The Durham Company Ltd, R (on the application for) v The Commissioners for HMRC & Anor

A local authority collects commercial waste as a public authority for VAT purposes where it performs its duty under Environmental Protection Act 1990, section 45(1)(b). That provision is capable of creating the special legal regime required by Article 13(1) of the Principal VAT Directive and section 41A(1) of Value Added Tax Act 1994.

The decisive criterion is the legal regime applicable under national law. Once the activity is carried out pursuant to an identified special legal regime, the court should not undertake a further enquiry into the individual operational features of activities within it. The competition proviso remains applicable. Whether a particular authority in fact acts pursuant to section 45(1)(b) is a fact-sensitive question.

The claimant was a private provider of commercial waste-collection services. It charged VAT. It sought judicial review of HMRC’s and HM Treasury’s treatment of local authorities’ in-area commercial waste collections as outside the scope of VAT.

The claim began in the Administrative Court and was transferred to the Upper Tribunal. A preliminary issue asked whether a waste collection authority supplying trade-waste collection services to business occupiers in its area engaged in activities as a public authority within section 41A(1) of the Value Added Tax Act 1994 and Article 13(1) of the Principal VAT Directive.

The claimant contended that authorities competing with private operators were acting under ordinary market conditions. HMRC, HM Treasury and the Local Government Association relied principally on the authority’s statutory duty under section 45(1)(b) of the Environmental Protection Act 1990.

1. The preliminary issue was answered affirmatively, subject to a factual qualification. Where a local authority supplies commercial waste-collection services to business customers in its area in performing its duty under section 45(1)(b) of the Environmental Protection Act 1990, those supplies are activities in which it engages as a public authority for section 41A(1) of the Value Added Tax Act 1994 and Article 13(1) of the Principal VAT Directive: [109].

2. The CJEU authorities establish that the decisive distinction is the legal regime applicable under national law. An activity is undertaken as a public authority where the body governed by public law acts under its special legal regime, rather than under the same legal conditions as private economic operators. The claimant’s proposed three-stage analysis placed excessive emphasis on operational activities and risked losing that essential criterion: [102].

3. Section 45(1)(b) is, at least, capable of constituting a special legal regime. Its operation was illustrated by an authority which responds to an occupier’s request and levies a reasonable charge under section 45(4), on a cost-recovery basis. Competition with private suppliers does not itself preclude public-authority treatment; that conclusion would deprive the separate competition proviso in Article 13(1) of effect: [103], [106].

4. Once an identified legal regime is properly characterised as special, activities performed pursuant to it fall within the VAT derogation unless the competition proviso applies. A further inquiry into which operational features of individual collections should qualify would undermine the clear legal-regime criterion: [106]-[107].

5. The Tribunal did not decide whether any particular local authority acted beyond its powers, whether contractual arrangements necessarily amounted to a request under section 45(1)(b), or whether a charge was unreasonable. Those questions require an established factual basis in an identified case. If the claimant alleged that an authority acted outside section 45(1)(b) and (4), it had to identify that authority and permit its facts to be investigated: [98]-[100], [108].

• Upper Tribunal (Tax and Chancery Chamber): The judicial-review claim, commenced in the Administrative Court under claim number CO/5665/2014, was transferred to the Tribunal. It determined the directed preliminary issue and did not decide an appeal from a lower-court judgment.