European court decision supports VAT exemption for meals and theatre performances

Brockenhurst College is a higher education college which offers catering, hospitality and performing arts courses. For the purposes of enabling students to learn and practice their skills, the college runs a restaurant and sells tickets to performances. The restaurant and performances are open to members of the public. These people are told that the events are offered as part of the students’ education and at a reduced price. In the case of restaurant meals, the price charged covered 80% of the costs.

HMRC had always considered such supplies to be subject to VAT at the standard rate, but the college argued that they should be exempt as supplies which are closely related to education.

The decision
The CJEU has agreed with the college that the supplies should be eligible for exemption on the basis that:
  • the practical training was designed to be an integral part of the training course;
  • neither the sale of the tickets nor the meals were intended as an additional source of income for the college;
  • the services offered by the college in the restaurant and the theatre were not in competition with other restaurants.
However, the Court of Justice of the European Union (CJEU) has said that it was up to the national courts to decide whether these conditions are met and has referred the case back to the Court of Appeal.

If the Court of Appeal follows the CJEU decision, then higher education colleges may be able to exempt such supplies going forward, and claim refunds for VAT overpaid on such income historically.  However, this may have implications for VAT recovery, particularly in relation to capital expenditure.

Whilst the Brockenhurst College case will have implications for higher education colleges, it is not clear whether it will have an impact on colleges of further education whose supplies of education may include non-business. We await the Court of Appeal decision and HMRC’s response. In the meantime, colleges which believe they are impacted should consider submitting protective claims
Please contact Terri Bruce or Sharon Parker for further information.

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