First-tier Tribunal (Tax)

[2009] UKFTT 388 (TC)

TC00323

Appeal number LON/2008/1319

EXEMPTION – tuition of a type taught in a school or university supplied by an employee – whether exempt on the basis of the principle of fiscal neutrality – no – appeal dismissed

FIRST-TIER TRIBUNAL

TAX

                          MARCUS WEBB GOLF PROFESSIONAL          Appellant

                                                                      - and -

                                 THE COMMISSIONERS FOR HER MAJESTY’S

                                             REVENUE AND CUSTOMS (VAT)         Respondents

                        TRIBUNAL: TRIBUNAL JUDGE JOHN AVERY JONES CBE

                                                DIANA WILSON                 

Sitting in public in London on 6 April 2009 and 14 December 2009

B J Rice of BJ Rice & Associates, for the Appellant

Suzanne Lambert, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.      Marcus Webb Golf Professional (a partnership) appeals against a decision dated 31 January 2008 that repayment claims for the accounting period 06/03 are capped by s 80(4) VAT Act 1994, and secondly that supplies by Mr Richard West do not qualify for exemption under item 2 of Group 6 of Schedule 9 to the VAT Act 1994.  The Appellant was represented by Mr B J Rice and the Respondents (“HMRC”) by Miss Suzanne Lambert.

2.     Item 2 of Group 6 exempts:

“the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer.”

Item 2 was no doubt intended to reflect art 13A(1)(j) of the Sixth Directive (now art 132(j) of the Recast VAT Directive):

“(j) tuition given privately by teachers and covering school or university education.”

3.     The facts are not in dispute:

(1)  The Appellant is a partnership (“the Partnership”) between Mr Marcus Webb, his wife and Marcus Webb Golf Professional Limited (“the Company”).  Mr and Mrs Webb are directors and employees of the Company.

(2)  Mr Webb makes supplies both as a member of the Partnership, which are treated as exempt, and as a director of the Company, which HMRC have taxed and the Appellant claims are exempt.

(3)  Mr Richard West is employed by the Appellant.  He also provides golf tuition to his own clients on a self-employed basis at fees determined by him and invoiced on his own letterhead. 

(4)  Mr West also provides tuition to the Appellant’s clients who come to the golf professional’s shop or who are passed on to him by the Appellant.  These are for fees published in the shop and are invoiced on the Appellant’s letterhead.  The Appellant claims that these are exempt.

4.     Mr Rice, for the Appellant, contends that all tuition is exempt whether carried out as an individual or as an employee of the Company.  The tuition provided is identical and on the principle of fiscal neutrality must be treated in the same way.  Because domestic law does not implement the Directive correctly HMRC cannot rely on the three-year cap.

5.     Miss Lambert for HMRC points to the words “given privately” in art 13A(1)(j) of the Sixth Directive and, given the interpretation of these words in Haderer, Case C-455/05, contends that these words are correctly transposed into domestic law by the words “acting independently of an employer.”  She also points out that the same point has been decided in favour of HMRC in HMRC v Empowerment Enterprises Ltd [2008] STC 1835 by the Court of Session, which although not technically binding are highly persuasive given the need for VAT law to be harmonised throughout the UK.

6.     It is common ground that art 13A exempts activities in the public interest, and that exemptions are to be interpreted strictly.  As the ECJ said in Haderer:

16      As a preliminary point, it should be noted that Article 13A of the Sixth Directive relates to the exemption from VAT of certain activities in the public interest. However, that exemption does not cover every activity performed in the public interest, but only those which are listed in that provision and described in great detail (see Case C‑149/97 Institute of the Motor Industry [1998] ECR I‑7053, paragraph 18; Joined Cases C‑394/04 and C‑395/04 Ygeia [2005] ECR I‑10373, paragraph 16; and Case C‑401/05 VDP Dental Laboratory [2006] ECR I‑0000, paragraph 24).

…

 18      The terms used to specify those exemptions are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all services supplied for consideration by a taxable person (see Case C‑287/00 Commission v Germany [2002] ECR I‑5811, paragraph 43, and Case C‑8/01 Taksatorringen [2003] ECR I‑13711, paragraph 36). Nevertheless, the interpretation of those terms must be consistent with the objectives pursued by those exemptions and comply with the requirements of the principle of fiscal neutrality inherent in the common system of VAT (see Case C‑45/01 Dornier [2003] ECR I‑12911, paragraph 42; Case C‑498/03 KingscrestAssociates and Montecello [2005] ECR I‑4427, paragraph 29; and Case C‑106/05 L.u.P. [2006] ECR I‑5123, paragraph 24). Thus, the requirement of strict interpretation does not mean that the terms used to specify the exemptions referred to in Article 13 should be construed in such a way as to deprive the exemptions of their intended effect (see, to that effect, Case C‑284/03 Temco Europe [2004] ECR I‑11237, paragraph 17, and also, in relation to university education, Commission v Germany, paragraph 47).

 19      The same must also be true of the specific conditions laid down for those exemptions to apply, and in particular of those concerning the status or identity of the economic agent performing the services covered by the exemption (see, to that effect, Case C‑216/97 Gregg [1999] ECR I‑4947, paragraphs 16 to 20).

