SAE Education Ltd v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lady Justice Black,Lord Justice Sales |
| Judgment Date | 28 July 2017 |
| Neutral Citation | [2017] EWCA Civ 1116 |
| Docket Number | Case No: A3/2016/2439 |
| Court | Court of Appeal (Civil Division) |
| Date | 28 July 2017 |
[2017] EWCA Civ 1116
Court of Appeal (Civil Division)
Lord Justice Patten, Lady Justice Black, and Lord Justice Sales
Melanie Hall QC and Elizabeth Kelsey (instructed by Gordon Dadds LLP) appeared for the appellants
Sarabjit Singh (instructed by the General Counsel and Solicitor to HM Revenue and Customs) appeared for the respondents
VATA 1994, Sch. 9, Grp. 6, item 1, note (1)(b) – Whether appellant a college of a university – No – Whether education provided by eligible body – No – Whether EU principles contravened – No – Appeal dismissed.
The Court of Appeal (CA) dismissed an appeal by SAE Education Ltd (SEL) that supplies of education were exempt by virtue of it being an eligible body, as per VATA 1994, Sch. 9, Grp. 6, item 1, note (1)(b). In doing so, the CA confirmed that the First-tier Tribunal (FTT) had erred in law in the approach it had adopted.
SEL was part of a worldwide group trading as “SAE Institute”, which for some years collaborated with Middlesex University (MU) through various Memorandum of Co-operation agreements. MU validated degree level courses in applied multi-media, interactive animation and games programming, eventually granting accredited status. It also entered into a Special Associates College Agreement.
The FTT following C & E Commrs v School of Finance and Management (London) Ltd [2002] BVC 158 (SFM) allowed the appeal but the Upper Tribunal (UT) in allowing HMRC's appeal viewed the arrangement as a collaboration rather than evidence that SEL was a college.
The CA outlined the history of the UK's approach to exemption for education in the light of EU law which is currently the Principal VAT Directive (PVD) (2006/112/EC), art. 132(1)(i). The UK had chosen to identify those public bodies and organisations that should qualify with the latest enactment being Sch. 9, Grp. 6, item 1, note (1)(b). The term eligible body is referred to in note (1) as “a United Kingdom university, and any college, institution, school or hall of such a university”.
The UT had asked the CA to consider the meaning of the phrase “college of a university”, which it did starting with how the original legislators might have approached it. It concluded that a university operating on a collegiate basis such as Oxford or Cambridge, where individual colleges are fully integrated into the governance and structure, provided an explanation, see para. 12 of the decision.
The CA then considered case law. In C & E Commrs v University of Leicester Students' Union [2002] BVC 269, the appellant claimed that it was an eligible body despite it being a separate legal entity and not a supplier of education. Gibson LJ rejected this but provided guidance regarding note 1(b) that an eligible body should be a supplier of education, (although Arden LJ in the same judgement disagreed with that point she did agree that it had to be a part of a university).
In SFM referred to above, the college provided degree-level courses awarded via the University of Lincolnshire and Humberside. Burton J in the High Court (HC) confirmed a multi-factorial approach that it was an eligible body by weighing 15 factors put forward by both parties. Following this decision HMRC issued revised guidance in VAT Information Sheet 03/2010 including these factors.
The CA in following Gibson LJ in Leicester University said that in order to succeed SEL must show that it is a constituent part of MU with rights and privileges given to students, evidence of a legal relationship and a high level of integration as proposed by HMRC. It rejected the multi-factorial approach of Burton J in SFM, see para. 34–36 of the decision.
SAE Institute referred to itself as an associate college but the CA did not see this as sufficient, see para. 64. To that effect it was not a composite part of MU, it had an agreement but this simply reflected the long-term collaboration, see para. 65. The CA also dismissed SEL's claim that by introducing a test based on a common understanding between SEL and MU the UT had contravened the EU principles of fiscal neutrality, legal certainty and proportionality. The UT was simply making a point that if SEL was a college of MU it would be recognised as such by MU, see para. 68.
