R (on the application of Anglia Ruskin Students' Union) v The Commissioners for HM Revenue and Customs

Hearing dates: 7 February 2025

Approved Judgment

This judgment was handed down remotely at 10am on Wednesday 12 February 2025 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

This judgment is in 6 main parts as follows:

I. Overview

This is a case about a bar or café called 92 which is run by the Claimant, Anglia Ruskin Students' Union (“the Union”), beneath its office at the Anglia Ruskin University campus in Chelmsford, Essex. For reasons which will become clear, I will use the neutral term “Café” rather than “bar” to refer to 92 in this judgment. The issue in the claim is whether the Café is a “bar” within the meaning of an extra-statutory concession (“the Concession”), published by the Defendants (“HMRC”).

The Concession appears in Section 5.5 of VAT Notice 709/1 and treats supplies of catering made by student unions as exempt from VAT, but carving out from the Concession inter alia supplies of food and drink made in “bars”. HMRC have decided that the Café is a “bar” within the carve-out, and accordingly that supplies of catering made within it do not benefit from exemption from VAT. The Union argues that on a proper construction of the Concession, the Café is not a “bar”, alternatively, if it is, HMRC's policy not to exempt supplies is irrational.

By an Order dated 14 May 2024, Sheldon J held these contentions to be “unarguable” and refused the Union permission to apply for judicial review. The Union's oral renewal of the permission application came before me on 7 February 2024, with a 2.5 hour time estimate, preceded by 3 hours of suggested pre-reading material. I explained at the start of the hearing that my provisional understanding was that the issues principally concerned matters of construction and then application of the construction to the undisputed facts about the Café. It seemed to me that there was little point in my task being limited to deciding only whether the Union's case was “arguable” (a relatively low hurdle) for permission purposes, and (if so satisfied) to pass the matter on to another judge who would hear the same arguments in a few months' time at a substantive hearing.

In these circumstances, I indicated that unless there was any reason identified by Counsel (such as the need for further evidence or more detailed argument) I would treat the oral renewal as a “rolled-up” hearing, with permission and the merits being considered together. This seemed to me to be a more efficient use of judicial resources and there has already been a substantial delay since the commencement of the claim, about a year ago. Having taken instructions, Counsel helpfully agreed to my suggested course. They agreed I had before me all the material necessary for a final determination. I heard excellent oral arguments from Mr Oliver Conolly for the Union and from Mr James Puzey for HMRC, for which I am grateful.

At the hearing, I gave the Union permission to rely on a witness statement from Charlotte Britton-Stevens, Union Development Manager of the NUS Students' Union Charitable Services, concerning what were said to be (i) HMRC's historic constructions of the word “bar” between 2003–2011, and (ii) the adverse consequences of HMRC's current position in rendering the supply of catering (by way of hot food) uncompetitive. This evidence may or may not be disputed but for the reasons I give below I do not consider it to be relevant to the matters which arise in the claim.

The formal decision under challenge in this claim was made on 29 November 2023 (“the Decision”). That decision was a review which upheld an earlier decision that catering supplies made from the Café were subject to VAT at the standard rate and not exempt from VAT under the terms of the Concession. HMRC's reasons for the Decision are summarised at Section IV below.

II. The Statutory Framework

VAT treatment of catering

When food and drink is sold outside the context of catering, such as in a supermarket, the items sold are either subject to VAT (the default position under s 4 of the Value Added Tax Act (“ VATA”) or zero-rated ( s 30 VATA), and Group 1, Schedule 8). Group 1(b) provides that anything in the “ general items” list (Items 1–4) will be zero-rated, unless they fall under the list of “ excepted items” (Items 1–7), and do not fall under the list of “ items overriding the exceptions” (Items 1–6). For example, Item 1 of “ general items” is “ food of a kind for human consumption”. (The word “ food” includes “ drink”: note (1)). Excepted item number 3 is “ beverages chargeable with alcohol duty under Part 2 of Finance (No 2) Act 2023 and preparations thereof”. It follows that alcoholic drinks are taken out of zero-rating and are chargeable to VAT.

Another carve-out from zero-rating is Group 1(a), which excludes “ a supply in the course of catering.” Accordingly, any food served to a customer in the course of catering is subject to VAT. There is invariably full VAT on restaurant purchases. Note (3) defines “catering” as follows:

“(3) A supply of anything in the course of catering includes— (a) any supply of it for consumption on the premises on which it is supplied; and (b) any supply of hot food for consumption off those premises.”

This is supplemented by Notes (3A) to (3D). The statutory definition of catering is detailed and prescriptive.

VAT treatment of education

The supply of education is exempt from VAT if made by an “ eligible body” ( s 31 VATA; Items 1(a), Group 6, Pt II, Schedule 9 VATA). The supply of goods and services “ closely related to” such supplies are also exempt (Item 4, Group 6, Part II, Schedule 9 VATA).

The following matters are common ground:

(1) The definition of an “ eligible body” includes universities but does not include student unions.

(2) As a matter of law, the supply of catering to students by an eligible body is “closely related” to the supply of education by that eligible body, and is therefore exempt from VAT.

(3) Supplies by universities of alcohol to students do not benefit from the exemption as a matter of law, because such supplies are not closely connected to the supply of education.

III. The Concession

Student unions often provide catering alongside universities. Since March 2002, HMRC has operated a published concession extending the exemption granted to supplies of catering made by universities to student unions.

Before turning to the particular terms of the Concession in issue in the present claim, I refer to the following part of Notice 709/1 which explains the context: (my underlining)

“ 2.6 Schools, universities, colleges, etc

Certain supplies of education, training and research are exempt from VAT. Where an educational institution provides exempt education to its own pupils and students, then the supply of catering they make is also exempt. If the supply of education is non-business, as in the case of a local authority school, free school or academy school, the supply of catering will also be non-business, provided it is made at, or below, cost…Whichever treatment is appropriate it applies to anything provided by way of catering. This includes food supplied at mealtimes and break times from the refectory, canteen or other similar outlet but not items purchased from a university campus shop, as they are not provided by way of catering. Food and drink supplied at or below cost from a tuck shop run by the school itself takes on the same liability as the education. You cannot normally deduct input tax incurred on costs that relate to exempt supplies. Further information can be found in Notice 706 Partial Exemption. You must account for VAT on supplies of catering to staff and visitors (except visiting students). If you are a student union, supplying catering both on behalf, and with the agreement, of the parent institution, you will need to read section 5.5”.

Section 5.5 is the part of Notice 709/1 in which the section of the Concession in issue in this claim appears. It provides (I have inserted my own sub-paragraphs):

“5.5 Catering provided by student unions in universities and other higher education establishments

[1] If you're a student union and you're supplying catering (including hot takeaway food) to students both on behalf, and with the agreement, of the parent institution, as a concession you can treat your supplies in the same way as the parent institution itself. This means that you can treat your supplies as exempt when made by unions at universities, and other institutions supplying exempt education, and outside the scope of VAT when supplied at further education and sixth form colleges.

[2] This means that most supplies of food and drink made by the union, where the food is sold for consumption in the course of catering will be exempt (read sections 2 and 3 of this guidance). For example, food and drink sold from canteens, refectories and other catering outlets (excluding bars), plus food and drink sold from vending machines situated in canteens and similar areas.

[3] But it does not cover food and...