2006/112 subsec-or-para 1 article 132art. 132(1)(n)) - (2) Exemption for fund-raising - Whether (a) primary purpose of events is raising money and (b) events promoted as primarily for raising money necessary to ensure events not likely to distort competition - Issue remitted to FTT to determine - VATA 1994, Value Added Tax Act 1994 schedule 9 group 12Sch. 9, Grp. 12, item 1 - Directive 77/388, art. 13A(1)(o) (recast as Directive 2006/112, eu-directive 2006/112 subsec-or-para 1 article 132art. 132(1)(o)).

The Upper Tribunal ("UT") dismissed the appeal by Loughborough Students' Union ("LSU") against the decision of the First-tier Tribunal ("FTT") ([2012] TC 02017) that the LSU is not managed and administered on an essentially voluntary basis by persons having no direct or indirect financial interest in the activities (VATA 1994, Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13, item 2(b) for supplies of the right of admission to entertainment events).

However, the UT remitted to the FTT to decide whether the LSU's freshers' ball and graduation ball were promoted primarily for the purpose of raising funds, so as to be exempt (VATA 1994, Value Added Tax Act 1994 schedule 9 group 12Sch. 9, Grp. 12).

Summary

The LSU claimed a VAT repayment on the basis that, in periods January 2002 to July 2008, it had accounted for output tax on certain supplies which should have been treated as exempt under VATA 1994, Value Added Tax Act 1994 schedule 9 group 13Sch. 9, Grp. 13. The supplies related to events held for the students, such as musical performances.

The second repayment claim concerned Sch. 9, Grp. 12, item 1(b) and 1(c) relating to the freshers' ball and graduation ball.

The LSU was formed on the creation of the Loughborough University of Technology ("the University"). The LSU's constitution had two forms: the first covered periods to 22 May 2005 and the second covered the period from 23 May 2005 to 31 July 2008, after which date the constitution was again amended and no VAT overpayment occurred thereafter.

The LSU was a union for the University and two colleges. All registered students of those institutions were members of the LSU due to registration, unless they had opted out of membership. The governing body ("the Council") of the LSU consisted of the executive committee, student officers and representatives of the halls of residence and the colleges. The student officers included nine sabbatical officers, who were members of the executive committee and whose duty was to oversee and manage the LSU's finances and to make decisions in the absence of the committees.

In the earlier version of the constitution, all of the Council members had a vote at the Council and the decisions were made by a simple majority with a quorum of 50 per cent of the members. From 23 May 2005, the voting rights of those sitting on the executive committee were removed. In practice, that meant that the sabbatical officers no longer had a vote. The amendments to the constitution also limited, but did not abolish, the executive committee's plenary powers during the vacation. The amendments stopped it from changing the constitution or any existing union policies.

The LSU contended that (1) the Council had responsibility for budgets until the change to the constitution made from 1 August 2008 and (2) it was the decision maker of last resort until that date. The LSU argued that decisions taken by the Council often resulted from an informal process, by which a consensus was reached before the actual meeting. However, the LSU denied that the Council acted merely as a rubber stamp. The LSU claimed that the sabbatical officers were paid approximately two-thirds of what might have been considered a starting salary for a graduate in his first employment.

The LSU claimed that many of the decisions made by the executive committee were made by the individual members, who were responsible for that matter. Although there were discussions at meetings of the executive committee, these consisted more of sharing information than of debating and deciding.

As regards the balls, the LSU argued that they were a celebration and that the LSU often booked well-known performers. The balls were part of the student experience. The publicity for the balls mainly focused on the performers and stated that the proceeds went to the LSU. At the UT (para. 5 of the decision), the LSU argued that:

  1. (2) in relation to the cultural-services exemption in Grp. 13, the FTT:

    1. (a) had failed to take account, or take sufficient account, of certain facts established in evidence and made findings against the weight of the evidence; and

    2. (b) had concentrated on the influence of the sabbatical officers on the Council, rather than their role in the decisions made by the Council; and

(3) in relation to the fund-raising exemption in Grp. 12, the FTT:

  1. (a) had decided the matter by considering only item 1 of Grp. 12; and

  2. (b) had failed to consider LSU's argument that the conditions in item 1 of Grp. 12, relating to primary purpose, contravene the directly effective provisions of EU law

It was agreed that Grp. 13 correctly implements the relevant articles of EU law, except that the word "essentially" should be read into the wording of Note (2)(c) of Grp. 13 to give effect to the condition in art. 13A(2)(a) of the Directive 77/388 (now recast as art. 133 of Directive 2006/112).

It was agreed that:

  1. (2) the Council was the governing body of the LSU and the forum for decision-making of last resort concerning the policy of the LSU;

  2. (3) the nine sabbatical officers had no "financial interest" in the activities of the LSU by virtue of receiving salaries of less than an open market rate; and

  3. (4) whether the supplies of cultural services were exempt depended on whether the LSU was managed and administered on an essentially voluntary basis which, in turn, depended on the status and role of the nine sabbatical officers (para. 22 of the decision).

Cultural-services exemption (Grp. 13)

The LSU claimed that the FTT had erred in law in that it failed to take account, or take sufficient account, of the fact that:

  1. (2) the sabbatical officers were students or ex-students of the University elected by the students;

  2. (3) the sabbatical officers had no previous work experience or qualification (apart from their degree course) to prepare them for the work involved;

  3. (4) the only "professional" person involved in the LSU was Mr Parsons, the salaried general manager of the LSU, who was not a member of the Council; and

  4. (5) the sabbatical officers were employed at a rate equivalent to two-thirds of what they might have expected in the open market.

The LSU claimed that, due to the above, the sabbatical officers were "amateurs" working for the LSU essentially as volunteers. The UT rejected that claim as one condition for exemption is that the body is managed and administered on an essentially voluntary basis, not that it is run on an amateur basis. If the body is managed and administered by paid amateurs, then its cultural services are not exempt (para. 30 of the decision).

The sabbatical officers had a contract of employment and a salary, which was neither a nominal amount nor a mere contribution towards expenses. Such officers are not volunteers. The LSU paid them because, as current or former students, they had experience of student matters and student concerns, which helps the LSU represent the interests of its members.

The UT noted that the only issues before the FTT in relation to the exemption for cultural services were questions of fact. Thus, the UT cautiously examined the LSU's criticisms of various findings of fact by the FTT (para. 39 of the decision).

The UT held at para. 48 that the FTT had been entitled to find, on the evidence before it, that the salaried sabbatical officers played a significant part in the higher decision-making processes of the LSU both before and after the change in the constitution. On the basis of that finding of fact, the FTT had correctly concluded that the LSU was not managed and administered on an essentially voluntary basis. Thus, the LSU's supplies of the right of admission to entertainment events were not exempt under Grp. 13.

Fund-raising exemption (Grp. 12)

The LSU claimed that the FTT had failed to consider its argument that the conditions in Grp. 12, item 1 that (1) the raising of money must be the primary purpose of the event, and (2) the event must be promoted as being primarily for the raising of money, contravene art. 13(A)(1)(o) of Directive 77/388 and later eu-directive 2006/112 subsec-or-para 1 article 132art. 132(1)(o) of Directive 2006/112. The FTT's decision was based only on item 1 and this amounted to an error of law.

HMRC accepted that the FTT had not considered whether Grp. 12 contravened EU law.

The UT held that whether competition is distorted is determined by reference to the nature of the activity and without regard to the particular market in which it is supplied. It is...

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2 cases
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    • United Kingdom
    • Upper Tribunal (Tax and Chancery Chamber)
    • 21 October 2013
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    • 21 October 2013
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