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HMRC internal manual

VAT Government and Public Bodies

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Bodies governed by public law: definition: policy development

Policy has developed through the following cases.

Edinburgh Telford College

Edinburgh Telford College (ETC) ([2006] STC 12910) was a college providing further education as defined in the Further and Higher Education (Scotland) Act 1992 (amended by the F&HE (Scotland) Act 2005) (the Act) and was funded by the Scottish Education Funding Council.

ETC 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) (see VATGPB2100). Consequently it was not to be treated as a taxable person for that activity, so taking its provision outside the scope of VAT. There was no dispute over courses wholly funded through grants paid by the Scottish Further Education Funding Council. These were outside the scope of VAT as funding was not consideration for any supply either to the funding provider or the students.

The Court of Session agreed with ETC, finding that the College’s activities were undertaken under the umbrella of a special legal regime deriving from the Act, the Scottish Further Education Funding Council (Establishment)(Scotland) Order 1998 and implemented in the funding agreement with the Scottish Further Education Funding Council. The essence of the dispute was whether (as ETC argued) it was necessary to make judgements 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, it is necessary to consider the wider legal regime.

The question of whether or not ETC was a body governed by public law was not considered by either the VAT and Duties Tribunal or the Court of Session because HMRC had accepted that the College was such a body. However, the High Court decision in Riverside has led to reconsideration of what is meant by a ‘body governed by public law’ for the purposes of Article 13(1) and a revision of policy.

Riverside Housing Association

Riverside Housing Association (Riverside) ([2006] STC2072) was a large social housing provider registered with the Housing Corporation as a Registered Social Landlord (RSL). It argued that its activities were non-business. This was 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, to which RSLs were required to adhere, amounted to a special legal regime.

That contention was rejected by the Tribunal and the High Court. Even though Riverside was subsidised by Government funds and required by statute to abide by certain rules applying to RSLs, its supplies of social housing were nevertheless held to be made in the course of business.

In referring to Article 13(1), the Tribunal stated that

‘The provision clearly contemplates government organisations which are institutions of a democratic state and the European jurisprudence on the topic shows that the concept of a public body is to be narrowly construed. It is in my view clear from the legislation itself, interpreted in accordance with the jurisprudence of the Court of Justice, that the ‘other bodies’ contemplated by the article are those of a kind similar to government bodies, carrying out quasi-governmental functions, of which examples might be the Financial Services Authority and the Housing Corporation itself, with organisations such as the Institute of Chartered Accountants when undertaking its regulatory role. Riverside, by contrast, does not have a regulatory or similar role; it is itself the subject of regulation. It is a private sector organisation which happens to undertake functions on behalf of the state, but that does not make it a public body’.

Outcome

In the light of the decision in Riverside, it has been concluded that the term ‘body governed by public law’ in Article 13(1) is narrow in application. 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.

This view has recently been endorsed by the VAT and Duties Tribunal in the case of The Chancellors, Masters and Scholars of the University of Cambridge (VTD 20610) and Wakefield College[2011] UKUT 495 (TCC) 

As a result it is no longer accepted that the generality of Further Education (FE) and Higher Education (HE) providers are bodies governed by public law as defined in article 13(1).

A number of FE and HE bodies have sought to rely on Article 13(1) to support an argument for entitlement to zero-rating under Group 5 of Schedule 8 to the VAT Act 1994 or the reduced rate under Schedule 7A. FE and HE bodies should not assume that they fall within this provision and it is necessary to examine the facts of each case separately.

Furthermore, even if a body were to fall within Article 13(1) for a particular activity, it 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.