Royal Academy of Music v Commissioners of Customs and Excise
| Jurisdiction | UK Non-devolved |
| Judgment Date | 23 February 1994 |
| Date | 23 February 1994 |
| Court | Value Added Tax Tribunal |
VAT Tribunal
The following cases were referred to in the decision:
EC Commrs v Netherlands (Case 235/85) [1987] ECR 1471
Lord Fisher; C & E Commrs v VAT(1981) 1 BVC 392
Morrison's Academy Boarding Houses Association; C & E Commrs v VAT(1977) 1 BVC 108
National Water Council v C & E Commrs VAT(1978) 1 BVC 199
R v Disiplinary Committee of the Jockey Club, ex parte Aga KhanWLR[1993] 1 WLR 909
Rael-Brook Ltd v Minister of Housing and Local Government & AnorUNK[1967] 1 All ER 262
Ufficio Distrettuale delle Imposte Dirette di Fiorenzuola d'Arda & Ors v Comune di Carpaneto Piacentino and Ufficio Provinciale Imposta Sul Valore Aggiunto di Piacenza VAT(Joined Cases 231/87 and 129/88) [1991] BVC 70
Whitechapel Art Gallery v C & E Commrs VAT(1986) 2 BVC 200,190
Zero-rating - Protected building - Refurbishment of listed building - Whether use solely for relevant charitable purpose - Whether use by charity otherwise than in course or furtherance of business - Predominant concern in carrying out activities - Whether educational activities constituted economic activities - Bodies governed by public law - Value Added Tax Act 1983, s. 2 and Sch. 5, Grp. 8A, item 2 and Note(4) - Directive 77/388, the Sixth VAT Directive, eu-directive 77/388 article 4(1)art. 4(1),eu-directive 77/388 article 4(2) article 4(5)(2) and (5).
The issues were (1) whether supplies made to the appellant in the course of an approved alteration of a protected building were entitled to zero-rating on the ground that the building was intended for use solely for a relevant charitable purpose and (2) whether the Academy was "a body governed by public law" engaged in educational activities as a "public authority" so that its educational activities were not carried on in the course or furtherance of its business, with the consequence that they should be left out of account in determining whether the building was intended for use solely for "a relevant charitable purpose".
The Academy was founded in 1822 and granted its Royal Charter on 23 June 1830. Its objects were "to develop fully the artistic and musical potential as performers of all the Academy's students by pursuing excellence, so that they may become leaders in the music profession". It had some 500 students, including 150 postgraduate students and a full time staff of 15. The undergraduate courses led to degrees being awarded by the Academy in association with London University and the courses covered a full range of musical studies, teaching, repertoire, and performance practice.
Tuition fees ranged from £2,770 to £9,500 per annum and if a local authority grant was not received by a student he was required to pay the full fees in advance. In the year to 31 March 1991 the appellant's total income was £3.97m, of which £1.47m was tuition fees and £2.7 million a recurrent block grant from the government.
Apart from fees and the block grant, which was calculated on a per capita basis, the appellant's income derived from a £200,000 contribution from a separate charity, £100,000 from its own endowment income and income from catering profits and examination fees. Catering, an admitted business activity, occupied about three per cent of the total floor area of the building.
In 1991 and 1992 the appellant carried out substantial reconstruction work on its concert hall (the Duke's Hall). This was a listed building and consent for the work was sought and obtained from the relevant authority. The Academy requested confirmation from Customs that a certificate for zero-rating of the construction work would be issued to the main contractor but this was refused on the grounds that the building was not intended for use solely for a relevant charitable purpose, i.e. "otherwise than in the course or furtherance of a business".
The commissioners contended that the appellant manifested all the generally recognised indicators of business activity and even if the facts showed that the educational activities carried out in the building were non-business the intended use was not "solely" for a relevant charitable purpose. They further contended that eu-directive 77/388 article 4(5)art. 4(5) of Directive 77/388, the sixth VAT directive excluded certain activities carried on by bodies governed by public law from being subject to VAT but it did not state that such activities were not "any economic activity".
The appellant contended that the work was eligible for zero-rating since apart from catering, which was de minimis, the appellant was not carrying on a business in VAT terms but was engaged in the pursuit of music and musical education for their own sakes. For the same reason, it was not carrying on a business in the sense of an economic activity falling within eu-directive 77/388 article 4(1)art. 4(1) of the sixth VAT directive and even if it was carrying on such an activity it was "a body governed by public law" and therefore specifically treated as though the educational activities were not carried on in the course or furtherance of its business and so should be ignored.
Held, dismissing the taxpayer's appeal:
1. As a matter of strict law it could not be said that the intended use of the building was "solely" for a relevant charitable purpose, since the business use was not so insignificant as to be disregarded in determining whether the hall was used for a relevant charitable purpose.
2. The provision of education was not the pursuit of a non-business activity as was clear from the fact that Grp. 6 of Sch. 6 to the Value Added Tax Act 1983 was inserted into the legislation in order to exempt the supply in certain circumstances. The same was true of eu-directive 77/388 article 13(A)(1)art. 13(A)(1)(i) of the sixth VAT directive. The core educational activity had to be taken into account in determining whether the building was used otherwise than in the course of its business and therefore for a relevant charitable purpose.
3. The available evidence showed numerous examples of the Academy adopting business principles and its predominant concern was in providing educational services for a consideration. Some of these were conducted in the Duke's Hall.
4. The Academy could not rely on its charitable objectives or even on the assertion that it was performing a quasi-governmental function in its contention that it was not carrying on an economic activity.
5. Neither the fact that the appellant had been granted a Royal Charter nor that certain statutory provisions facilitated the carrying on of its duties and provided a measure of control over its constitution and its educational standards meant that it could be classed as a "public authority". The arrangements which it made with its students were essentially contractual.
[The tribunal set out the facts summarised above and continued as follows.]
18. The case for the Academy, presented by Mr Michael Sherry, was that the Academy building including the Duke's Hall was intended for use solely for "a relevant charitable purpose" after the reconstruction or alteration, i.e. "solely for use otherwise than in the course or furtherance of a business" (see the words of Note (4)(a) to Grp. 8 of Sch. 5 to the Value Added Tax Act 1983). The educational activities that are carried on throughout the Academy building are not carried on in the course or furtherance of its business notwithstanding that fees are charged. He recognised that the provision of education may be a business activity when carried on for profit; but here it has been provided in pursuit of the Academy's charitable objects. Without the "subvention" from its own (charitable) endowment funds, the Academy has been running at a loss. The Academy is not, therefore, carrying on business within s. 2(1) [of the Value Added Tax Act1983]. Mr Sherry referred to eu-directive 67/227 article 2art. 2 of Directive 67/227, the first VAT directive, on the harmonisation of legislation concerning turnover taxes). This lays down...
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