The CA dismissed the appeal finding that the FTT in its original decision had erred in law by following SFM, see para. 72.
In rejecting the approach adopted by the HC in SFM, the CA has left HMRC's policy, as per VAT Information Sheet 03/2010 containing the 15 factors, open to question. The CA has reduced this test to establishing that a college is part of a university in a constitutional or structural sense.
[1] The common system of value added tax (VAT) was introduced into the EC as a general tax on the supply of goods and services. It is calculated by reference to the price of the goods and services in question and operates irrespective of the number of transactions which take place in the production and distribution process before the stage at which tax is charged. The tax is payable by the person making the supply after the deduction of the amount of VAT borne directly by the various cost components of the supply.
[2] These basic features of VAT were first set out in article 2 of the First Council Directive of 11 April 1967 (67/227/EEC) which explained in its recitals the need to achieve harmonisation in turnover taxes and to eliminate, as far as possible, factors which may distort competition. This included the perceived need to harmonise both rates of and exemptions from tax across the EC. The effect on competition of exemptions from VAT was recognised in the Second Council Directive of 11 April 1967 (67/228/EEC) which recited that:
Whereas the system of value added tax makes it possible, where appropriate, for social and economic reasons, to effect reductions or increases in the tax burden on certain goods and services by means of a differentiation in the rates, but the introduction of zero rates gives rise to difficulties, so that it is highly desirable to limit strictly the number of exemptions and to make the reductions considered necessary by applying reduced rates which are high enough to permit in normal circumstances the deduction of the tax paid at the preceding stage, which moreover achieves in general the same result as that at present obtained by the application of exemptions in cumulative multistage systems;
[3] Article 10 of the Second Directive exempted the supply of goods and services to places outside the relevant member state and the importation of goods and services. But member states also retained the right to determine the other exemptions which they considered necessary. The Second Directive was not more specific than that in identifying what other exemptions might be granted. Provisions for exemption from VAT have been carried through to the Principal VAT Directive (PVD) (2006/112/EC) but are now set out in considerably more detail than in the original EC legislation. In article 132 one finds what are described as exemptions for certain activities in the public interest. These include in article 132(1)(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 of 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;
[4] The exemptions provided for in article 132 are stated in article 131 to 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.
[5] Examples of the type of conditions which a member state might choose to impose are contained in article 133. These relate to exemptions conferred on bodies other than those governed by public law and therefore to the “other organisations” referred to in article 132(1)(i) above. They include the requirement that the body in question should not systematically aim to make a profit; should be managed and administered on an essentially voluntary basis and should charge prices which are approved by public authorities or which do not exceed such approved prices; or must not be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT.
[6] The United Kingdom has chosen to implement article 132(1)(i) not by imposing one or more of the article 133 conditions but by identifying in domestic legislation the public or other bodies which it recognises as qualifying under article 132(1)(i). Exempt supplies of goods and services within the United Kingdom are specified in Schedule 9 to the Value Added Tax Act 1994 (VATA 1994). The exemptions relating to education are contained in Group 6. Item 1 is:
The provision by an eligible body of–
- education …
“Eligible body” is defined in Note (1). It includes a long list of different types of school and higher education establishments but we are concerned on this appeal with paragraph (b):
- a United Kingdom university, and any college, institution, school or hall of such a university;
[7] The issue on this appeal is whether SAE Education Limited (“SEL”) was properly assessed to VAT for the periods from 1 May 2009 to 29 February 2012 in respect of supplies of education. It claims that the supplies were exempt on the basis that, since at least 1 May 2009, it has been a college of Middlesex University (“MU”) and therefore an eligible body within the meaning of item 1 of Group 6. The First-tier Tribunal (“F-tT”) (Judge Clark and Dr James MBE) allowed its appeal against the assessments but its decision was reversed by the Upper Tribunal (Tax and Chancery Chamber)...
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