REVENUE — Value added tax — Exemptions — Services closely related to education — Optional school fees refund schemes — Whether exempt — Council Directive 77/388/EEC, art 13(A)(1)(i)

Birkdale School, Sheffield v Revenue and Customs Commissioners [2008] EWHC 409 (Ch); WLR (D) 74

Ch D: Henderson J: 5 March 2008

Value added tax was not payable by independent schools on charges made to parents for participation in optional fees refund arrangements. There was a single supply of educational services to parents when they participated in such schemes.

Henderson J so held in the Chancery Division when allowing an appeal by Birkdale School, Sheffield, against the decision of the Manchester Value Added Tax and Duties Tribunal on 3 April 2007 upholding assessments to VAT made by the Revenue and Customs Commissioners.

Art 13(A)(1)(i) of Sixth VAT Council Directive 77/388/EEC (as recast by Council Directive 2006/112/EC) provided a mandatory exemption against value added tax for children’s or young people’s services. The school operated a refund scheme whereby an appropriate proportion of fees paid by a parent would be refunded in specified circumstances if their child was unable to attend the school for a specified period. In return, the parent was charged a small percentage increase in the fees to participate in the scheme. Since 2005, the Revenue and Customs Commissioners had considered that participation in the scheme involved a separate standard rated supply by the school of the right to obtain refunds of fees in specific circumstances.

HENDERSON J said that separate and additional consideration paid to participate in these schemes did not lead to the conclusion that there was a separate contract. Such an arrangement could be a variation of a contract between a school and parents, particularly when bearing in mind the stated intentions of the parties and that further consideration was required to make a variation contractually binding. The general trend of recent authorities had been away from the artificial splitting of transactions. A single or unitary classification was only possible where all the elements of the composite supply, in this case educational services, was provided by the same supplier. What mattered in this context was not the education provided by the school to the child but the supply of educational services by the school to the parent. The parent paid for the school to educate their child and participation in the scheme affected the price paid for that service, entitling them to a full or partial refund of fees in specified circumstances. The scheme could have no independent existence apart from the supply of education and the economic reality, as viewed by the typical parent, was that the parent was provided with two payment options for the same educational service. The scheme was merely an optional variation of the contract for the supply of educational services, which gave the parent a different method of paying for it. The variation did not affect the essential nature of the educational services supplied to the parent. The educational services provided by the school came within the exemption for education and the scheme for the refund of fees was merely concerned with the means by which participating parents paid for those services. There was still a single supply of educational services by the school when a parent participated in the scheme.

Appearances: Roderick Cordara QC and Jern-Fei Ng (Clifford Chance LLP) for the school; James Puzey (Solicitor, Revenue and Customs) for the commissioners.

Reported by: Scott McGlinchey, barrister