Services closely related to education – exemption

The Advocate General’s opinion has been released in the Brockenhurst College case (C-699/15). This was a UK referral asking whether supplies of restaurant and entertainment services made by a college to paying members of the public (who were not the recipients of the college’s principal supply of education) are ‘closely related’ to the provision of education, and therefore exempt from VAT under EU law. The supplies were made or facilitated by the catering and performing arts students (being the recipients of the college’s principal supply of education) as part of their courses, and were an essential part of their education.

Brockenhurst operated a restaurant in which catering functions were undertaken by students under the supervision of their tutors. The restaurant charged for the meals at subsidised rates.The college’s performing arts  students  aslo staged concerts and performances for paying members of the public.

The First-tier Tribunal (FTT) had ruled that the supplies of restaurant and entertainment services by the college to members of the public were exempt from VAT as supplies of ‘services closely related to education’ and on appeal by HRMC the Upper Tribunal upheld the decision. The Court of Appeal decided to refer questions to the CJEU for a preliminary ruling.

The AG  stated that the Directive does not define the concept of supplies ‘closely related’ to education. But it is clear from the actual wording of the provision that it does not cover the supply of goods or services which are unrelated to ‘children’s or young people’s education, school or university education, vocational training or retraining’. Furthermore, the supply of goods or services can be regarded as ‘closely related’ only where they are also considered to be ancillary to the principal supply.

The purpose and objective of the education exemption is that access to the provision of education, for the benefit of pupils, students and trainees, does not become more expensive due to VAT. Also the principle of fiscal neutrality must be taken into account in the interpretation of the exemptions in the Directive. From the perspective of the end consumer (in this case the third parties seeing the shows and eating in the restaurants), it is irrelevant whether the food is consumed in a normal restaurant or in a training restaurant, or in a normal theatre or a college theatre. In both cases, the consumer is fed/entertained and in both cases he pays money for that consumption.

The AG therefore said that closely related transactions do not include the supply of restaurant and entertainment services by an educational establishment to paying members of the public who are not recipients of the education.

This has been a long running case ans should the CJEU agree with the AG’s opinion, colleges which have submitted claims will have to reverse the claim process and revert to treating such income as taxable.  This would impact on the partial exemption position for current and prior years, and in some cases capital goods scheme adjustments, where relevant.

Office of Tax Simplification: terms of reference for its review of VAT

The OTS has published the terms of reference for its review of VAT announced in Autumn Statement 2016, setting out areas which will fall within its scope.

Areas suggested for  the simplification review include:

  • VAT registration thresholds;
  • complexities created by the definitions of types of supply  currently exempted, reduced rated or zero-rated, and whether they need to be modernised;
  • whether there is demand for having a more widely available formal rulings system, e.g. in relation to TOGCs;
  • the potential for simplifying partial exemption methods, the option to tax and the Capital Goods Scheme;
  • Special Accounting Schemes;
  • general administration including the penalty regime and the appeals process; and
  • opportunities to align VAT with other taxes (or vice versa) as part of Making Tax Digital.

The review will not be concerned with VAT rates or issues arising from Brexit, including the treatment of financial services, statistical reporting and EU cross-border VAT rules such as the MOSS. But the review will consider Brexit in looking at opportunities to simplify VAT
for the future.

The terms of refernce are on the website.