Pilgrims Languages Courses Ltd v Commissioners of Customs and Excise
| Jurisdiction | England & Wales |
| Judgment Date | 02 June 1998 |
| Date | 02 June 1998 |
| Court | Queen's Bench Division |
Queen's Bench Division (Crown Office List).
Richards J.
Melanie Hall (instructed by the Solicitor for Customs and Excise) for the Crown.
Perdita Cargill-Thompson (instructed by Simons, Muirhead & Burton) for the taxpayer.
The following cases were referred to in the judgment:
Becker v Finanzamt Munster-Innenstadt (Case 8/81) [1982] ECR 53
British Airways plc v C & E Commrs VAT(1990) 5 BVC 97
C & E Commrs v Leightons Ltd VAT[1995] BVC 192
C & E Commrs v Lloyds TSB Group Ltd VAT[1998] BVC 173
C & E Commrs v Reed Personnel Services Ltd VAT[1995] BVC 222
C & E Commrs v Scott VAT(1978) 1 BVC 139
Card Protection Plan Ltd v C & E Commrs VAT[1994] BVC 20
EC Commission v United Kingdom VAT(Case 353/85) (1988) 3 BVC 265; [1988] ECR 817
Faaborg-Gelting Linien A/S v Finanzamt Flensburg VAT(Case C-231/94) [1996] BVC 436; [1996] ECR I-2395
Skatteministeriet v Henriksen VAT(Case 173/88) (1990) 5 BVC 140; [1989] ECR 2763
Stichting Uitvoering Financiële Acties (SUFA) v Staatssecretaris van Financiën VAT(Case 348/87) [1991] BVC 102; [1989] ECR 1737
Value added tax - Supply - Teaching English as a foreign language - Residential courses - Whether accommodation, catering and other non-teaching elements were exempt -Value Added Tax Act 1994 schedule 9 group 6Value Added Tax Act 1994, Sch. 9, Grp. 6, item 2 and 4 and Notes (1)(f) and (2); Sixth VAT directive (Directive 77/388), eu-directive 77/388 article 13(A)(1) article 13(A)(2)art. 13(A)(1)(i), (2)(a), (b).
This was an appeal by Customs and a cross appeal by the taxpayer ((LON/95/1076) No. 14,574; [1997] BVC 2116) from a decision of the VAT and duties tribunal that catering and accomodation provided by a language school offering residential courses in English as a foreign language were exempt but that supplies of e.g. transport, excursions and sports were not.
The taxpayer specialised in teaching English as a foreign language ("TEFL"). It ran courses for children and young adults and also for older people, including courses for teachers. The courses provided "total immersion", insisting on English being spoken at all times. For many courses a single fee covered tuition, activities, meals and accommodation.
The VAT tribunal decided that many of the elements in the courses, including accommodation and catering for children and young adults, were the subject of separate supplies and went on to consider the position in terms of a "principal supply" to which the separate supplies might be integral.
The tribunal held that some of the elements in the courses were integral to the exempt supply of education and were therefore themselves exempt from VAT under the Value Added Tax Act 1994, Value Added Tax Act 1994 schedule 9 group 6Sch. 9, Grp. 6. But other elements, such as sporting activities and excursions, were not integral to the principal supply and were therefore subject to VAT at the standard rate.
Customs contended that the tribunal was wrong to hold that accommodation and catering in any of the courses were exempt, whether or not they were included in a single fee. Once the tribunal had decided that there were separate supplies, it should have considered each supply separately and asked whether the individual supply could be described as the supply of TEFL. The tribunal had not distinguished between the supply of TEFL, which was expressly exempted by Note (1)(f) to Value Added Tax Act 1994 schedule 9 group 6Sch. 9, Grp. 6 of the 1994 Act, and the supply of "courses". The exemption was for the teaching of English, not for giving courses which might include non-teaching elements. The tribunal had failed to have regard to the statutory context, in particular Note (2) to Value Added Tax Act 1994 schedule 9 group 6Sch. 9, Grp. 6 of the 1994 Act, which effectively excluded anything other than the actual teaching of English by the taxpayer.
Customs further contended that, in view of the legislation, the same considerations should apply to catering and accommodation as to the activities which the tribunal had held to be not integral to the principal supply. None of those things were the teaching of English. All those elements were capable of being supplied separately and were "economically dissociable" from the supply of TEFL.
