Metropolitan International Schools
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 October 2015 |
| Neutral Citation | [2015] UKFTT 517 (TC) |
| Date | 02 October 2015 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Howard M. Nowlan, Julian Stafford
Roger Thomas QC appeared on behalf of the Appellant
Eleni Mitrophanous, counsel, appeared on behalf of the Respondents
Value added tax – Single or multiple supplies – Zero-rated manuals or standard-rated education – Distance learning courses – Appeal allowed.
The First-tier Tribunal (FTT) allowed the appeal against HMRC's decision that standard-rating, rather than zero-rating, applied to its supplies.
The Appellant provided distance learning courses. There was a dispute as to whether its supplies were single or multiple supplies and, assuming that there was one single supply, whether that supply was a supply of zero-rated manuals or standard-rated education. The Appellant was not the type of provider whose provision of education could be exempt. Thus, on the single supply analysis, the dispute was between zero-rated and standard-rated treatment. The courses included various “trade” courses, e.g. electrical and plumbing courses, and also animation and “games” courses, enabling people to become proficient in designing and animating computer and iPhone type games.
Both parties advanced, as their principal contention, that the Appellant supplied one single service. The Appellant claimed that its service was of zero-rated manuals, i.e. printed material, and that any other elements were ancillary to the manuals, such that they should take their VAT nature from the zero-rated supply of the manuals. In the alternative, if the supply of the manuals was not the principal supply and the other aspects ancillary elements, a secondary test for identifying the nature of the single supply was to consider which element was predominant, and then it was contended that the manuals constituted the predominant element of the supply.
HMRC argued that the single service was the supply of non-exempt education. The supply comprised various elements. From the perspective of the customers, HMRC argued that the customers' aim was to secure education and to obtain a qualification.
The Appellant contended in a secondary manner that, if its primary contention was not accepted, there were two supplies, with the supply of manuals comprising the major supply.
The FTT described in detail both (1) the electrical and other trade courses and (2) the animation and computer games courses and the marketing of the courses (para. 34 of the decision). Then the FTT found that the manuals aimed to be comprehensive, so that the information contained in them was all that was required to enable customers to master the subjects. In contrast to the position in College of Estate Management v C & E Commrs VAT[2005] BVC 704, there was no provision of classroom tuition. The tutor support, provided via phone calls or emails, virtually always referred customers making enquiries back to the relevant passages in the manuals, reflecting the fact that the manuals included all the required information and explanations (para. 64 of the decision).
The FTT held that the first step was to ascertain the end results expected to be obtained by average customers from the supply or supplies. The FTT held that the end result sought by customers from the supply was to learn, and to accomplish that aim essentially by reading the printed material (para. 95 and 96 of the decision).
The FTT held that the “add-on” provisions were ancillary to the principal supply (para. 112 of the decision).
The FTT attached little importance to the marketing techniques that sought to make the courses sound less wholly dependent on the reading materials, and many of the customers possibly viewed the marketing material with similar scepticism (para. 119 of the decision).
The FTT held that there was one single and zero-rated supply, because the printed material was the principal supply, sufficient in itself, and the other factors were ancillary (para. 120 and 175 of the decision).
One price was charged for the courses. Whether people wanted some or all of the add-ons, they were available. There was no opportunity to enlist on the course by taking the manuals and disregarding everything else (para. 120 of the decision).
At para. 175 of the decision, the FTT summarised its other findings:
1) unless the decision on the principal issue was overturned on appeal, the Appellant was entitled to repayment supplement in respect of the final adjustment for the 2006 year;
2) if the decision on the principal issue was overturned on appeal, the Appellant will not strictly be entitled to repayment supplement in respect of the final adjustment for the 2006 year;
3) it lacks jurisdiction to adjudicate on whether the pre-August 2009 contracts should have been grandfathered from the “single supply of education” analysis, assuming in that regard that its decision on the principal issue has been overturned on appeal; and
4) as a substantive matter, and if it had jurisdiction, and ignoring any issue of amending pleadings, it would have decided that the pre-August 2009 contracts should have been protected from any change in basis.
This case illustrates the difficulties of deciding whether a transaction with various elements amounts to a single supply or multiple supplies. Different minds may reach different conclusions. The FTT commented that it was difficult to rationalise all of the relevant authorities and to arrive, with confidence, at the correct tests to apply in identifying the nature of the single supply.
[1] These Appeals raised a considerable number of points.
[2] The first, and the main, point was that the Appellant provided distance learning courses such that there was a dispute as to whether its supplies were single or multiple supplies and, more particularly, assuming that the provision was of one single supply, whether that supply was a supply of zero-rated books or standard-rated education. The Appellant was not the type of provider whose provision of education was exempt, so that on the single supply analysis, the dispute was between zero-rated and standard-rated treatment. The courses in question included various “trade” courses, such as electrical and plumbing courses, and also animation and “games” courses, enabling people to become proficient in designing and animating computer and iPhone type games.
[3] Ignoring the history of the dispute at this stage, both parties advanced, as their principal contention, that the Appellant was rendering one single service. The Appellant claimed that the service was the zero-rated provision of manuals, i.e. books for VAT purposes, and that any other elements of service were ancillary to the manuals, such that they should take their VAT nature from the zero-rated supply of the manuals. In the alternative, if it was not appropriate in accordance with the relevant case law to proceed on the basis that the supply of the manuals was the principal supply and the other aspects ancillary elements, a secondary test for identifying the nature of the single supply was to consider which element was predominant, and then it was contended that the manuals plainly constituted the predominant element of the supply.
[4] The Respondents contended that the single service was the supply of non-exempt education. The supply comprised various elements. From the perspective of the customers, the Respondents contended that the customers' aim was to secure education and to obtain a qualification. The “overarching” description of the supply was properly to be described therefore as a supply of education, and this was so even though it was almost certainly inappropriate to describe the supply of the manuals as ancillary supplies. Indeed, the categorisation of the single supply as education would remain correct even if the Respondents were to concede (not that they did) that the predominant element of the components in the single supply was indeed the provision of the manuals.
[5] The Appellant contended in a very secondary manner that if its primary contention was not accepted, then there should be analysed to be two services, with the supply of books comprising by far the major supply.
[6] The above issues are the most important matters in these Appeals. They involve careful consideration of the legal tests properly to be applied in resolving the dispute between the parties and, of equal significance, an analysis of the facts. We might indicate now, though it will certainly become evident, that we have found it difficult to rationalise all of the relevant authorities and to arrive, with confidence, at the correct tests to apply in identifying the nature of the single supply. While we regret this observation, we consider that this case may well be one where there will be appeals to a higher court, and quite possibly a referral to the ECJ for guidance.
[7] Most of the remaining issues result from the history of the dispute itself.
[8] The Appellant has been trading for a considerable time and in the past there had been much consideration and discussion between the Appellant and HMRC as to how the Appellant's supplies should be treated. This had extended to suggestions that the right analysis was that there was just one composite supply, with the Appellant of course contending that the single composite supply was of books and the Respondents contending that it was of standard-rated education. For a long period however, up until August 2009, it had been agreed that there were two separate supplies, and the discussions between the parties thus focused on the appropriate method to be applied in dividing the supplies and the split of consideration received for them.
[9] The parties periodically reviewed the issue of whether the basic methodology for dividing the zero-rated supplies from the standard-rated supplies remained appropriate, and then annually the percentage figures were adjusted in accordance with the agreed method, according...
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