A recent Court of Appeal decision (SAE Education Ltd v HMRC) significantly narrows the scope of VAT exemption for supplies made by “a college of” a university.
The provision of education by an “eligible body” is VAT exempt. For these purposes, the term “eligible body” includes both a university and “any college, institution, school or hall of such a university”.
The Court of Appeal had to determine whether or not SAE Education Ltd was such a “college” of Middlesex University, and could apply VAT exempt treatment to its supplies of education.
Until this case, it was considered that the correct approach to determining whether or not an education provider fell within the VAT exemption as a “college” was to adopt a multi-factoral analysis (based largely on a High Court decision – “School of Finance and Management” from 2001). This took into account various factors, including:
- any foundational or constitutional document establishing the purported college as part of the university;
- financial interdependence between the entity and the university;
- permanent links between the entity and the university;
- a shared similar purpose (i.e. the provision of university-level education); and
- the entity providing courses leading to a degree from the university and admitting students as members of the university.
The Court of Appeal has, in effect, turned away from this fact-finding approach – in favour of what it describes as a more “hard-edged” approach to the test.
Under the Court of Appeal’s preferred analysis, what really matters most is the constitutional or structural analysis of the relationship between the purported college and the university. In other words, the arrangement in place between the entity and the university must be one “which in real sense makes the college a part of the university and not simply an educational provider to whom the university has outsourced the courses which it has been unable for whatever reason to provide itself… The starting point in every case is to look at the core legal relationship between the college as an institution and the university.”
On the facts of the present case, the Court of Appeal concluded that SAE Education Ltd was not a college of Middlesex University. In no material legal sense was SAE a part of the wider university – it remained a separate company, providing a limited number of specialist degree courses. Students enrolled on courses provided by SAE had defined rights as regards the use of university facilities, rather than having the full entitlements available by right to other Middlesex students. The contractual arrangements between the university and SAE were subject to periodic review, and could be terminated if concerns around academic standards arose.
In summary, whilst SAE was a close and trusted partner of Middlesex University, it was not in a substantial structural or legal sense actually a college of the university as required by VAT legislation.
It is anticipated that the reformulation of the VAT exemption into this more “hard-edged” standard may cause wider difficulties across the university sector.