College of Estate Management v Customs and Excise

For VAT purposes, a transaction comprising education, examination services and accompanying study materials must be characterised by reference to its essential features and economic reality. A single economic supply must not be artificially divided. Where the materials are an integral component of the educational service, rather than an end in themselves or a separate add-on supply, the principal supply determines the VAT treatment of the whole transaction. The fact that the materials are substantial, costly or essential to distance learning does not make them a separate supply of zero-rated books. A provision concerning goods and services closely related to education applies only where those goods or services are separate from the principal educational supply.

The College, an eligible educational body providing distance-learning courses, supplied students with printed study materials, assignments, teaching sessions, online resources and examinations for a single course fee. The Commissioners ruled that the printed materials were ancillary to the exempt supply of education and examination services. The VAT and Duties Tribunal dismissed the College’s appeal, holding that there was one supply of education.

The College appealed to the High Court under section 11 of the Tribunal and Inquiries Act 1992, contending that the printed materials were a separate supply of books, zero-rated under the Value Added Tax Act 1994. The central issue was whether the transaction comprised one principal educational supply or separate or mixed supplies.

1. Appeal dismissed. The College made a single supply to its students which could not properly be split into separate supplies of education, examination services and printed matter.
2. The correct approach was that stated in Card Protection Plan Ltd v CCE [1999] 2 AC 601: the court must consider all the circumstances and the essential features of the transaction, identify whether there are several distinct principal services or one service, and avoid artificially splitting what is economically one supply. The further guidance of Lord Slynn in [2002] 1 AC 202 required an overall view and avoidance of over-zealous analysis of individual provisions.
3. The principal supply was education and examination services. The College existed to provide education, and the printed materials were the principal means by which its distance-learning courses were delivered. Their substantial cost and importance did not make them an end in themselves for students. The College was an educator, not merely a publisher.
4. The printed materials were a component part of the single supply, rather than an add-on supply. In either event, the character of the principal supply determined the character of the ancillary component. The authorities concerning restaurant supplies, hotel travel services and car delivery supported that analysis: Faaborg-Gelting Linien A/S v Finanzamt Flensburg [1996] STC 774, CCE v Madgett and Baldwin [1998] STC 118 and CCE v British Telecommunications Plc [1999] AC 1376.
5. Item 4 of Group 6 in Schedule 9 of the Value Added Tax Act 1994 had no application because the printed materials did not constitute a separate supply closely related to education. Their characterisation as part of the single exempt supply prevented the College from relying on their possible zero-rating as books.

• High Court (Chancery Division): appeal from the VAT and Duties Tribunal dismissed.
• VAT and Duties Tribunal: Decision No 18029 in Case No LON/02/0145, released 27 February 2003; the College’s appeal against the Commissioners’ ruling was dismissed.