OISE Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 07 November 2016 |
| Neutral Citation | [2016] UKFTT 749 (TC) |
| Date | 07 November 2016 |
| Court | First-tier Tribunal (Tax Chamber) |
Judge Nicholas Paines QC
Paul Key QC and Rebecca Stripe, Counsel, instructed by MJ Payne of Grosvenor VAT Consultants, appeared for the appellant
Christiaan Zwart, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Value added tax – Exemption – Education – Non-profit making body – Company limited by guarantee – Teaching of English as a foreign language – Courses for Teachers of English as a foreign language who are not native English speakers – Scope of exemption – Value Added Tax Act 1994 (“VATA 1994”), Sch. 9, Grp. 6, item 1.
The First-tier Tribunal (FTT) considered whether the appellant was an “eligible body” for the purposes of VAT exemption. It found that OISE Ltd was not a non-profit making body and, therefore, not entitled to treat all of its educational courses as exempt. However, to the extent that courses were predominantly the teaching of English as a foreign language the appellant was an eligible body and exemption applied. The appeal was allowed in part.
The appellant, OISE Ltd (OISE), was the representative member of a VAT group comprising seven companies. Whilst primarily specialising in the teaching of English as a foreign language, OISE also taught French, German and Spanish and the group included two private secondary schools. The group companies included The Education and Training Company Ltd (TETCL) which provided residential courses for foreign teachers of English. One of the issues in the appeal was whether some of the courses provided to teachers amounted to the teaching of English as a foreign language, eligible for exemption in accordance with VATA 1994, Sch. 9, Grp. 6, note(1)(f). Some courses were accepted by HMRC as exempt, but the VAT treatment of others remained in dispute.
TETCL was a company limited by guarantee whose articles of association precluded the distribution of profits. Its sole member was OISE. Its activities involved the running of two schools, Newbury Park in Berkshire, a school for international students, and Basil Paterson Tutorial College in Edinburgh, as well as the provision of teacher training to foreign language teachers. The appellant testified that TETCL existed to give the OISE group a charitable arm. In addition to the issue of whether the courses amounted to the teaching of English as a foreign language, the FTT was asked to decide whether TETCL was a non-profit making body for the purposes of the VAT exemption. If it was, then all of its courses would qualify as exempt supplies in accordance with VATA 1994, Sch. 9, Grp. 6, item 1(a) and note(1)(e). If not, then the only available exemption would be under note (1)(f) as the provision of teaching of English as a foreign language, but this exemption would not extend to the provision of anything other than the teaching of English as a foreign language.
Addressing firstly the non-profit making status of TETCL, the FTT focused on the principles established in the cases of Kennemer Golf and Country Club v Staatssecretaris van Financiën ECASVAT(Case C-174/00) [2002] BVC 395 and Messenger Leisure Developments Ltd v R & C Commrs VAT[2005] BVC 363. In the former decision, the ECJ accepted the Advocate General's view that it was the aim of the organisation in question, rather than whether surpluses were generated, that determined whether it was non-profit making. In that connection, when assessing those aims it was necessary, but not by itself sufficient, to look at the organisation's express objects as set out in its statutes. It was also necessary to examine whether the aim of making and distributing profit could be deduced from the way the organisation operated in practice. In the latter case of Messenger, the Court of Appeal acknowledged the ECJ's conclusion in Kennemer that an organisation may be categorised as non-profit-making even if it systematically sought to achieve surpluses which it then used for the purposes of the provision of its services. However, it noted that Kennemer was not authority for the very different proposition that an organisation which had no power to make, and which did not make, distributions to its members was necessarily a “non-profit making organisation” for VAT purposes. In the present case, it was common ground that, despite the company being limited by guarantee, there was no legal impediment to TETCL's memorandum of association being amended to remove the inhibition on distribution of profits. In the opinion of the FTT, not enough had been done to insulate TETCL from producing financial advantages to give it the objective character of a non-profit making body within the meaning of the exemption, and the criterion in note (1)(e)(ii) to Grp. 6, read compatibly with EC Directive 2006/112, had not been satisfied. The FTT concluded that TETCL was in a materially identical situation to Messenger and was not a non-profit making body.
