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Cite as: [2003] UKVAT V18184

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Kingscrest Associates Ltd & Anor v Revenue & Customs [2003] UKVAT V18184 (10 June 2003)

Cancellation of registration on ceasing to make taxable outputs – Item 9 Group 7 Schedule 9 VATA – compatibility of changes to that group with European Law – Article 13A Sixth Directive- Supplies exempt if changes compatible with European Law - use of other language versions- Should reference be made to ECJ? Yes

LONDON TRIBUNAL CENTRE

(1) KINGSCREST ASSOCIATES LIMITED

(2) MONTECELLO LIMITED

(Trading together as Kingscrest Residential Care Homes) Appellants

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Adrian Shipwright (Chairman)

John N. Brown CBE FCA ATII

Sitting in public in London on 6 and 7 May 2003

Nicholas Pains QC and Peter Mantle of Counsel for the Appellants

Colin Peters for the Respondents

DECISION

This is an appeal by Kingscrest Associates Limited and Montecello Limited ("the Appellants"), who trade together in partnership under the name 'Kingscrest Residential Care Homes' operating residential care homes.

The decision appealed against is a decision of the Commissioners of Customs and Excise ("the Respondents) to cancel the Appellants' registration for value added tax with effect from 21 March 2002 on the grounds that they ceased to make taxable supplies on that date.

The decision to cancel the Appellants' registration was made following the changes to item 9 of Group 7 in Schedule 9 to the Value Added Tax Act 1994. This change was made after the High Court decision in an earlier appeal by the Appellants (see Kingscrest v CCE [2002] EWHC 410 (Ch)).

Before the change item 9 only exempted supplies made, otherwise than for profit, by a charity or public body, of welfare services and of goods supplied in connection therewith. With effect from 21 March 2002, a differently worded item 9 was substituted.

Item 9 now refers to

The supply by-

(a) a charity,

(b) a state-regulated private welfare institution or agency^[1], or

of welfare services and of goods supplied in connection with those welfare services.

By section 96(9) of the Value Added Tax Act, the provisions of Group 7 are to be interpreted in accordance with the Notes to Group 7. 'Welfare services' are defined so far as material in Note 6 of the Notes as

services which are directly connected with-

(a) the provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons;

(b) the care or protection of children or young persons; or

and, in the case of services supplied by a state-regulated private welfare institution, includes only those services in respect of which the institution is so regulated.

'State-regulated' is defined, so far as material, by Note 8, as follows:

(8) In this Group 'state-regulated' means approved, licensed, registered or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act, other than a provision that is capable of being brought into effect at different times in relation to different local authority areas.

Here "Act" means

(a) an Act of Parliament;

…..

It is common ground that Kingscrest's supplies are of 'welfare services' within the meaning of the domestic law and that Kingscrest is a state-regulated private welfare institution within the meaning of the legislation, and that Kingscrest is registered under, and regulated by, the relevant domestic law.

The issue in the appeal is whether the supplies of residential care made by them since 21 March 2002 are, for the purposes of VAT, exempt supplies (as the Commissioners contend) or taxable supplies (as the Appellants contend). This depends on whether the exemption provisions introduced into domestic law on that date are compatible with article 13A(1)(g) and (h) of the Sixth Directive.

In the English language version, article 13A provides, so far as material

1 Without prejudice to other Community provisions, Member States shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse-

…..

(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned;

(h) the supply of services and of goods closely linked to the protection of children and young persons by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned;

…..

2 Member states may make the granting to bodies other than those governed by public law of each exemption provided for in … (g) (h) … of this article subject in each individual case to one or more of the following conditions:

- they shall not systematically aim to make a profit, but any profit nevertheless arising shall not be distributed but shall be assigned to the continuance or the improvement of the service supplied, …..

The other language versions of Article 13A (so far as is relevant) do not use the word "charitable" but seem to refer on a literal translation to entities such as organisations having a social character. This would seem to be wider than "charitable" in English domestic law. If so it might justify the changes made to Group 7 in Schedule 9 to the Value Added Tax Act 1994 as a matter of European Law and require the word "charitable" in Article 13A to be interpreted as having a wider meaning than in English domestic law.

We consider that the decision in this appeal depends essentially on matters of European Law and that those issues are highly likely to be determinative of the appeal. If the changes made are compatible with European Law then the supplies would appear to be exempt. Even if we were to attempt to deal with these European Law issues ourselves the losing party would be highly likely to seek a reference to the European Court. The parties also wish the matter to be referred to the European Court of Justice. Accordingly we propose to refer the following questions to the European Court of Justice for a preliminary ruling.

Questions

1 Is it permissible to resort to other language versions of the Sixth Council Directive 77/388/EEC to elucidate the meaning of the word "charitable" in Article 13A.1(g) and (h), or must the word have the same meaning as in domestic law?

2 If article 13A(1)(g) and (h) are to be interpreted as applying to an organisation that is recognised as having a social character, are they to be interpreted as applying to a profit making entity such as the Kingscrest Residential Care Homes partnership?

3 Are article 13A.1(g) and (h) of the Directive to be interpreted as meaning that they confer on Member States a discretion to recognise for the purposes of those provisions an organisation which is registered under the Care Standards Act 2000 (or the Registered Homes Act 1984 or the Children Act 1989) but which is not a body governed by public law and does not have the status of a charity under the domestic law of the Member State concerned?

Adrian Shipwright

CHAIRMAN

RELEASED: 10 June 2003

LON/2002/691

Note 1 The words ‘or agency’ were inserted by the Value Added Tax (Health and Welfare) Order 2003 SI 2003 No 24 with effect from 31 January 2003. [Back]