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VAT Tribunal Decisions - Alternative medicine

07 November 2008 / John Newth , Allison Plager
Categories: Tax cases

CranioSacral Therapy is a technique that is now becoming popular and originated in osteopathy. It comprises the manipulation of cranial bones and what is described as a 'whole body approach'.

CranioSacral Therapy is a technique that is now becoming popular and originated in osteopathy. It comprises the manipulation of cranial bones and what is described as a 'whole body approach'.

The treatment and tuition originated from an American, Dr John Upledger and the appellant traded as the Upledger Institute UK. There were two levels of training and he taught the first two. That provided 60 per cent of the fee income of the Upledger Institute UK. However, 40 per cent of the fee income enjoyed by the appellant was a result of tuition supplied by others in relation to areas where he had not been trained or authorised to teach.

The appellant appealed against a ruling by Customs and Excise that tuition fees paid to him in respect of teaching services provided by other persons did not qualify for exemption as private tuition. Accordingly, the appeal concerned legal issues of whether the appellant was making exempt supplies within Item 2 of Group 6 of Schedule 9 to the VAT Act 1994 (Private Tuition).

Somewhat to the surprise of the VAT tribunal members, Customs and Excise had conceded that the teaching by the appellant personally fell within Item 2 of Group 6, and in that respect the department conceded that what was provided was the subject ordinarily taught in a school or university.

The tribunal took account of the concession by Customs and Excise that what was being taught, if taught by the appellant himself, was an exempt supply within Item 2 of Group 6. Plainly, tuition by the appellant himself was a supply by a principal, independent of any employer and for his own purposes. That supply fell clearly within not only the terms of the United Kingdom legislation but also Article 13A of the European Community Sixth Directive.

However, if the tribunal interpreted the legislation in the way contended by counsel for the appellant, it was considered that this would leave the way open for possible VAT avoidance. Therefore the tribunal had no hesitation in concluding that the supplies given via paid lecturers in subjects in which the appellant himself was not qualified to teach could not in any reasonable way be described as a supply of private tuition by an individual teacher acting independently of an employer. The appellant himself could not supply the tuition, nor could the other teachers supply without his intervention. It was his intervention and the manner in which he remunerated the lecturers out of fees obtained by him from students which, in the view of the tribunal, meant that the provisions for exemption did not apply to those supplies.

In conclusion, the tribunal chairman, Mr T Gordon Coutts QC, observed that it might be to the advantage of the appellant to standard rate his entire supplies, or take other steps to resolve the consequences of the tribunal finding, which was that the appeal was refused.

(John Page, trading as Upledger Institute (16650).)

Capped deal

The University of Sussex brought an appeal against Customs for refusing to repay residual input tax, which the university had failed to claim as a credit against its output tax since 1973. The tribunal ruled, in July 1999, that the university should not be precluded from making such a claim, and also said that the parties should reach an agreement on the amounts for the years where it was accepted that the claim was made in time.

Subsequently, the university appealed to the VAT tribunal again in respect of the three year capping legislation at section 80, VAT Act 1994, saying that it was not claiming under section 80, nor did it have to do so. It was claiming input tax to which it had an immediate right to be repaid, and section 80 dealt with output tax that was not due rather than input tax. The second phase of the capping legislation which did refer to input tax claims was not introduced until March 1997, and only then with prospective effect from 1 May 1997.

The university claimed that it was not claiming repayment of overpaid tax, but that its claim was a claim for input tax, so section 80 did not apply. Customs, in saying that the university could only substantiate its claim under section 80, were attempting to turn a claim to input tax into one for overpaid output tax.

The tribunal said that the university had no rights arising from Article 18(3) of the Sixth Directive to the payment that it was claiming. The amount that it claimed was not originally paid because of a breach of European Community law, but because it chose not to make the claim at the appropriate time. It seemed contrary to the deduction system that a trader could ignore the rules telling him how to exercise his right to deduct without any possibility that this right could be curtailed when he did eventually claim it. If the draftsman had intended section 80 to apply only to overpayments of output tax, then it would have been easy for him to have done so.

The appeal was dismissed.

(University of Sussex (16656).)

Categories: Tax cases
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