St Patrick’s International College Limited & Ors v The Commissioners for HMRC
[2023] UKFTT 408 (TC)
Fareham College v The Commissioners for HMRC
21 February 2023
[2023] UKFTT 214 (TC)
First-tier Tribunal
A college used students to run a restaurant, hair salon, and theatre. They claimed VAT exemption, but the taxman said they were really making money and competing with businesses. The judge agreed that the rules meant they should be taxed unless they could prove they weren't really making money. They proved this for the restaurant, but not the salon or theatre.
Key Facts
- •Fareham College (appellant) appealed HMRC's refusal to repay overpaid VAT (approximately £69,757) from 2011-2015.
- •The college provided services (restaurant, hair & beauty salons, performing arts centre) to the public, using students for practical training.
- •The college claimed the supplies were exempt under Group 6, Schedule 9, VATA 1994, as closely related to exempt education supplies.
- •HMRC argued the exemption was excluded under Article 134(b) of the Principal VAT Directive (PVD), as the basic purpose was to obtain additional income through competition with commercial enterprises.
- •The Tribunal considered whether Article 134(b) should be read into Item 4 of Group 6, Schedule 9 VATA 1994 (Issue A), and whether the college's supplies met the exclusion criteria (Issue B).
Legal Principles
Marleasing principle: National courts must interpret national law in light of EU directives to achieve the directive's purpose.
Marleasing SA v La Comercial Internacional de Alimentación SA Case C-106/89
Limits on Marleasing principle: Interpretation, not law-making; must go with the grain of legislation; cannot be contra legem (against the law); cannot involve policy choices for the courts.
Vodafone 2 v HMRC (No 2) [2009] EWCA Civ 446; Ampleaward Limited v HMRC [2021] EWCA Civ 1459
Article 134(b) PVD: Exemption from VAT is excluded if the basic purpose of the supply is to obtain additional income through transactions in direct competition with commercial enterprises.
Principal VAT Directive
Burden of proof: Taxpayers bear the burden of proving HMRC's assessment or decision is wrong. Exceptions exist for fraud or sham transactions.
Massey v HM Revenue & Customs [2015] UKUT 405
"Closely related" supplies: Must be ancillary to the principal supply of education; does not necessarily require essentiality to the principal supply
HM Revenue & Customs v Brockenhurst College C-699/15
"Essential" supplies: Supplies must be of such nature and quality that without them, the education provided would not have equivalent value.
HM Revenue & Customs v Brockenhurst College C-699/15
Fiscal Neutrality: Similar supplies in competition should not be treated differently for VAT purposes.
HM Revenue & Customs v Brockenhurst College C-699/15
Outcomes
Issue A: Article 134(b) is to be read into Item 4 of Group 6, Schedule 9 VATA 1994.
This ensures conformity with the PVD and the principle of fiscal neutrality. The interpretation does not contradict the wording of Item 4 or involve impermissible law-making.
Issue B (Restaurant): The college's restaurant supplies were NOT excluded from exemption.
The basic purpose was providing a realistic training environment, not obtaining additional income, despite operating in a competitive market. The low pricing and limited hours supported this conclusion.
Issue B (Salons): The college's salon supplies WERE excluded from exemption.
Insufficient evidence existed to determine whether the basic purpose of the supplies was to obtain additional income. The lack of detailed financial data on individual student services prevented a determination that additional income was not a basic purpose.
Issue B (Performing Arts Centre): The college's performing arts centre supplies WERE excluded from exemption.
Insufficient evidence was presented regarding the operations of the performing arts centre to determine whether the basic purpose was to generate additional income or if it was in direct competition with commercial entities.
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