TC03358: SAE Education Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 28 February 2014 |
| Neutral Citation | [2014] UKFTT 218 (TC) |
| Date | 28 February 2014 |
| Court | First-tier Tribunal (Tax Chamber) |
[2014] UKFTT 218 (TC)
Judge John Clark, Dr Michael James, MBE.
Melanie Hall QC, instructed by Davenport Lyons, appeared for the Appellant
Sarabjit Singh of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Value added tax - Exemption - Company providing educational courses to students - Succession of agreements between company and university - Whether supply of educational courses by company exempt - Whether courses supplied by eligible body - whether company a college of a university - Value Added Tax Act 1994 ("VATA 1994"), Value Added Tax Act 1994 schedule 9 group 6Sch. 9, Grp. 6, item 1, note (1)(b) - EC Council Directive 2006/112, subsec-or-para 1 article 132art. 132(1)(i) - Appeal allowed.
The First-tier Tribunal (FTT) allowed the appeal by SEL against HMRC's decision that SEL is not an "eligible body" for the purposes of Grp. 6, so its supplies of education are not exempt.
SEL, trading as "SAE Institute", supplies education and training in audio and digital media technologies and production.
In C & E Commrs v School of Finance and Management (London) LtdVAT[2002] BVC 158, the following factors were listed at para. 16 as being relevant in deciding whether the education exemption applied:
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(2) presence of a foundation document establishing the college as part of the university, by way of constitutional link;
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(3) absence of independence;
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(4) financial dependence or interdependence;
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(5) absence of distributable profit;
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(6) entitlement to public funding;
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(7) permanent links between the college and the university;
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(8) physical proximity to the university of which it is said to be part;
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(9) obligation to offer a minimum number of university places;
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(10) having a similar purpose to that of the university;
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(11) providing courses which lead to a degree from the university;
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(12) having such courses supervised by the university, and quality standards regulated by the university;
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(13) admitting students as members of the university, with university identity cards;
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(14) submitting those students to disciplinary regulations and requirements of the university;
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(15) entitling successful students to receive a degree from the university at the university degree ceremonies;
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(16) being described as an associate/affiliated college of the university.
Having considered the above list, the FTT held at para. 133 that it must apply the following principles in evaluating the evidence:
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(2) the factors listed above in School of Finance and Management (London) Ltd may help in determining whether a body is a college of a university, but that list of factors is not exhaustive and factors within that list may not always be relevant;
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(3) it is necessary to consider the particular circumstances and facts of each individual case, which may involve considering factors other than those listed in School of Finance and Management (London) Ltd;
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(4) in considering any particular factor, it must be determined whether that factor is compliant with EU law. If it is not, that factor must be put aside and not taken into account in reviewing the evidence;
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(5) the "fundamental purpose" test does not replace the similar objects test, but has something in common with the factor of having a similar purpose to that of the university;
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(6) there must be at least some degree of integration of the body with the university concerned; and
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(7) it is inappropriate to follow a "check list" or "tick box" approach. The cumulative effect of the relevant factors must be assessed to derive an overall impression, weighing the factors in the balance: some factors may carry more weight than others.
At para. 254, the FTT held that the diploma courses amounted to education of a university standard. The diploma courses are not merely a "stepping stone" to the Middlesex University-validated degree courses provided by SEL, but part of them. Whether a student chooses to stop at the point of achieving a diploma, or to continue through to the degree qualification, does not affect the educational standard of the diploma as a constituent part of the degree course. By analogy, if a student of "University X" were to give up half way through a degree course, this would not affect the standard or nature of the education received up to that point; it would remain university education.
