This blog has nothing to do with Christmas. I don’t have a Christmas tree this year (first time ever) and so am not in festive mood. If you are looking for Christmas cheer, look elsewhere. Instead I am going to talk to you about VAT.
When I first moved to London I lived in a tiny flat behind Euston station. Walking past the Ladies of the Night on my way home of an evening was a bit of a shock at first but there were three great benefits of the location. The first was a vegetarian Indian restaurant, the Diwana Bhel Poori House, in Drummond Street. The second was the Camden Palace at the bottom of Camden High Street where I saw Iggy Pop fall off the stage after a night of alcohol and chemical excess (his, not mine). The third was The Place, the home of the London Contemporary Dance School which was just over the Euston Road.
The Bhel Poori House is still there and still getting great reviews (I particularly recommend the paper dosa). The Camden Palace is going strong, refurbed and rebadged as the Koko. The Place is in the same place.
I can’t remember exactly how it happened but soon after I moved to Camden I ended up doing Pilates in the basement of The Place on Saturday mornings. This gave me a better posture and my first sighting of a cockroach. Years later I’m still doing Pilates but in a different and, mercifully, cockroach-free place.
For six years, Ms Hocking (who had been a professional dancer) taught Pilates as part of the BA Dance degree at the University of Surrey. She also gave private Pilates classes and somewhat naively believed that these should be exempt from VAT in the same way as Pilates instruction was when supplied as part of the degree course. HMRC disagreed. Ms Hocking appealed.
The provision of education by ‘eligible bodies’ is exempt and, in addition, article 132(1)(j) of Directive 2006/112 exempts:
‘Tuition given privately by teachers and covering school or university education’.
As the creator of the Muppets once said “Simple is good”. Not good enough for the UK draftsman it seems. The UK equivalent of article 132(1)(j) is Item 2 Group 6 Schedule 9 VATA which provides for exemption for:
‘the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer.’
More than double the word count and not saying quite the same thing. I sense trouble.
The First-tier Tribunal accepted evidence that Pilates was taught in many secondary schools and as part of dance training courses. It agreed that the teaching of Pilates was educational, but persuaded itself that the key issue was whether Pilates was ‘commonly taught’ in schools and universities.
Incidentally the tribunal referred to the very same Pilates studio in the basement of The Place as this was where Ms Hocking was introduced to Pilates. Is this an example of the fundamental interconnectedness of all things or just a spooky coincidence?
Leaving aside Dirk Gently and going back to the VAT treatment of private Pilates classes, the test to be applied was whether the tuition provided by Ms Hocking covered school or university education. The tribunal deciding Ms Hocking’s appeal quoted the European Court in Haderer v FinanzampWilmersdorf:
‘While it is unnecessary to produce a precise definition in this judgment of the Community concept of ‘school or university education’ for the purposes of the VAT system, it is sufficient, in this case, to observe that that concept is not limited only to education which leads to examinations for the purpose of obtaining qualifications or which provides training for the purpose of carrying out a professional or trade activity, but includes other activities which are taught in schools or universities in order to develop pupils’ or students’ knowledge and skills, provided that those activities are not purely recreational.’
The tribunal then went on to adopt a test proposed by the Advocate General in her Opinion that the activity must be one in which ‘instruction is commonly given’ in schools or universities. It then construed the UK legislation so as to conform to its view of article 132(1)(j) of Directive 2006/112 by equating ‘ordinarily taught’ with ‘in which instruction is commonly given’ (not a phrase that appears in article 132(1)(j)). ‘Commonly’ which was the same as ‘ordinarily’ meant ‘not uncommonly’ (which doesn’t take us anywhere). Teaching of Pilates in schools or universities was uncommon because it was not common ergo Ms Hocking lost.
I love a list so here’s my list (checked twice) of why I do not agree with the decision in Hocking:
- Anything taught in a school or university as part of its educational activities is exempt however uncommon so why should it be different for private tuition? Under article 132(1)(j) which has direct effect in the UK it is not.
- The common/uncommon test proposed by the Advocate General was not adopted by the European Court. The tribunal should have applied the EU law without glossing it.
- The common/uncommon test leads to uncertainty. How many examples are needed before exemption applies? How is a taxpayer to know when the liability of the supply changes from taxable at the standard rate to exempt because what was uncommon has become common?
The place I do Pilates now is Moss Pilates in Worship Street with Julia Moss and the amazing team (including, of course, Toffee the Shih Tzu). Get along there. You know it makes sense.
For those of you who read on anyway, here’s a Christmas cracker joke:
‘What do you call a blind stag?’
Tax lawyer specialising in business tax, SDLT and VAT