UT/2023/000073 - [2025] UKUT 00101 (TCC)

So far as material, the PVD provided:

“Article 131

The exemptions provided for in chapters 2 to 9 shall apply without prejudice to other Community provisions and in accordance with conditions which the Member States shall lay down for the purposes of ensuring the correct and straightforward application of those exemptions and of preventing any possible evasion, avoidance or abuse.

Chapter 2

Exemptions for certain activities in the public interest

Article 132

1.

Member States shall exempt the following transactions:

…

(i)

the provision of children’s or young people’s education, school or university education, vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the Member State concerned as having similar objects;

…

Article 133

Member States may make the granting to bodies other than those governed by public law of each exemption provided for in points (b), (g), (h), (i), (l). (m) and (n) of Article 132(1) subject in each individual case to one or more of the following conditions:

(a)

the bodies in question must not systematically aim to make a profit, and any surpluses nevertheless arising must not be distributed, but must be assigned to the continuance or improvement of the services supplied …”

Article 132(1)(i), like all exemptions, must be interpreted strictly. That does not mean, however, that the terms used to specify the exemptions referred to in Article 132 should be construed in such a way as to deprive them of their intended effect (see Case C-612/20 Happy Education SRL v Direcția Generală Regională a Finanțelor Publice Cluj-Napoca (‘Happy Education’) at paragraph 28). The objective of the exemption is to facilitate access to educational services by avoiding the increased costs that would result if the services were subject to VAT (see Case C-287/00 EC Commission v Federal Republic of Germany (‘EC v Germany’) paragraph 47 and Case C-319/12 Minister Finansów v MDDP sp z oo Akademia Biznesu sp komandytowa (‘MDDP’) paragraph 26).

The exemption under Article 132(1)(i) is subject to two cumulative conditions (see Happy Education paragraph 29):

It was common ground that the Appellants supplied education, and thus satisfied the supply condition in Article 132(1)(i), and had similar educational aims to universities, colleges of universities and FECs but they were not recognised as such by the United Kingdom. In relation to the supplier condition, it is for the Member State to lay down the rules in accordance with which recognition may be granted to organisations that are not governed by public law in so far as the conditions are not specified in article 132(1)(i). The Member States have a discretion in that respect (see Happy Education paragraph 31). In exercising that discretion, Member States must comply with the principles of European Union law, in particular the principle of equal treatment which, in the field of VAT, takes the form of the principle of fiscal neutrality (see Happy Education paragraph 32).

Article 132(1)(i) is implemented in United Kingdom legislation by the following provisions of VATA 1994. Section 31 VATA 1994 provides that supplies of goods or services described in Schedule 9 are exempt. The education exemption is found in Group 6 of Schedule 9. The supply condition is implemented by the various Items of Group 6 which include:

“1 The provision by an eligible body of –

(a)

education

(b)

…or

(c)

vocational training.

…

5B The provision of education or vocational training … to persons who are –

(a)

aged under 19,

(b)

aged 19 or over, in respect of education or training begun by them when they were aged under 19,

…

to the extent that the consideration payable is ultimately a charge to funds provided by the Secretary of State.”

The supplier condition is implemented by Note 1 to Group 6 which defines “eligible body” for the purposes of Group 6. So far as material, the eligible bodies include:

“…

(b)

a United Kingdom university, and any college, institution, school or hall of such a university;

(c)

an institution -

(i)

falling within section 91(3)(a) … of the Further and Higher Education Act 1992;

…

(f)

a body not falling within paragraphs (a) to (e) above which provides the teaching of English as a foreign language.”

The application of Note 1(f) is subject to Note 2 to Group 6:

“A supply by a body, which is an eligible body only by virtue of falling within Note 1(f), shall not fall within this Group insofar as it consists of the provision of anything other than the teaching of English as a foreign language.”

It was also common ground before us that the Appellants were not United Kingdom universities, colleges of such universities or FECs.