Revenue and Customs Commissioners v The Learning Centre (Romford) Ltd; Revenue and Customs Commissioners v L.I.F.E. Services Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 January 2019 |
| Neutral Citation | [2019] UKUT 2 (TCC) |
| Date | 23 January 2019 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Upper Tribunal (Tax and Chancery Chamber)
Tribunal Mr Justice Nugee, Judge Timothy Herrington
Jonathan Davey QC and Natasha Barnes, instructed by the General Counsel and Solicitor for HM Revenue and Customs, appeared for the appellants
Eamon McNicholas, instructed directly, appeared for The Learning Centre (Romford) Ltd
Jonathan Bremner QC, instructed by Gerald Edelman LLP, appeared for L.I.F.E. Services Ltd
Value added tax – Exemption for welfare services – VATA 1994, Sch. 9, Grp. 7, item 9 – Respondents providing day care services in England and not regulated – Whether item 9 breaches fiscal neutrality on basis that providers of day care services in Scotland and Northern Ireland are state-regulated and their supply of services exempt – Whether Respondents' services exempt – No breach of fiscal neutrality.
The Upper-tier Tribunal (UT) considered an appeal by HMRC against findings of the FTT in two cases that item 9's restriction of exemption for welfare services to state-regulated institutions was a breach of fiscal neutrality because of different regulation requirements in the countries of the UK.
The two respondents in this case, The Learning Centre (TLC) and LIFE, are private companies limited by shares which are run for profit. They provide day care for vulnerable adults with learning disabilities (TLC) and adults with a range of disabilities (LIFE).
It was common ground that the services provided were “welfare services” for the purpose of the exemption in VATA 1994, Sch. 9, Grp. 7, item 9. However, the exemption in item 9 only applies to services provided by charities and “state-regulated private welfare institutions”. The FTT found that the restriction in item 9 represented a breach of the principle of fiscal neutrality.
In the TLC case the FTT agreed with TLC that the fact that the same service was taxed differently in Scotland and Northern Ireland compared to England and Wales did represent a breach of fiscal neutrality (the “devolved nations” argument). HMRC appealed this decision to the UT.
In the LIFE case the FTT found that fiscal neutrality had been breached because exemption extended to charities but not providers like LIFE. HMRC appealed to the UT which disagreed with the FTT on and overturned its decision. But, LIFE introduced the “devolved nations” argument at the UT so its appeal was joined with TLC's in order that they might be considered together.
The UT considered ECJ case law on fiscal neutrality and the purpose and history of the VAT exemption.
The UT allowed HMRC's appeal and concluded that there was no breach of fiscal neutrality.
The UT accepted HMRC's argument that VAT law was the same across the United Kingdom, state regulated providers qualify for the exemption and non-regulated providers do not. Differences in VAT treatment are caused not by any lack of neutrality in VAT legislation but by the fact that regulation of this sector has been devolved to the different nations and they have made different decisions “as they are entitled to do”.
The UT went on to conclude that there was an intrinsic difference between regulated services and non-regulated services because even if, on a voluntary basis, a non-regulated provider met the standards expected of a regulated one, “the system of regulation provides a system of protections and guarantees which is absent in the case of unregulated services” (para. 60).
It is hard not to feel sympathy for TLC and LIFE, both companies provide service to local authorities and will compete with charities which, unlike them, do not have to charge VAT. The customers of TLC and LIFE in England may also feel aggrieved that the same service would be exempt from VAT in Scotland and Northern Ireland.
However, as the UT's comprehensive analysis of ECJ case law on fiscal neutrality demonstrates, there are differences between the regulated and non-regulated sector. In addition, 1) it is reasonable for VAT law to define the scope of an exemption by reference to the regulation under which a provider works and 2) the devolved nations are at liberty to take differing views over the level of regulation required.
[1] There are two appeals before the Upper Tribunal (“the UT”) from decisions of the First-tier Tribunal (“the FTT”). They raise the same issue, which is whether provisions of the Value Added Tax Act 1994 (“VATA 1994”) which provide an exemption for VAT for certain welfare services infringe the EU principle of fiscal neutrality. The particular context is the provision of day care services by bodies that are neither public bodies nor charities but are private entities providing such services for profit.
