United Kingdom VAT & Duties Tribunals Decisions

You are here: BAILII >> Databases >> United Kingdom VAT & Duties Tribunals Decisions >> Smith (t/a Qualified School of Motoring) v Revenue & Customs [2007] UKVAT V20275 (26 July 2007)
URL: http://www.bailii.org/uk/cases/UKVAT/2007/V20275.html
Cite as: [2007] UKVAT V20275

[New search] [Printable RTF version] [Help]

John Mitchell Cameron Smith (t/a Qualified School of Motoring v Revenue & Customs [2007] UKVAT V20275 (26 July 2007)

20275

SUPPLY — driving school — sole proprietor with a number of instructors — whether the driving tuition fees exempt by virtue of VATA 1994 Sch 9 Group 6 item 2 (private tuition) — held not an exempt supply

SUPPLY — whether the tuition a taxable supply from the Appellant — or whether this supply was from the individual instructors as principals — held that the liability to output tax on the tuition fees fell on the Appellant

Appeal dismissed on both issues

MANCHESTER TRIBUNAL CENTRE

JOHN MITCHELL CAMERON SMITH trading as

QUALIFIED SCHOOL OF MOTORING Appellant

- and -

THE COMMISSIONERS FOR

HER MAJESTY'S REVENUE AND CUSTOMS Respondents

Tribunal: Elsie Gilliland (Chairman)

Alban W Holden

Sitting in public in Manchester on 10 May 2007

Alan Rashleigh & Company, tax consultant for the Appellant

Brian McCluggage, counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

The appeal before the tribunal was that of John Mitchell Cameron Smith at the relevant time trading as sole proprietor of Qualified School of Motoring (the Appellant) against a decision in a letter dated 23 February 2006 from Nathan Lunn an officer of HM Revenue and Customs. The letter was headed "Ruling on your status and the liability of your supplies". The business of the Appellant was that of a driving school with a number of driving instructors. We were told by Mr Lunn who gave evidence to the tribunal that no assessments have been raised by him against the Appellant. We were informed by the Appellant that he would shortly cease trading as a sale of the business was about to be completed.

There are two issues before the tribunal. The first is whether the supply of the driving tuition is exempt under s.31 of the Value Added Tax Act 1994 ("the Act") falling within Schedule 9 Group 6 Item 2 under the heading of Education. The second is whether the tuition constitutes a taxable supply made by the driving school and thus that the Appellant is accountable for output tax on it or whether it is supplied by the individual driving instructors with no VAT liability for it falling on the Appellant. It was submitted on the Appellant's behalf that the Appellant's role was that of an agent with the driving instructors running their own businesses as principals in their own right.

Mr Smith in his evidence described the business operation. Qualified School of Motoring (QSM) supplied dual control cars, fully insured and carrying signage for QSM to various driving instructors. The signage was not easily removeable. Whilst there were a few instructors who supplied their own cars duly insured, this comprised only a small percentage about one, two or three of the total. Those with their own cars normally did not want the signage on and though Mr Smith would have preferred it on, he did not make it an issue. They had a QSM removeable roof box. The Appellant provided the drivers with booking facilities, advertised the school (at the Appellant's cost) in Yellow pages and supplied the bulk of the pupils. The instructors paid a fixed fee for the services. The few who provided their own car paid a reduced fee. There was some flexibility on how the pupils paid for their lessons. Most paid the instructor direct in cash as they went along, some paid the instructor by cheque, but they could pay the Appellant in advance, or indeed sometimes an instructor would have a cheque made payable to the Appellant. In the circumstances where the Appellant received the tuition fees it would make a deduction from the fixed fee of those amounts. The Appellant claimed no part of the tuition fees earned only the fixed fee agreed with the drivers. If a driver had separate pupils this did not give rise to any further fee. The instructors were responsible for their own tax and NIC and kept their own records and diaries. The Appellant kept a copy of the diary appointments.

The first lesson would generally have been booked by the QSM office as the point of contact, but subsequent bookings would be made with the instructor direct. Again there was flexibility as to how cancellations would be dealt with. If there were a complaint which could not be resolved between a pupil and his or her instructor the Appellant would become involved, if necessary placing a pupil with another instructor. Occasionally Mr Smith would give driving lessons to the public using a QSM car and charging at the standard rate.

The Appellant trained its own instructors generally without charge as the one aim was to get the right people. It did not test the instructors as they would have a professional qualification from the Driving Standards Agency. If someone wanted to train and set up on his own account there would be a charge.