Having established that OISE was not a non-profit making body, and therefore not an eligible body within the meaning of note (1)(e), the FTT went on to consider whether it was an eligible body within note (1)(f) as the provider of teaching of English as a foreign language. OISE's position was that all of the disputed courses for teachers qualified for exemption, but HMRC argued that only the courses that were accepted as such in their disputed decision should be exempt. This amounted to eight out of 31 courses, leaving 23 in dispute. Both sides were in agreement that the approach of the FTT should be to characterise the courses by their predominant nature in accordance with the Card Protection Plan (CPP) line of authority. OISE's primary case was that all the disputed courses should be regarded as the teaching of English as a foreign language irrespective of the level of methodology content. The term “methodology” as used in this appeal referred to instruction in how to teach English as a foreign language rather than being taught the English language itself.
In evidence, OISE submitted that the disputed supplies consisted, exclusively or predominantly, of the teaching of English as a foreign language. It argued that the participants typically taught English in their home countries and were not native speakers of the language. They were anxious about their language skills and had no doubt that they were attending an English foreign language course. HMRC submitted that the teaching of English as a foreign language was necessarily a positive activity of imparting the English language to the student and assisting him or her to take the language in. The level of pre-existing knowledge of English required for participation on a course was also an indicator of whether it was primarily a methodology or a language improvement course. HMRC invited the FTT to adopt a “primary purpose” test, which must lead to the conclusion that the English as a foreign language element of the disputed courses was for the better enjoyment of the methodology instruction. The FTT held that the VAT consequences of the relationship between instruction in the teaching of English as a foreign language and instruction in teaching methodology was a matter of law, to be approached in accordance with the guidance in case law. It examined the courses individually and concluded that, of the disputed courses, eight amounted predominantly to the teaching of English as a foreign language. In providing these courses, the appellant was an eligible body within the meaning of note (1)(f) to Grp. 6 and the supplies were, therefore, exempt from VAT. The remaining courses were standard-rated. The appeal was allowed to this extent.
This decision concerns two difficult issues: the definition of “non-profit making”; and the meaning of “the teaching of English as a foreign language”. Resolving these issues is, to a large extent, a subjective exercise as statutory law is imprecise and case law is often conflicting.
[1] The appellant (the letters in whose name stand for the Oxford Intensive School of English, founded in 1973 as a tutorial establishment for the study of English as a foreign language) is the representative member of a VAT group comprising seven companies in the United Kingdom. I shall refer to the appellant as OISE; it is now a wholly-owned subsidiary of OISE Holdings Ltd. The founder of the group and majority shareholder in OISE Holdings Ltd (and formerly in OISE) is Mr Till Gins, who has overall responsibility for the day to day running of the group. Mr Gins gave evidence in this appeal.
[2] OISE was originally founded as a tutorial establishment, but in 1975 it opened its first school and has continued to expand since then. Whilst primarily specialising in the teaching of English as a foreign language, OISE now also teaches French, German and Spanish and the group has expanded to include two private secondary schools.
[3] The group companies include The Education and Training Company Ltd (TETCL) which provides among other things residential courses for foreign teachers of English. These, along with courses in English as a foreign language (“EFL”) for foreign students who are not teachers, are marketed under the name “Pilgrims”. Pilgrims was an English language school acquired by the OISE Group in 2003, whose name the group has continued to use by reason of the value attached to its brand. One of the issues in the appeal is whether certain of the courses provided to teachers amount to the teaching of English as a foreign language (“TEFL”) for the purposes of the VAT exemption attaching to that activity. Some have been accepted as TEFL by HMRC. Others (“the disputed courses”) have not.
[4] TETCL is a company limited by guarantee (and therefore without a share capital) whose articles of association preclude the distribution of profits. Its sole member is OISE Ltd. It was set up by Mr Gins in 2002. Its activities currently...
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