Brockenhurst College win their case
Brockenhurst College have been successful in their appeal to the Upper Tier Tribunal who have confirmed that the college could treat income received from its Training Restaurant and Performing Arts productions as exempt supplies, closely related to education.
This will have a significant impact on Further Education colleges and means there is scope to treat income from these areas and others, such as hair and beauty, motor mechanics, construction etc. as exempt rather than as standard rated and could lead to a substantial recovery of overpaid VAT.
Brockenhurst College, which is an eligible body for VAT purposes provides catering, hospitality and drama courses, with the emphasis on practical training. There is a restaurant on campus, which:
- is open during term time only,
- is used by the catering students to prepare meals, under supervision of the teachers,
- meals are then served to the public at a subsidised price of £10 a head.
For the drama courses the students put on productions and tickets are similarly sold to the public.
The College argued that the income from catering and theatre tickets should be VAT exempt, either as a supply of education, or of goods and services closely related to education. As a result it submitted a claim for VAT overpaid. HMRC rejected the claim on the basis that the supplies were taxable as they were not supplies of education (the supply of education was paid for by separate funding) and the catering and entertainment services were supplied to the paying public, not the students, so were not for the “direct use” of the students, as required by the UK exemption. The direct and immediate link was between the supply of the meal/performance, and the payment made by the public. The public was not receiving education.
The First Tier Tribunal (“FTT”) found for the College saying that it had to look beyond the monetary transaction and the legal relationship to the true beneficiaries of the service. This was necessary to give effect to the exemption contemplated in the Directive. Without the supplies of catering or entertainment the education received by the students would not be of the required standard. The FTT also decided that the supplies were not in competition with commercial enterprises as there was no intention to make a profit and the customers knew the meals and plays were prepared and put on by students and so might be of a lower standard than supplies by a commercial provider. They concluded that the supplies were not intended to create another source of income for the College and although they were not education, they were closely related to education.
HMRC appealed to the Upper Tribunal who have confirmed this view.
Why is this important?
This case is important because the decision implies that the scope of the exemption has widened. Although supplies of catering and entertainment are made to, consumed by and paid for by third parties, the FTT decided that the students are the true beneficiaries and that the supplies are integral to the supply of education they receive. If this decision is correct, the exemption would not just apply to catering and entertainment but to all goods and services offered to the public cheaply by students of eligible bodies needing to practice/refine their practical skills as part of their course, e.g. hairdressing, beauty treatments, dog grooming etc.
The case does raise a number of additional questions. For example the position is not clear where the underlying education is non-business rather than exempt, which would often be the case with these practical courses, as the exemption for “closely related supplies” only applies where the supply of education is itself exempt. If the reasoning of the case is followed through, supplies to the public that are closely related to non-business education would then also be non-business, since they are subsidised, as any other outcome would be distortive.
There are other areas that need to be considered such as the overall impact on VAT recovery in making these supplies exempt and whether or not HMRC will invoke the unjust enrichment rules to restrict repayments to colleges. As a first step, colleges or similar institutions who make such supplies should consider whether to submit a claim to HMRC to protect their position. If you would like to discuss this further or require assistance collating and submitting the claim to HMRC please contact firstname.lastname@example.org