In Metropolitan International Schools v HMRC [2015] TC04675 the First Tier Tribunal (FTT) found that there was a single supply of zero-rated books and no supply of education. This was later overturned by the Upper Tribunal in HMRC v Metropolitan International Schools Limited [2017] UKUT 0431.
A further appeal to the Court of Appeal, see Metropolitan International Schools Limited v HMRC [2019] EWCA 156 on a technical point of judicial review did not succeed.
The FTT admitted that it had found it difficult to determine with confidence the correct tests to apply in identifying the nature of the supply, and whether it was a supply of education, given the various authorities in existence. They acknowledged that the case was one which may well give rise to appeals and possibly to a referral to the European Court of Justice.
The FTT decision in this case contrasts with that in a similar case College of Estate Management v HMC&E [2005] which was ultimately decided in the House of Lords and upon which HMRC sought to rely.
Basis of Metropolitan International Schools FTT decision
The appellant provided distance learning courses, often in trade sectors such as electrics and plumbing.
The courses involved the provision of numerous detailed manuals and the recipient would need to study these, usually in conjunction with a day job involving practical experience, for about 10 to 15 hours per week for up to 3 years. The appellant's parent company dealt with the drafting and preparation of these manuals.
Although the support of tutors was available, there were only about 7 individuals employed to provide this support to between 40,000 and 60,000 customers at any one time. Take up of tutor support was very low, and in general, the job of the tutors was to point the customer to the relevant section of the manuals for the answer.
One or two week practical courses were available to customers but the takeup of these was extremely low. There were other "add-ons" provided, such as DVDs or animated computer programs but these were of an ancillary nature.
The appellant clearly intended the manuals to be sufficient in themselves in achieving the customers' ends, and this is supported by the fact that very little use was made of any of the add-ons or the tutorial support.
The appellant did not offer any qualifications as part of their courses. Theoretically, the appellant would pay for customers to take third-party examinations if the customers had taken part in a number of practical courses, but given the low takeup, the obtaining of such a qualification could not be considered an objective for the average customer.
The FTT concluded that the end result sought by customers was to learn, and they accomplished that aim by reading the vast amount of printed material.
- The appellant’s essential supply was the sale of manuals i.e. zero-rated printing material.
Upper Tribunal decision
On appeal, the UT found that the FTT failed to take account of the following:
- The level of control the school had over the entry of students onto courses and over students progressing through the course.
- The findings incorrectly downplayed the significance of tutorial support in the supply made by the school. It was contractually obliged to provide support and did so, and even though they would simply direct students to the answers in the manuals. The role of tutors was limited, but it was still important.
- The findings diminished or failed to reflect the importance of other components in the supply.
- The courses were designed to lead to third-party examinations and was marketed as blended courses designed to achieve that examination.
- The books and manuals may have been the predominant supply if measured on a quantitative basis, but that is not the test.
- In applying the test, you must consider what the typical consumer would view the qualitative predominant element of the supply.
The UT's view was a typical student in this case would not consider they were predominantly buying books but were buying a package which included important books, that were not predominant.
- The supply was not a single supply of books: it was a supply of an education package.
College Estate Management decision
The question was whether books were a supply in the course of education or a separate supply.
- As the provision of printed material was the principal method of delivering education, the books were considered ancillary to the provision of the education itself.
- The end result sought by customers was to pass an exam and obtain a professional qualification, not simply to learn from the manuals.
- The college employed 100 full-time staff to deal with written assignments, face-to-face teaching, preparing written materials and research and so on.
Comment
In addition to the above two cases, there have been many more dealing with education, printed matter and any number of other composite supplies.
Professional bodies, writers and agents have been commenting for some time that this area of VAT legislation and case law has become complicated and confusing, with the principles being difficult to identify and apply to individual situations.
The FTT have now joined in, admitting that they are not entirely confident in the basis of their decision in this case.
Our guides
Single or multiple supply for VAT?
Cases referred to:
Metropolitan International Schools v HMRC [2015] UKFTT TC04675
HMRC v Metropolitan International Schools v HMRC [2017] UKUT 0431
College of Estate Management v HMC&E [2005]
