Wakefield College v Revenue And Customs, Court of Appeal - Civil Division, May 01, 2018, [2018] EWCA Civ 952

Resolution Date:May 01, 2018
Issuing Organization:Civil Division
Actores:Wakefield College v Revenue And Customs

Neutral Citation Number: [2018] EWCA Civ 952

Case No: A3/2016/1253






Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 1 May 2018






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Kevin Prosser QC (instructed by Forbes Hall LLP) for the Appellant

James Puzey (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents

Hearing dates: 7-8 February 2018

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Lord Justice David Richards:


  1. Wakefield College appeals against the decision of the Upper Tribunal (the UT), reversing the First-tier Tribunal (the FTT), that services provided to it in the construction of a new building, called the skillsXchange (the new building), were not zero-rated for VAT purposes. The issue depends on whether the provision of further education courses to students paying a fixed but publicly-subsidised fee amounts to carrying out an ``economic activity'' within the meaning of article 9 of the Principal VAT Directive (2006/112/EC) (the VAT Directive), to which domestic effect is given for present purposes by provisions in schedule 8 to the Value Added Tax Act 1994 (the 1994 Act).

  2. Permission to appeal the decision of the UT was given following the decision of the Court of Justice of the European Union (the CJEU) on the interpretation of the relevant provisions of the VAT Directive in Gemeente Borsele v Staatssecretaris van Financiën (C-520/14) (Borsele) which was given four months after the UT's decision.

  3. The 1994 Act provides, at group 5 of schedule 8, for the zero-rating of various supplies made in the course of construction of certain buildings including:

    ``The supply in the course of construction of

    (a) a building ... intended solely for use for ... a relevant charitable purpose...

    of any services related to the construction other than the services of an architect, surveyor or any person acting as a consultant or in a supervisory capacity''.

    Note (6) to group 5 provides:

    ``Use for a relevant charitable purpose means use by a charity... -

    (a) otherwise than in the course or furtherance of a business.''

  4. Therefore, although Wakefield College (the College) is a charity, if the new building was intended for use in the course or furtherance of a business, supplies made in the course of its construction would not be zero-rated.

  5. Although the wording of the Act requires that, to attract zero-rating for construction services, a building must be intended ``solely'' for use for a relevant charitable purpose, otherwise than in the course or furtherance of a business, HMRC accept that up to 5% business use of the building can be ignored as de minimis. The College has conceded that the provision of courses to students paying full unsubsidised fees in the new building amounts to business use, but it represents a very small proportion of the activity within the building. If the provision of further education to students paying a fixed, subsidised fee is also, as HMRC submit, made in the course or furtherance of a business, then business use of the new building would exceed 5%.

  6. Because a central issue on this appeal is the effect of the CJEU's judgment in Borsele both generally on the correct approach to the determination of whether an economic activity is carried on and particularly on the decision of the UT in this case, I will start with a discussion of the legal issues, and particularly the effect of Borsele and other relevant decisions. I will then refer to the decisions of the FTT and the UT under appeal, followed by a discussion of the relevant facts of this case and the application of the legal principles to those facts.

  7. This is a very long-running dispute. The College's appeal against HMRC's determination that the relevant construction costs were not zero-rated was first heard by the FTT as long ago as 2010. In December 2011, the UT allowed an appeal by the College and remitted the case to the FTT for the determination of two issues, one of which is the subject of the present appeal.

  8. We were told that HMRC know of about 50 cases, involving approximately £120 million of VAT, that will be affected by the result in this case.

    The law

  9. The 1994 Act implements the VAT Directive and must therefore be interpreted in accordance with it. The phrase ``in the course or furtherance of a business'' in note (6) to group 5 of schedule 8 to the 1994 Act therefore has the same meaning as the words ``economic activity'' in article 9(1) of the VAT Directive.

  10. The VAT Directive provides at art 2(1):

    ``The following transactions shall be subject to VAT:


    (c) The supply of services for consideration within the territory of a Member State by a taxable person acting as such.''

    Art 9(1) provides:

    `` ``Taxable person'' shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.

    Any activity of producers, traders, or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ``economic activity''. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.''

  11. The meaning of these provisions has been considered in a considerable number of European and domestic cases, including Borsele. At the heart of the issues of law arising on this appeal is the effect of Borsele on earlier decisions, particularly the decision of the CJEU in Commission of the European Communities v Finland (C-246/08) [2009] ECR I-10605 (Finland), on which the UT relied in the decision below, and the decision of the Court of Appeal in Longridge on the Thames v HMRC [2016] EWCA Civ 930 (Longridge).

  12. I consider each of these cases, and then turn to the parties' submissions as to what the law is in light of these cases. By the end of the hearing before us the distance between the parties on the law had narrowed considerably, though differences remained.

  13. The College's position in this appeal (which, by the end of the hearing, was accepted by HMRC) is that the European case law requires a two-stage test, assessing, first, whether there is ``consideration'' for a supply of goods or services within the meaning of article 2(1) and assessing, second, the different, and broader, question of whether there is ``remuneration'' for the purposes of article 9(1). ``Remuneration'' is not a term used in article 9 but the CJEU has used it as a test for economic activity.

  14. When considering the CJEU cases, it is important to note that there is on occasions some inconsistency between the English and French versions of the judgments as to the use of the words ``consideration'' and ``remuneration''. In the text of the VAT Directive ``consideration'' is, in French, ``à titre onéreux''. This is the phrase used at some points in the French versions where the word ``consideration'' is used in the English judgments, but the words ``rétribution'' and ``contre-valeur'' are also used. Those are all occasions on which article 2 is under consideration. Where the word ``rémunération'' appears in the French versions, the equivalent in the English versions is in some places ``consideration'', as well as being in other places ``remuneration''. Given the distinct meanings of the words ``consideration'' and ``remuneration'' in this area of law, spelt out clearly and explicitly in the Opinion of Advocate General Kokott in Borsele, it is necessary, when reviewing the CJEU cases, to look at both the French and the English versions of the judgments.

  15. As will be seen, ``consideration'' in article 2 means only some value given to the supplier in return for the goods or services by the person to whom they are supplied. It is this amount on which VAT is payable. It need not be full value or indeed bear any particular relation to the value of the goods or services supplied. By contrast, ``remuneration'' has a broader meaning, and may be said to encapsulate the concept of carrying on an economic activity ``for the purposes of obtaining income therefrom on a continuing basis''. Those words appear in article 9(1) as qualifying only the exploitation of tangible or intangible property, but it is established that they apply generally to ``economic activity'': Landesantalt für Landwirtschaft v Götz (Case C-408/06) [2007] ECR I-11295 at [18], Finland at [37]. It can readily be appreciated that goods or services may be supplied for ``consideration'' without the supplier doing so as an economic activity or for ``remuneration''. In that event, the supplier will not be supplying the goods or services as a ``taxable person'', so that VAT will not be payable on the consideration.


  16. I will first consider Borsele. It concerned the provision of school transport services by a Dutch local authority or municipality. Whether parents had to make a contribution to the service depended on the journey distance and, in some cases, on the parents' means:

    i) For journeys of up to 6 km the municipality did not cover the cost of transporting schoolchildren.

    ii) For journeys of between 6 km and 20 km transport was provided in return for a fixed contribution (equal to the cost of public transport covering a distance of 6km).

    iii) For journeys of more than 20 km, transport was provided in return for a payment which could not exceed the price of the transport and which was, in the case of each child, calculated taking into account the parents' income.

    About one third of parents using the service were required to make contributions, and their contributions were equivalent to...

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