Weekly VAT Update – 27 June 2017
The Learning Centre Romford (TLC) – whether or not it supplied exempt welfare
The question posed in this First Tier Tribunal case has cropped up fairly often in practice. Although this is a First Tier case, and does not generally set precedent, it relied on certain past cases from higher courts and may, therefore, be persuasive. However, as it has an EU aspect, that still depends on where our Brexit negotiations finally rest. The judgement runs to 29 pages; what follows is a very brief summary.
This appeal concerns whether or not the appellant’s supplies were exempt and had been exempt since its first registration on 1 September 2009. If its supplies were exempt, it should never have been registered and should now be retrospectively de-registered; if its supplies were not exempt, HMRC was correct to refuse to deregister the appellant. The case rested on:
- The meaning of a ‘state-regulated private welfare institution or agency’ within the UK legislation (Item 9 of Group 7 of Schedule 9 of the Value Added Tax Act 1994); and
- Whether the UK law correctly transferred the EU Directive. In particular, whether the ‘organisations recognised by the Member State concerned as being devoted to social wellbeing’ referred to in the EU legislation includes more bodies within its scope than the UK legislation.
The appellant is a limited liability company owned by Mr and Mrs Spence. It provides day-care to vulnerable adults with learning difficulties, who were referred to as ‘students’ by the company and in the hearing. Both directors have relevant qualifications and a great deal of experience in providing the care which the company provides. In very brief summary, the company provided their students with education, activities and entertainment during working hours Monday to Friday, providing meals and, where required, assistance with eating, administering medication, and personal care. They also provided the transport to bring the students to and from their homes and the facility. The education was geared towards teaching the students independent living. HMRC accepted that TLC provided ‘welfare services’ within the meaning of the Value Added Tax Act 1994. However, it was not a charity and, as a limited company, it was not a public body, and according to HMRC the third UK condition, namely that it be state regulated, was also not the case and so exemption was not available. TLC argued, amongst other points, that as its staff were regulated by the Disclosure and Barring Service “DBS” that they were therefore state regulated. For various reasons, the Tribunal stated that there was no approval of the welfare services provided; there was no licensing of the appellant to provide those services, nor was there any registration or exemption from registration, and that the appeal would not therefore succeed on point 1.
With regard to the EU aspect, TLC argued that there were six points that suggest that the UK had not properly adopted the EU law. The first four were rejected by the Tribunal. The fifth was that bodies located in Scotland and Northern Ireland making identical supplies to the appellant were granted exemption, so there was a breach of fiscal neutrality by the UK in its implementation of the EU legislation Art 132(1)(g). The Tribunal concluded that the UK has unlawfully exercised the discretion conferred on it by Art 132(1)(g) in choosing the regulation of welfare facilities as the criteria by which suppliers devoted to social wellbeing are ‘recognised’ for exemption – and that is because the law on regulation is devolved, leading to discrimination in VAT treatment between different suppliers offering identical services, but situated in different regions of the UK. The appeal of TLC was therefore successful.
The sixth point did not have to be decided, namely whether charities are state regulated, but the Tribunal decided that if they were not state regulated then TLC’s appeal on this point would also have been successful. Finally the Tribunal decided that it was not necessary to refer the case to the EU on the basis that leading cases already provided sufficient guidance on the issues in this case.