7.     Nor is the existence of the principle of fiscal neutrality in dispute.  It was described by the ECJ in Kügler Case C-141/00 in relation to medical care in art 13A(1)(c) in this way:

30. The principle of fiscal neutrality precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned. It follows that that principle would be disregarded if the possibility of relying on the exemption which is envisaged for the provision of medical care referred to in Article 13(A)(1)(c) were dependent on the legal form in which the taxable person carries on his activity (see, to that effect, Gregg, cited above, paragraph 20).

The reference to Gregg, Case C-216/97 is:

20. The principle of fiscal neutrality precludes, inter alia, economic operators carrying on the same activities from being treated differently as far as the levying of VAT is concerned. It follows that that principle would be frustrated if the possibility of relying on the benefit of the exemption provided for activities carried on by the establishments or organisations referred to in Article 13A(1)(b) and (g) was dependent on the legal form in which the taxable person carried on his activity.

Mr Rice contends that the same reasoning, based as it is on the principle of neutrality, would also apply to para (j).

8.     We start by comparing the wording of paras (c) and (j), which are not the same:

The first item in each of these exemptions is similar being restricted to public law bodies (or similar bodies recognised by the member state).  The second item is an exemption for the provision of a related but narrower service carried on outside the institution mentioned in the first item: medical care rather than the whole of hospital care, and tuition rather than the whole of education.  In relation to medical care the ECJ said in Haderer:

35….in contrast to Article 13(A)(1)(b) of the Sixth Directive which concerns services encompassing a whole range of medical care normally provided on a non-profit-making basis in establishments pursuing social purposes such as the protection of human health, Article 13(A)(1)(c) applies to services provided outside hospitals and similar establishments and within the framework of a confidential relationship between the patient and the person providing the care, a relationship which is normally established in the consulting room of that person.

The same reasoning would apply to private tuition supplied outside a school or university, as the Advocate General said at [56]. 

9.     The essential difference between paras (c) and (j) is that the former describes the nature of the service (“the provision of medical care in the exercise of the medical and paramedical professions”) but says nothing about the supplier or the legal form of the supplier; the latter describes both the supplier (“privately by teachers”) and the nature of the service (“tuition… covering school or university education”).  The wording of para (j) is very specific in requiring that the service of tuition be supplied “privately by teachers.”  The term “privately” was defined by the ECJ in Haderer:

30      The term ‘privately’ enables the services supplied by the bodies mentioned in Article 13A(1)(i) of the Sixth Directive to be distinguished from those referred to in Article 13A(1)(j), which are provided by teachers on their own account and at their own risk.

31      The services referred to in Article 13A(1)(j) of the Sixth Directive may include private lessons, for example, in which case there is in principle a link between the actual content of the tuition and the teacher’s qualifications. In that regard, the wording of Article 13A(1)(j) in no way precludes tuition given to several people at a time from being covered by the exemption introduced by that provision.

32      In addition, as the Commission submits, the requirement that the tuition be given privately does not necessarily mean that there has to be a direct contractual link between the recipients of that tuition and the teacher who provides it. Indeed, such a contractual link often exists with persons other than the recipients, such as the parents of the pupils or students.

The Advocate General pointed out at [54] that this interpretation was clear in all languages except German, which probably explains why the reference came from Germany.  Therefore the tuition in para (j) must be not only private in the sense of being between the teacher and one or more pupils (although the contract does not have to be between them), but it must also be supplied by a self-employed teacher (“on their own account and at their own risk”) in contrast to para (i) in which the teachers will be employed by the school or university.

10.  Exactly the same interpretation of “privately” was reached by the Court of Session in Empowerment Enterprises before the ECJ decision in Haderer.

11.  This interpretation of “privately” by the ECJ is binding on us.  In contrast to medical care where the legal form of the supplier was not mentioned and therefore the principle of neutrality was given scope to apply to say that the medical professional could be self-employed or employed by anyone (a commercial company in that case), here the tuition must be given by a self-employed teacher.  This leaves no room for the application of the principle to neutrality to say that it is not limited to self-employed teachers but it can include teachers employed by anyone; that would be contrary to the express wording of para (j), which as the ECJ said at [19] in Haderer (quoted in paragraph 6 above) must be construed strictly.  The principle of neutrality permits some leeway to extend the meaning of words, so that where the Directive uses the general term “establishments,” as in par (b) quoted above, rather than the more precise “legal persons,” the principle of neutrality can be used to extend this to individuals, as was done in Gregg to include a Northern Irish partnership:   

21. The answer to the questions must therefore be that Article 13A(1) of the Sixth Directive is to be interpreted as meaning that the terms ‘other duly recognised establishments of a similar nature’ and ‘other organisations recognised as charitable by the Member State concerned’, which appear in subparagraphs (b) and (g) of that provision respectively, do not exclude from that exemption natural persons running a business.

But there is a limit, and it is impossible to read “privately,” meaning self-employed, to extend to any type of employment.  We need not ask why the Directive makes this distinction but it clearly does.  In more abstract terms, Mr Rice is seeking to use a principle to override a rule rather than to interpret a rule.  This is not permissible and to do so would conflict with another principle, that of legal certainty.

12.  It follows that UK law has correctly transposed the Directive, and HMRC can rely on the three-year cap.  It also follows that tuition supplied by Mr West as an employee of the Appellant is not exempt.  

13.  Accordingly, we dismiss the appeal.

14.  The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules.   The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

JOHN AVERY JONES

TRIBUNAL JUDGE

RELEASE DATE: 31 December 2009