Weekly VAT Update – 9 May 2017
Restaurant services supplied in catering college – are they closely related to education?
The Court of Justice of the European Communities (CJEC) has ruled that supplies by a college from its training restaurant may be closely related to the supply of education and exempt from VAT. For the purpose of enabling the students enrolled in their courses to learn skills in a practical context, Brockenhurst College, through its students acting under the supervision of their tutors, runs a restaurant and stages performances aimed at people not connected to the establishment. The restaurant and performances are open to a limited public, comprising people who take an interest in the events organised by the College, and have registered in a database to receive newsletters about them. They are informed that the events are offered as part of the students’ education, and at a reduced price which, in relation to the meals, covers approximately 80% of the cost. If the restaurant bookings do not meet a minimum of 30 servings, the meal is cancelled. The file submitted by the Court of Appeal made it clear that generating additional income for the College through those supplies is not the basic purpose of those transactions.
The prices charged by the College are less than cost, and the CJEC stated that it does not appear that the services are intended to generate additional income by carrying out transactions in direct competition with those of commercial enterprises subject to VAT, such as restaurants or theatres. Consequently, the services offered by the College to a limited number of third parties do not appear to be comparable to those offered by commercial restaurants and theatres, and the exemption from VAT for services supplied by the College does not amount to a difference in tax treatment.
The CJEC therefore declared that restaurant and entertainment services to third parties may be regarded as supplies ‘closely related’ to the principal supply of education and, accordingly, exempt from VAT, provided they are essential to the students’ education and that their basic purpose is not to obtain additional income. However, the case has been returned to the Court of Appeal to ascertain, on the basis of guidance provided by the CJEC, whether those conditions are indeed satisfied in the light of the factual circumstances of the case. It would appear that this case might impact on the VAT treatment of other catering or drama colleges, but in similar circumstances and where the provision of the service is ancillary to the education of the students.
Round sum charge for electricity chargeable to VAT at the full rate
Colaingrove runs a static caravan park and charges its customers a fixed weekly fee for electricity. It wanted HMRC to agree that the electricity charge is subject to 5% VAT, being a domestic supply. However, The Court of Appeal confirmed that it was subject to 20%, being a composite supply of holiday accommodation, not least because the charge does not match the amount of electricity consumed by the recipient.