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TaxationWeb by John Page

John Page of Empowerment Services Ltd requests support in appealing his VAT case, and believes that success at the House of Lords would help many tuition providers.

Introduction

A recent decision in the Court of Session, Scotland’s highest court, means that a great many independent providers of tuition are exempt from charging VAT on only the teaching that they do themselves. In other words, should they employ anyone to teach for them, or should they incorporate, the teaching done by an employee, or though their company, becomes subject to standard rate VAT. Because virtually none of those receiving the tuition can reclaim VAT, and market reality dictates that the VAT cannot simply be added to tuition fees, this has an enormous financial implication for many suppliers.

This situation is a huge disincentive for suppliers to develop and expand their businesses, to offer enhanced quality of tuition by employing teachers with more to offer than themselves, and to gain the protection and tax advantages afforded by incorporation.

Background

Empowerment Enterprises Ltd (EEL) provides post-graduate training for health care practitioners. They incorporated in 2003 following professional advice. HMRC said that the supplies should now be standard rated, even though the identical supplies had previously been exempt. This was successfully objected to on the grounds of Fiscal Neutrality at Tribunal in January 2005. The Tribunal emphasised that Fiscal Neutrality requires that identical supplies are treated the same regardless of the suppliers’ legal form e.g. sole trader vs. company, as in this case. HMRC appealed to the Court of Session (Scotland’s highest court) against the VAT Tribunal decision and, to wide astonishment, succeeded. For an overview of the case, click here.

Appeal costs

In such a properly brought case involving the public interest, which this clearly is, HMRC’s published guidelines say that they can cover both side’s costs, win-or-lose. The idea is that such an action should not be discouraged through lack of appellant’s resources. However in this case HMRC have refused what would appear to be the appropriate arrangement for costs, without giving proper reasons and in contravention of their own guidelines.

Support for appeal

A considerable weight of professional opinion expressed since the Court of Session decision is that an appeal to the House of Lords should succeed. EEL are advised to fight on but simply cannot do it alone. They invite participation by other interested parties. Investment in the case to date has already provided most of the work needed for a final appeal. Participants coming in at this stage would benefit from all this.

Time is critical. To meet court deadlines EEL need to know the level of available support very soon, with funds lodged by 11 December. Interest, giving some idea of the extent of support you are prepared to invest, should be registered with John Page, Empowerment Enterprises Limited, phone 01738 444404 fax 01738 442275, email mail@upledger.co.uk.

John Page
November 2006