[2] We give the detail of the legislation below but in essence VATA 1994 has the effect that the supply of services by such a body is only exempt for VAT purposes if the body is state-regulated. In England and Wales there is no regulation of the provision of day care services as such. But in Scotland there is devolved legislation which means that the provision of day care services is regulated; and the same is true in Northern Ireland under separate devolved legislation. That means that day care services provided by commercial providers in England and Wales are not exempt and are liable to VAT at the standard rate, whereas such services in Scotland and Northern Ireland are exempt.
[3] The first appeal (UT/2017/0119) concerns a company called The Learning Centre (Romford) Ltd (“TLC”) which provides day care services in England to vulnerable adults with learning difficulties. TLC applied to de-register for VAT on the grounds that its supplies were exempt. The Commissioners for Her Majesty's Revenue and Customs (“HMRC”) refused to permit TLC do so on the grounds that TLC's supplies were taxable. TLC appealed to the FTT against HMRC's decision. By a decision released on 13 June 2017 ([2017] TC 05946) the FTT (Judge Barbara Mosedale) allowed TLC's appeal on the grounds that the UK's welfare services exemption did not correctly transpose the relevant EU Directive because the UK did not have regard to the need for fiscal neutrality and the need for all private bodies in the UK providing the same service to be treated in the same manner for VAT purposes. HMRC appeal to the UT against this decision. Permission was given by the FTT (Judge Mosedale) on 17 August 2017.
[4] The second appeal concerns a company called L.I.F.E. Services Ltd (“LIFE”) which also provides day care services in England, in this case to adults with a broad spectrum of disabilities. LIFE appealed to the FTT against a determination of HMRC that its services were taxable. By a decision released on 23 June 2016 ([2016] TC 05197) the FTT (Judge Charles Hellier and Mr William Haarer) allowed LIFE's appeal on the grounds that the relevant provisions of VATA infringed the principle of fiscal neutrality because they exempted charities and not providers such as LIFE. The question of fiscal neutrality as between the various nations of the UK (which we will call “the devolved nations issue”) was not raised at this hearing.
[5] HMRC appealed to the UT, with permission granted by Judge Hellier on 20 September 2016. An initial hearing of the appeal in the UT (Mann J and Judge Herrington) took place in October 2017. Shortly before that hearing LIFE sought to introduce the argument that there had been a breach of fiscal neutrality caused by different treatment across the devolved nations, relying on the FTT decision in the TLC case. The UT decided that the appropriate course was for argument on the devolved nations issue to be adjourned and heard at the same time as the TLC appeal, and proceeded to hear argument on the other issues. By a decision released on 18 December 2017 ([2018] BVC 502) the UT found in favour of HMRC on those issues, with the result that HMRC's appeal would be allowed unless LIFE were successful on the devolved nations issue.
[6] By directions given on 11 January 2018 the UT (Judge Herrington) therefore directed that HMRC's appeal in the TLC case should be heard together with the remaining issues in the LIFE case (that is the devolved nations issue). This is that hearing.
[7] The current EU Directive on VAT is Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, commonly known as the Principal VAT Directive (“the Principal Directive”).
[8] Title IX of the Principal Directive is headed “Exemptions”.
[9] Chapter 1 of Title IX, headed “General Provisions”, consists of art. 131 which provides:
The exemptions provided for in Chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.
[10] Chapter 2 of Title IX (arts 132 to 134) is headed “Exemptions for certain activities in the public interest”. Art 132(1)(g) provides as follows:
1. Member States shall exempt the following transactions:
- …
- g the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other bodies recognised by the Member State concerned as being devoted to social wellbeing.
[11] The Principal Directive replaced the previous VAT directive, namely the Sixth Council Directive of 17 May 1977 on the harmonization of the laws of the Member States relating to turnover taxes (77/388/EEC), commonly known as the Sixth VAT Directive (“the Sixth Directive”). This contained a similar exemption in art 13(A)(1)(g) in almost, but not quite, identical terms to art 132(1)(g) of the Principal Directive.
[12] The current UK statute in relation to VAT is VATA 1...
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