St Patrick's International College Limited & Ors v The Commissioners for HMRC

Where the VAT education exemption in Article 132(1)(i) contains a supplier condition, fiscal neutrality requires a comparison of suppliers within their legal and regulatory framework. It does not require comparison solely from the typical consumer’s perspective.

A Member State may recognise specified educational bodies as having similar objects to public-law bodies, provided it observes fiscal neutrality in exercising that discretion. Student-loan funding paid to a provider for a student does not make the provider’s consideration a charge to funds provided by the Secretary of State where neither the Secretary of State nor the Student Loans Company owes consideration to the provider.

An English-language school recognised under Note 1(f) of Group 6 receives exemption only for teaching English as a foreign language under Note 2.

The appellants were alternative providers of higher education. HMRC assessed VAT on educational supplies made between December 2012 and August 2017.

The First-tier Tribunal dismissed their appeals in [2023] UKFTT 00408 (TC). It held that the United Kingdom’s implementation of Article 132(1)(i) of the Principal VAT Directive did not breach fiscal neutrality; that student-loan funded courses did not qualify under Item 5B of Group 6 in Schedule 9 to the Value Added Tax Act 1994; and that IMAN’s eligible-body status for teaching English as a foreign language did not exempt its other educational supplies.

The Upper Tribunal considered whether those conclusions involved errors of law.

1. The appeals were dismissed. The First-tier Tribunal applied the correct approach to fiscal neutrality under Article 132(1)(i). Where the exemption depends on a supplier condition, the question is whether the suppliers are comparable. That requires consideration of the legal and regulatory framework and of the Member State’s rules for recognition. The typical consumer test for similarity of supplies does not by itself decide that question.

2. The United Kingdom was entitled to recognise universities, their colleges and further education corporations under Group 6 of Schedule 9 to the Value Added Tax Act 1994. The tribunal upheld the factual conclusion that alternative providers were not comparable to universities and their colleges because the relevant regulatory regime was materially less stringent. It also upheld the conclusion that further education corporations, which were charities and did not systematically aim to make a profit, were not comparable to the appellants for these purposes.

3. Item 5B did not exempt the supplies by SPIC and LCCA. The consideration for the courses was payable by the students under their contracts with the providers. Loans made by the Student Loans Company, although paid directly to providers for tuition fees, were a payment arrangement and did not make the Secretary of State liable to provide consideration. VAT treatment must also be capable of determination at the time of supply, not by an uncertain future question of loan repayment.

4. IMAN’s status under Note 1(f) as a body teaching English as a foreign language did not extend to its other educational or vocational supplies. The tribunal followed HMRC v Pilgrims Language Courses Ltd [1998] STC 784: Note 2 validly confines the exemption to teaching English as a foreign language. The contrary observations in the Court of Appeal were obiter, and there was no reason to depart from the co-ordinate High Court decision.

• Upper Tribunal (Tax and Chancery Chamber): dismissed the appellants’ appeals.
• First-tier Tribunal (Tax Chamber): dismissed the appeals against HMRC’s VAT decisions and assessments: [2023] UKFTT 00408 (TC).