At para. 288, the FTT held that SEL has been an Associated College of Middlesex University (MU) since 1 May 2009. The appropriate documentation does not appear to have been entered into, but both SEL and MU have proceeded on the basis of this status having continued for some time. There is a degree of dependence of SEL on MU. SEL does not fulfil the "absence of distributable profit" test. SEL is entitled to public funding, but of a more limited amount. The links between SEL and MU are of a long-term nature, as demonstrated by the length of the relationship; there is no reason to assume that either party would wish to terminate this existing relationship. The operations of SEL and MU are carried out on separate campuses, but two of the SEL campuses are reasonably close to those of MU. SEL is not obliged to offer a minimum number of university places. SAE Institute, and thus SEL, has similar purposes to those of a university. SEL provides courses leading to a degree from MU. Most of SEL's courses are supervised by MU and the quality standards of such courses are regulated by MU. Students are admitted as members of MU, but do not receive MU identity cards as such. The SEL identity cards acknowledge the relationship between SEL and MU. Students are not directly subject to the disciplinary requirements of MU. Students receive their degrees from MU at MU degree ceremonies. SAE Institute has been described by MU as an Associated College, but the extent of MU's acknowledgment of that status was, at least initially, limited.
Taking all findings into account, the FTT held that there was a substantial degree of integration of SEL within MU, although as a separate commercial entity, SEL inevitably retained elements of separation and independence. A major factor in terms of integration was MU's decision to advance SEL to accredited status. The fact that SEL was one of only three institutions on which such status had been conferred by MU demonstrated the closeness of the relationship between SEL and MU (para. 289 of the decision).
The factors which the FTT considered to carry the greatest weight are:
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(2) status of Associated College, combined from September 2010 with status of Accredited Institution;
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(3) long-term links between SEL and MU. Similar purposes to those of a university, namely the provision of higher education of a university standard;
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(4) courses leading to a degree from MU, such courses being supervised by MU, which regulated their quality standards; and
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(5) conferment of degrees by MU, received by SEL students at MU degree ceremonies (para. 293 of the decision).
Thus, the FTT held at para. 294 of the decision that SEL is, and has been since 1 May 2009, a college of MU.
The FTT held that 90 per cent of the education being provided to SEL's students is higher education of similar character to that provided by MU in respect of its own students (para. 313 of the decision). The Upper Tribunal's decision in Finance & Business Training Ltd v R & C CommrsVAT[2013] BVC 1860 does not go as far as to require 100 per cent of the activities carried on by the organisation in question to be of the same character in order for that organisation to qualify as an eligible body.
This is the most recent case on whether a company is a college of a university, which indicates that HMRC are looking carefully at this form of VAT exemption.
[1]The Appellant ("SEL") appeals against a decision made by the Respondents ("HMRC") concerning supplies of education made by SEL, namely that SEL is not an "eligible body" for the purposes of Value Added Tax Act 1994 group 6Group 6 of Schedule 9 to the Value Added Tax Act 1994 ("VATA 1994"), and that its supplies of education are accordingly not exempt supplies for VAT purposes. SEL also appeals against various assessments made in accordance with that decision.
[2]The evidence consisted of fourteen lever-arched files of documents, including two witness statements given by Professor Zybis Klich. In addition, Professor Klich gave extensive oral evidence. From the evidence we find the following background facts; we consider disputed evidence later in this decision.
[3]The initials "SAE" are an acronym for "School of Audio Engineering". SEL is a member of the SAE corporate group, which trades worldwide as "SAE Institute" in the provision of education and training in audio and digital media technologies and production.
[4]According to the SAE Institute website, "SAE London opened its doors in 1985". Since that date, the SAE Institute business in the UK has been carried on by a succession of different UK subsidiaries of SAE Technology Group BV ("SAEBV"). On 7 July 1995, SAE Educational Trust Ltd ("SETL") was incorporated as a company limited by guarantee.
[5]On 1 January 1996, SETL entered into a Licensing Agreement with SAEBV (then named SAE Nederland BV). This enabled SETL to provide courses in audio engineering, film making, electronic music production and music business. Some of these courses led to a diploma qualification awarded by SAE, and following development of the relationship between SAE Institute and Middlesex University ("MU") as described under the next sub-heading, others led to a degree qualification validated by MU.
[6]On 29 April 2009, SEL entered into a licensing agreement with SAE Licensing AG. (No copy of that agreement was included in the evidence.) On 30...
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