The taxpayer contended that the case turned on its own particular facts: that the point of the courses was to provide "total immersion" so that the provision of catering and accommodation etc. were integral to the principal supply of TEFL. Further, if the non-teaching supplies were not exempt within eu-directive 77/388 article 13(A)(1)art. 13(A), para. (1)(i) of the sixth VAT directive had direct effect and exempted education and vocational training "including the supply of services closely related thereto". By eu-directive 77/388 article 13(A)(2)para. (2)(b), qualifying supplies made by bodies not governed by public law might be exempt, but goods and services "not essential to the transactions" were excluded. That suggested that goods and services which were essential to the relevant transactions were included. The taxpayer further contended that the vocational training aspect of the teachers' courses, which it was said qualified for exemption apart from Value Added Tax Act 1994 schedule 9Sch. 9 of the 1994 Act by virtue of the direct effect ofeu-directive 77/388 article 13(A)(1)art. 13(A), para. (1)(i) of the sixth directive.
Held, allowing Customs' appeal and dismissing the taxpayer's cross appeal:
1. The teaching and other elements provided by the school were not a single composite supply. The specific exemption in Note (1)(f) toValue Added Tax Act 1994 schedule 9 group 6Grp. 6 of Sch. 9 to the 1994 Act was not an exemption for "courses". The fact that a single fee was charged for the whole course did not establish the existence of a single supply. Accommodation and catering were not indissociable from the supply of teaching and could have been directly supplied to the students by a third party.
2. The tribunal's conclusion that catering and accommodation, although separate supplies, were integral or incidental to TEFL could not be supported. Catering and accommodation were no more incidental to TEFL than the sporting and other activities which the tribunal had decided were not within the exemption.
3. The purpose of eu-directive 77/388 article 13(A)(2)art. 13(A), para. (2)(b) of the sixth directive was to ensure that the exemptions were kept within strict limits. It prevented member states from extending the exemptions to supplies that were not essential to the "transactions" identified as exempt. It might indicate that supplies essential to the exempt transactions were to be exempt, but that position would be reached by the ordinary principles as to composite or multiple supplies.
4. The effect of Notes (1) and (2) to Value Added Tax Act 1994 schedule 9 group 6Grp. 6 of Sch. 9 was to define language schools for the purposes of eu-directive 77/388 article 13(A)(1)art. 13(A), para. (1)(i) only in so far as their aim or object was the teaching of English. The taxpayer therefore had no directly effective right to exemption under art. 13(A)(1)(i) in respect of methodology courses providing vocational training for teachers.
Richards J: This is yet another in the line of cases concerning the question whether, for the purposes of VAT, a package of services supplied at a single price constitutes a single (composite) supply which takes its fiscal character from the dominant element in the package, or separate (multiple) supplies of different elements each of which has its own separate fiscal character.
Pilgrims Language Courses Ltd ("Pilgrims") specialises in the teaching of English as a foreign language, an expression which is commonly and conveniently abbreviated to "TEFL". Pilgrims runs residential TEFL courses providing total immersion in the English language - in its own phrase, "breakfast to bed-time tuition". Courses consist of "accuracy activities", including classroom teaching, and a wide range of "fluency activities", including sporting and recreational activities. All students have to communicate in English from the moment of their arrival at the airport to the time of their departure at the end of the course. For many courses a single fee covers tuition, activities, meals and accommodation.
In broad terms, TEFL enjoys an exemption from VAT, though it will be necessary to consider the precise nature of that exemption in a moment. Customs ruled that only certain elements of Pilgrims' residential course were strictly TEFL and that the other elements were subject to VAT at the standard rate. The VAT and duties tribunal, in a decision released on 7 November 1996 ([1997] BVC 2116), to a large extent allowed Pilgrims' appeal from Customs' ruling. The tribunal held that many of the elements, including accommodation and catering in the courses for children and young adults, were integral to the principal, exempt supply and were therefore themselves exempt from VAT. The tribunal also held, however, that other elements, including e.g. sporting activities and excursions, were not integral to the principal supply and were therefore subject to VAT at the standard rate.
The tribunal's decision is now the subject of an appeal to this court by Customs and a cross appeal by Pilgrims. In each case there is a challenge to some but not all of the findings that were adverse to the party concerned. In the case of Customs' appeal the main contention is that the tribunal was wrong to hold that accommodation and catering in any of the courses benefited from the exemption from VAT. In the case of Pilgrims' cross appeal the main contention is that the tribunal should have gone that much further and held that the courses for children and young adults were composite supplies benefiting in their entirety from the exemption from VAT.
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