Economic activity?

Provision of courses for subsidised fees

 

The taxpayer, a charity, provided education courses. Most students qualified for full fee remission and paid nothing but some courses did not qualify for government funding. The college claimed that a new building should be zero rated for VAT purposes. HMRC disagreed, saying the building was to be used in the course of a business. 

 

The Upper Tribunal said the parties should have referred the First-tier Tribunal to the fact that in VATA 1994, Sch 8 group 5 item 2, ‘Construction of buildings etc’, the use of the word ‘sole’ could be taken to allow up to 5% business use. It remitted the case to the First-tier Tribunal. 

 

The taxpayer appealed.

 

The issue for the Court of Appeal was whether the supply of courses to students paying subsidised fees amounted to an economic activity within VATA 1994, Sch 8, implementing Art 9 of the VAT Directive.

 

Lord Justice Richards said whether there was a supply for consideration and whether that supply constituted an economic activity were separate questions. A supply for consideration was a necessary but not sufficient condition for an economic activity. It required a legal relationship with reciprocal performance between the supplier and the recipient.

 

It was accepted that the fee paid was consideration for the supply of education. Further, evidence established that the supply of a course to fee-paying students was an economic activity. The college’s main activity was to provide education and the subsidised fees were a significant amount. Further, the fees paid by the students were calculated by reference to the cost of providing the courses, not to the means of the students.

 

The judge concluded that the provision of courses by the college to students paying subsidised fees was an economic activity carried on for the purposes of Art 9 of the VAT Directive. It was therefore a ‘business’ within note 6 in group 5 of Sch 8. The construction services for the new building were not zero rated.

 

The taxpayer’s appeal was dismissed.

 

The judge noted at the beginning of his decision that the dispute was ‘very long-running’. The college’s appeal against HMRC’s determination had been heard by the First-tier Tribunal in 2010. Some 50 cases, involving £120m of VAT, would be affected by the result in this case.