Upper Tribunal Tax and Chancery Chamber

UT/2023/000115 - [2025] UKUT 00004 (TCC)

Fecha: 09-Oct-2024

Item 1(b):Approach to construction

Item 1(b):Approach to construction

36.

Both before the FTT and in this appeal the parties were agreed that the construction of Item 1(b) is to be determined by reference to the words used, because it is not ultra vires the PVD, and does not require a conforming interpretation.

37.

Item 1 is an exemption. The correct approach to the construction of VAT exemptions was recently considered by the Supreme Court in Target Group Ltd v HMRC [2023] UKSC 35 (“Target”). While case law establishes that VAT exemptions are to be construed “strictly”, it is necessary to understand what that means. In particular, it does not mean that an exemption must be construed in a narrow or restricted way. In Target, Lord Hamblen, delivering the judgment of the court, said this, at [17]-[18]:

17.

The following points are of relevance…

(1)

The exemptions contained in the PVD (and formerly the Sixth Directive) are independent concepts of EU law.

(2)

The terms used in the PVD to specify exemptions must be interpreted strictly because they constitute exceptions to the general rule that VAT is to be levied on all services supplied for consideration by a taxable person.

…

18.

What is meant by a strict interpretation was explained by Chadwick LJ in Expert Witness Institute v Customs and Excise Comrs [2001] EWCA Civ 1882, [2002] 1 WLR 1674, [2002] STC 42 as follows:

“17.
… A ‘strict’ construction is not to be equated, in this context, with a restricted construction. The court must recognise that it is for a supplier, whose supplies would otherwise be taxable, to establish that it comes within the exemption; so that, if the court is left in doubt whether a fair interpretation of the words of the exemption cover the supplies in question, the claim to the exemption must be rejected. But the court is not required to reject a claim which does come within a fair interpretation of the words of the exemption because there is another, more restricted, meaning of the words which would exclude the supplies in question.”

38.

A “strict” construction also requires account to be taken of the underlying purpose of the exemption in question. In Canterbury Hockey Club C-253/07, the CJEU stated, at paragraph 17 of its decision:

The terms used to specify the exemptions under Article 13 of the Sixth Directive are to be interpreted strictly, since they constitute exceptions to the general principle that VAT is to be levied on all supplies of services for consideration. However, that requirement of strict interpretation does not mean that the terms used to specify those exemptions should be construed in such a way as to deprive them of their intended effect (Temco Europe, paragraph 17, and Horizon College, paragraph 16). They must be interpreted in the light of the context in which they are used and the scheme of the Sixth Directive, having particular regard to the underlying purpose of the exemption in question (see, to that effect, Temco Europe, paragraph 18, and Case C428/02 Fonden Marselisborg Lystbådehavn [2005] ECR I1527, paragraph 28).