.png)
.png)
HMRC have reconsidered their interpretation of the terms 'bodies governed by public law' and 'special legal regime' in the context of article 13(1) of the Principal VAT Directive (Directive 2006/112/EC) as well as the application of this provision.
Their current interpretation is based on the decisions in the Court of Session's judgment in Edinburgh Telford College v HMRC [2006] STC 1291, the High Court's judgment in Riverside Housing Association v HMRC [2006] STC 2072, and the decision of the VAT tribunal in The Chancellors, Masters and Scholars of the University of Cambridge LON/05/0958.
Under article 13(1), 'states, regional and local government authorities and other bodies governed by public law' are not regarded as taxable persons when they engage in activities as 'public authorities'.
Edinburgh Telford College argued that, when it provided further education courses for which it charged fees, it did so as a 'public authority' within the meaning of article 13(1) so that it should not be treated as a taxable person in respect of that activity, taking the provision of such education outside the scope of VAT.
The Court of Session agreed with the college. The essence of the dispute was whether (as ETC argued) it is necessary to make judgments based on the wider legal regime governing the management and conduct of an activity, or (as HMRC argued) to focus solely upon the legal regime governing the delivery of a particular service.
Although cases must be examined in the light of their own facts and on their own merits, HMRC accept that it is necessary to consider the wider legal regime.
The High Court decision in Riverside has led HMRC to reconsider their interpretation of what is meant by a 'body governed by public law' for the purposes of article 13(1) and to revise their policy in this area as set out below.
Riverside is a large social housing provider registered with the Housing Corporation as a registered social landlord. So far as is relevant hereto, Riverside argued that its activities were non-business on the basis that it was a body governed by public law for the purposes of article 13(1) and that the Housing Corporation rules amounted to a special legal regime.
The tribunal and the High Court both rejected that argument and held that its supplies of social housing were held to be made in the course of business.
In the light of the decision in Riverside, HMRC have concluded that the term 'body governed by public law' in article 13(1) is narrow in application.
HMRC consider that a body will only satisfy this criterion if it is a public sector body which forms a part of the UK's public administration, such as a Government department, a local authority or a non-departmental public body. Article 13(1) is not intended to enable other bodies to claim special treatment merely because they:
- have delegated powers;
- are regulated in some way by the state;
- are funded by public money; or
- are subject to certain specific rules in the pursuit of their activities.
The VAT tribunal recently endorsed this view in Cambridge University.
Accordingly HMRC no longer accept that the generality of further education and higher education providers are bodies governed by public law as defined in article 13(1).
A number of further education and higher education bodies have sought to rely on article 13(1) to support an argument for entitlement to zero rating under VATA 1994, Sch 8 Group 5 and/or reduced rating under Sch 7A.
Further and higher education bodies should be aware that HMRC do not agree that such bodies can assume that they fall within this provision: rather it is necessary to examine the facts of each case separately.
HMRC add that, even were a body to come within article 13(1) in respect of a particular activity, that would serve only to take supplies in respect of that activity outside the scope of VAT and would not affect the liability of supplies made to that body.
