Revenue and Customs Commissioners v SAE Education Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 25 April 2016 |
| Neutral Citation | [2016] UKUT 193 (TCC) |
| Date | 25 April 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Colin Bishopp, Judge Guy Brannan
Sarabjit Singh, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the appellants
Melanie Hall QC and Elizabeth Kelsey, counsel, instructed by Gordon Dadds LLP appeared for the respondent
Value added tax – Exempt supplies – Education – Principal VAT Directive (Directive 2006/112), art. 131–133 – Value Added Tax Act 1994 (“VATA 1994”), Sch. 9, Grp. 6, item 1, Note (1)(b) – Whether education provided by “eligible body” – Whether respondent a college of a university – Tests to be applied – Role of the Upper Tribunal – Appeal allowed.
The Upper Tribunal (UT) has set aside the decision of the First-tier Tribunal (FTT) in SAE Education Ltd TAX[2014] TC 03358 finding that the relationship between SAE Education Ltd (SEL) and Middlesex University (MU) fell short of SEL constituting a “college … of” MU within the meaning of Value Added Tax Act 1994 (“VATA 1994”), Sch. 9, Grp. 6, item 1, Note 1(b). Accordingly, SEL was not an “eligible body” and its supplies of education were not eligible for exemption.
In SAE Education Ltd TAX[2014] TC 03358, the FTT had allowed the appeal by SAE Education Ltd (SEL) against assessments raised by HMRC for standard rated VAT on its supplies of education and training, finding that its supplies were exempt within VATA 1994, Sch. 9, Grp. 6, item 1 as “The provision by an eligible body of – (a) education …”. SEL was an eligible body within the meaning of VATA 1994, Sch. 9, Grp. 6, Note 1(b), “a United Kingdom university, and any college, institution, school or hall of such a university.” as it was a college “of” Middlesex University. HMRC appealed to the UT.
The UT noted that in order to allow the appeal, it was first necessary to find an error of approach by the FTT and the starting point was to consider what was meant by the expression “college of a university”.
This involved adopting a multi-step evaluation of the relationship between the two bodies. The first step was to ascertain whether the university and the college had a common understanding of it. If they did not, the enquiry would likely end there. Second, the common understanding must be that they are in a relationship of university and college, and not some different relationship, such as partnership. The third step was to examine whether the relationship was sufficiently close that the college was a college “of” the university. The last step was to consider whether the college satisfied the requirement that it supplied education.
The UT considered that the FTT had fallen into error in that they did not undertake the first and second of the steps identified. Accordingly, it was appropriate for the UT to intervene.
The UT agreed with HMRC that the FTT's conclusion that there was a common understanding that SEL became a college of MU from 2009 was difficult to sustain. The evidence showed that the SAE Institute, as the global organisation of which SEL was the UK arm, was designated as an associate college in 2010 and since September 2010 as an accredited institution. Although MU and SAE Institute had a close working relationship that enabled SAE Institute to validate courses leading to MU awards, it was clear that MU did not regard SAE Institute as a college of itself. SAE Institute had a wholly independent existence and entered into agreements similar to those it had with MU with other universities throughout the word. It did so on its own behalf and regardless of its relationship with MU. Whether one called the relationship between MU and SAE Institute partnership or association, it was clear there was no element of integration between them; they were wholly separate bodies. Thus if “Associate College” was an apt description, it meant a college with an association with the university but without any element of integration with it. It, therefore, followed that if SAE Institute was not a college of MU, and SEL carried the same status within the UK, it too could not have been a college of MU.
In C & E Commrs v School of Finance and Management (London) Ltd VAT[2002] BVC 158 (SFM), Burton J conducted an analysis of the statutory framework and considered 15 factors identified as indicative, in that by their presence or absence they tended to show that a body was, or was not, a college of a university. The first of the SFM factors was whether or not there was a foundation document establishing the college as part of the university. In this case, there was none but the closest one came to such an agreement was the Special Associate College Agreement (SACA) which recited that it “builds upon the existing status of SAE-UK as a Middlesex University Associate College” and that its purpose was to promote “a higher level of integration of SAE-UK operations with those of Middlesex University”. What the FTT had omitted to do was to undertake an analysis of what was meant by the use of the term “associate college”.
Whilst the SACA referred to a greater integration of SEL's operations with those of MU, it did not refer to a higher level, or indeed any level, of integration of SEL as an institution with MU. It required SEL “to collaborate only with Middlesex University to the exclusion of other possible partners in higher education in the United Kingdom”, suggesting that MU considered that its relationship with SEL was one of collaboration too. This did not support the proposition that the document was intended to constitute SEL as a college of the university, or to reflect its existing status as such a college.
Some evidence of MU's perception of the meaning of “associate college” could, however, be gleaned from a handbook published by it which referred to “collaboration” between MU and a “partner institution”. However, whilst an associated or affiliated college was not to be ruled out, the kind of independence to which the MU handbook referred, and the relationship of partnership between MU and SAE Institute and, within the UK, SEL, which was all the evidence supported, was inconsistent with the proposition that MU considered SEL to be a college of itself.
It followed that the FTT did not address the statutory test and that in consequence they misdirected themselves about the proper analysis of the facts. In the UT's judgment the only realistic conclusion from the evidence was that MU and SEL had a relationship which fell short of constituting the latter a college of the former.
HMRC's appeal was allowed and the FTT's decision was set aside.
The UT has overturned the FTT's decision in SAE Education Ltd TAX[2014] TC 03358 in which the FTT had found that SAE Education Limited (SEL) was a “college of …” Middlesex University (MU) and an “eligible body” for the purposes of the exemption from VAT on supplies of education. The UT found that the FTT had erred in its approach in failing to consider what was meant by the expression “college of a university” and whether there was a common understanding between the parties that they were in the relationship of university and college and not some different relationship such as partnership. In this case, the relationship was of collaboration or partnership which fell short of SEL being a “college of” the university.
[1] This is an appeal by Her Majesty's Revenue and Customs (“HMRC”) against a decision of the First-tier Tribunal (“the F-tT”) (Judge Clark and Dr James MBE) by which they allowed the appeal of the present respondent, SAE Education Limited (“SEL”), against various assessments to VAT, covering the periods from 1 May 2009 to 29 February 2012 and amounting to about £1.3 million. The F-tT also allowed SEL's appeal against some related penalties, imposed because of SEL's failure to register for VAT. The details are unimportant for present purposes.
[2] The underlying question is whether supplies of education made by SEL are, as it contends, exempt or, as HMRC maintain, standard-rated. The answer to that question depends in turn upon whether SEL is to be treated as an “eligible body” within the meaning of note (1)(b) to item 1 of Group 6 of Schedule 9 to the Value Added Tax Act 1994 (“VATA”).
[3] The starting point for the consideration of that issue is arts 131 to 133 of the Principal VAT Directive (Council Directive 2006/112/EC) (“the PVD”). Article 131 sets the scene:
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.
[4] Chapter 2 includes art 132.1 which, so far as relevant to this appeal, provides that:
Member States shall exempt the following transactions: …
(i) the provision of children's or young people's education, school or university education, vocational training or retraining, including the supply of services and goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects …
[5] Article 133 expands on art 131 by providing some examples of the conditions Member States might impose. Those given relate to bodies which do not set out to make profits, or whose charges are regulated by the state, and they allow the Member State to refuse exemption if it would lead to distortion of competition. The United Kingdom has not chosen to implement the exemption of educational provision in quite that way, and in particular has not limited the exemption of educational supplies to non-profit making bodies; others may also make exempt supplies of education provided they fall within the UK's implementation of the description “other organisations...
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