The evidence of Mr Smith on the first issue was that in the late 1990s early 2000s he had sent a car with an instructor to a school in Hyde once every week for an extra-curriculum activity for 15 year olds and over. The nature of the instruction was for the pupil to sit in the dual-control vehicle's driving seat and do some manoeuvres reversing and driving forward at low speed. He sometimes went himself.

The wording of the relevant item permitting the exemption claimed that is item 2 of Schedule 9 Group 6 of the Act is:

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

On the point as to whether the tuition was by "an individual teacher acting independently of an employer", the Appellant's representative submitted that the educational exemption could be claimed by a sole proprietor. In our view this person would on the face of it be a principal. On his own evidence Mr Smith gave tuition personally only sporadically. In any event it is clear that to qualify for the exemption by virtue of this item the subject has to be one "ordinarily" taught in a school or university. Mr Smith in his evidence referred to the driving lessons given at the Hyde school at which the Appellant had given lessons as outside the curriculum. His representative brought to the hearing some material copied from the Internet. One page referred to the presentations provided by the Driving Standards Agency under its award winning Arrive Alive Road Safety Programme. Other copy related to the Education programme of the British School of Motoring which provides classroom resources that can be used in schools and colleges to address road safety issues in a practical way. One section related to "Ignition off road" a set of car-based off-road sessions involving specially trained BSM instructors. Nothing in the content associated this material with subjects ordinarily taught in schools or universities and whilst there is clearly some opportunity for off-road under-age driving tuition there was no sound information presented to us as to how significant in numbers this might be.

Nor are we persuaded by the decision in Allied Dancing Association Ltd v Commissioners of Customs and Excise (MAN/91/84). The Chairman in that case found the teaching of ballroom dancing to juniors with a view to their taking ballroom medal tests (inter alia) "education of a kind provided by a school or university". The provision then applicable has however subsequently been varied to that set out in item 2 above where the tuition has to be in a "subject ordinarily taught in a school or university". In our opinion this has not been established in the case of the driving lessons in the instant case and the appeal fails on this issue.

We look now at the second issue namely the nature of the supply and by whom it was made. It was submitted on the Appellant's behalf that it supplied merely administrative facilities (on which output tax was properly payable) and was not the supplier of the driving tuition received by the pupils from the driving school's various instructors. In his evidence Mr Smith gave the impression that his was a low-key and non-intrusive relationship with the instructors; for instance that the Appellant had no objection to them having clients on their own account quite separate from QMS and even in these circumstances the fixed fee was not increased. Further there was no written contract we were told between the Appellant and the individual instructors and none between QMS and the pupils.

However in our view the evidence points to a different situation. Although he said that there was consultation with the instructors on the fees to be paid by the pupils nevertheless Mr Smith acknowledged that the final decision was that of the Appellant. There was in place an arrangement by which the instructors were to have at least 33 hours work weekly calculated over a three month period and if not available there was a reduction in the fixed fees payable by them to the Appellant. It appears to us that there was no disadvantage to the Appellant if the drivers had an opportunity for a limited amount of additional work. However Mr Smith confirmed that this would not extend to drivers taking on driving for another driving school which he said would not work. As well as in all cases the provision of insurance and office facilities and in most cases the provision of the car the Appellant undertook the advertising all in the name of QMS. It seems clear to us that the perception of the public and the pupils would be that they were dealing with QMS and not with individual drivers. This inference was to our mind supported when in answer to questioning in re-examination by his own representative Mr Smith acknowledged that if something went completely wrong he considered that the responsibility would lie with the Appellant; that although sub-contracting the work the contract was still with the Appellant. This was to stop the school's reputation being damaged; for instance whether required legally or not a refund would be made to a pupil even if not justified to protect the name of the business. This of course was the response of a lay person not a lawyer but in our view it indicates in essence how Mr Smith saw the relationship between the Appellant the driving instructors and the pupils.

We are satisfied that the Appellant was providing more than administrative support to the driving instructors and that there was a strong element of direction and control without any indication that the drivers were free to run a business as they might choose. We consider that they were supplying the services on behalf of the Appellant.

We find that the Appellant is the supplier of the driving tuition services and accordingly is liable for output tax on the tuition fees. This applies to the whole of the period of the operation of the business from registration as we are not aware of any change in the procedures during that time. Nor do we differentiate in our decision between those drivers who are supplied with cars and those few who have supplied their own. The Appellant himself had said that there was no difference and that he tried to keep a balance.

Accordingly the appeal is dismissed on both issues.

As Customs have not sought costs we make no direction as to costs.

ELSIE GILLILAND

CHAIRMAN
Release Date: 26 July 2007

MAN/06/0166