The Court of Appeal (CoA) has issued a judgement in a long running case between HMRC and Wakefield College.  The judgement will effect many organisations providing subsidised educational services that are established as charities.

Wakefield College had built a new building and hoped that the construction services and materials supplied to them would be zero-rated for VAT.  This would obviously make the costs 20% cheaper.  Wakefield College was and is a registered charity.  Charities, on issuance of a certificate to a builder, can arrange for supplies to them to be zero-rated where the building are not for business activities.  The question before the CoA was whether Wakefield College was performing business activities.

As VAT is an EU-wide common system of taxation, interpretation of the UK legislation must consider the interpretation of the underlying EU Directives and judgement and one of the questions in point in the case was a judgement from the EU Court of Justice (EUCJ).  The CoA applied the decisions from the EUCJ to the case at hand confirmed the following two step approach needed to be taken when determining whether business activities are taking place.

Step 1: is the charity receiving consideration for the service supplied?  The simple answer was yes, even though the courses provided were heavily subsidised by the Government the charity was banking funds received from students.

Step 2: is the charity receiving remuneration?  This is an objective analysis of the income that the charity is receiving and whether the services being provided are sufficiently linked.  The answer was yes, even though the amount received for the provision of the services was less than cost, as government grant subsidised a significant portion, the amount received was still significant.  Also, Wakefield College was an active participant in the local educational market.

Therefore the charity was performing business activity and could not avail itself of the zero-rating for construction services.

The decision can be found at: Wakefield College v Revenue And Customs – Find case law (nationalarchives.gov.uk)

This case will have a dramatic impact on educational services provided by charities.  Availability of zero-rated building construction services and material supplies and sales of newly constructed buildings will now be more difficult for educational charities to obtain.  This case can also restrict educational charities’ access to reduced rated fuel and power supplies.

If you have any questions about VAT or zero and reduced rating for charities please contact us.  This is a subject matter we are experienced with.