SAE Education Ltd v Commissioners for Her Majesty’s Revenue and Customs

Education supplied by a private, profit-making body may qualify for VAT exemption as education provided by a college of a university. The body need not be a constituent part of the university in a constitutional or structural sense.

The question is whether the nature and purpose of its educational activities are so integrated with those of the university that it may properly be said to share the university’s objects. A constitutional link will ordinarily suffice, but is not necessary. Relevant matters include the parties’ common understanding, university enrolment and student status, university approval of courses, and presentation of students for the university’s degrees.

SAE Education Ltd supplied higher education courses in audio and digital media technologies. It contended that those supplies were exempt from VAT because it was a college of Middlesex University within Note 1(b) to Item 1, Group 6 of Schedule 9 to the Value Added Tax Act 1994.

The First-tier Tribunal allowed its appeal against VAT assessments after finding that its activities were substantially integrated with those of the university. The Upper Tribunal reversed that decision: [2016] UKUT 193 (TCC). The Court of Appeal dismissed the taxpayer’s further appeal, holding that it had to be a constituent part of the university under a legal relationship establishing that status: [2017] EWCA Civ 1116.

The issues were whether the Court of Appeal had adopted the correct test and, if not, whether the taxpayer qualified as a college of the university under the proper approach.

1. Appeal allowed unanimously. Lord Kitchin, with whom Lord Reed, Lord Sumption, Lord Briggs and Lady Arden agreed, held that the Court of Appeal’s constitutional or structural constituent-part test was too narrow.

2. The exemptions in articles 131 to 133 of the Principal VAT Directive must be construed strictly, but consistently with their objectives and without depriving them of their intended effect. The university-education exemption seeks to prevent access to higher education from being hindered by the additional cost of VAT. Member states may recognise private commercial education providers, but must consider their objects and respect EU principles including fiscal neutrality, legal certainty and proportionality.

3. Under Note 1(b) to Group 6 of Schedule 9 to the Value Added Tax Act 1994, a college must provide education. A private, profit-making body is not excluded. Parliament did not confine either universities or their colleges to non-profit bodies, and fiscal neutrality militated against a constituent-part requirement which commercial providers could rarely satisfy.

4. The correct inquiry concerns the body’s objects, the nature of its educational services and the integration of those services with the university. A constitutional or structural relationship will ordinarily be sufficient, save exceptionally, but is not necessary. The following matters are highly relevant: whether the parties commonly understand the body to be a college; whether it can enrol or matriculate university students; whether those students are generally treated as university students; whether the university approves its courses; and whether it can present students for examination for the university’s degrees. Establishing all five makes college status highly likely, although no exhaustive or inflexible test applies.

5. Independence, financial dependence or interdependence, distributable profits, public funding, permanence, physical proximity and an obligation to offer a minimum number of university places will generally be less useful and are unlikely to be determinative. The reasoning in Customs and Excise Comrs v University of Leicester Student’s Union [2001] EWCA Civ 1972 required qualification insofar as it confined Note 1(b) to structurally constituent entities.

6. The First-tier Tribunal had carefully and comprehensively assessed the evidence. Its findings established a common understanding of associate-college status, enduring links, university supervision and quality regulation, shared purposes, university student status and degrees, and substantial integration. It was entitled to find that the taxpayer became, and remained, a college of Middlesex University from May 2009. Its decision allowing the taxpayer’s appeal against the assessments was restored.

1. United Kingdom Supreme Court: Allowed the taxpayer’s appeal and restored the First-tier Tribunal’s conclusion that it was a college of Middlesex University: [2019] UKSC 14.
2. Court of Appeal: Dismissed the taxpayer’s appeal, applying a constitutional or structural constituent-part test: [2017] EWCA Civ 1116; [2017] STC 2166.
3. Upper Tribunal: Allowed the Commissioners’ appeal from the First-tier Tribunal: [2016] UKUT 193 (TCC); [2016] STC 1837.
4. First-tier Tribunal: Allowed the taxpayer’s appeal against the VAT assessments by its decision dated 28 February 2014, reference TC/2011/022521.