Brockenhurst College: Surprising European Court appeal win

We updated clients early in the year about the progress of the Brockenhurst College case; the Opinion of the Advocate General (“AG”) was that Brockenhurst College (“the College”) could not exempt its charges for restaurant and entertainment services.  The European Court (“CJEU”) has just released its judgment; unusually, the CJEU did not follow the AG’s Opinion – the College’s appeal was successful.

Brockenhurst College Background

Like many education providers, the College provides restaurant and certain other services to paying members of the public as part of its provision of education to students studying catering or theatrical courses.

The College successfully argued at the First Tier Tax Tribunal that such supplies were incidental to the provision of its exempt education to its students, and were therefore eligible for VAT exemption.

At the appeal by HMRC to the Upper Tier Tribunal, the Court upheld the decision confirming that such supplies were eligible for VAT exemption as being closely related to the principal supply of exempt education.  HMRC then appealed to the Court of Appeal, which deferred a decision pending clarification from the CJEU.

The AG’s Opinion agreed with HMRC.  But the CJEU is not bound by an AG’s Opinion and in this case, ruled that the services can be exempt as being ‘closely related’ to the principal supply of education if:

  1. the services are essential to the students’ education; and
  2. their basic purpose is not to obtain additional income “by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT…”

The CJEU said that it is for the courts in the member states to decide whether the activities are in direct competition with commercial providers.  Therefore, it is still possible that the exemption might not apply in the UK if the Tribunals and Courts decide there is such direct competition.

However, should the exemption apply here, and although primarily of relevance to the FE sector, the significance of this case should not be underestimated, as potentially similar supplies made by those providing ‘non-business’ education, such as secondary schools and academies, could take advantage of the judgment.

There are also activities that local authorities carry out that involve the sale of goods and services produced as part of a fee-paying course of education.  For example, many fee-based and adult learning courses result in sales of products created on the course: these types of course might be directly affected by this judgment.

There is potential for claims for overpaid VAT on the income generated in the last four years from these types of supply.  We don’t expect HMRC to concede the position immediately, but submitting a claim now would “drop anchor” for the purposes of time limits and protect your position in the future.

For more information contact:

Nick Burrows

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Nick Burrows

Written by Nick Burrows

Nick has nearly 30 years of working with and supporting public sector bodies with VAT and indirect taxes, starting at HM Customs and Excise and then as in-house VAT Officer at Hampshire County Council. Since moving to advisory firms, Nick has had senior public sector VAT roles at RSM Tenon (now RSM), KPMG, and PSTAX (since 2014). He has led VAT advice nationally on a wide range of public sector issues and helped shape HMRC policy in several key areas.

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