February 07, 2022

Article


When a sole trader or partner (but not an employee, or company director) provides private tuition the income may qualify to be exempt from VAT.

Among the conditions for exemption is that the subject must be commonly taught in a school, FE college, or University. Disputes over whether a subject not forming part of the core school curriculum is “commonly taught” are quite common. Recent cases won by HMRC include tuition in dance and martial arts.

The latest reported case involves dog grooming. A Ms Lalou teaches dog grooming, to City and Guilds level 2 or 3 standard. She was VAT registered, but after some years approached HMRC arguing that her teaching was VAT exempt and she should deregister from VAT. HMRC, after visiting her, agreed. However, when she then sought a refund of the VAT she had accounted for over the years, HMRC changed their minds and re-registered her for VAT.

Her subsequent Appeal was heard by the First Tier Tax Tribunal. The two central issues were:-

  1. whether dog grooming was commonly taught; and
  2. whether HMRC’s actions breached the principle of fiscal neutrality

In relation to point 1., Ms Lalou provided evidence of several colleges offering level 2 and/or Level 3 City and Guilds Dog Grooming Courses, and 88 English colleges offering courses that had a dog grooming element, but HMRC maintained it was not ‘ordinarily’ taught in schools and universities.

HMRC also argued that even if the subject is ordinarily taught in the UK it must also be commonly taught in other EU member states.

The Tribunal dismissed ground 1, deciding that evidence relating to 88 further education colleges in England wasn’t a big enough sample to show that dog grooming was commonly taught in schools and universities, and that Ms Lalou failed to provide any evidence relating to anywhere other than England.

In relation to Ground 2, fiscal neutrality means that similar items (whether they are goods or services), which are in competition with each other, should not be treated differently for VAT purposes.

Ms Lalou produced 1 document addressed to another business, where an HMRC Officer had said “I am satisfied that based on your representations this would be categorised as an exempt supply…

She also gave anecdotal evidence that other, very similar businesses had told her that HMRC are treating their supplies as exempt. However, none of these businesses were willing to provide detailed evidence because they did not want to rock the boat with HMRC.

The Tribunal decided that one letter and anecdotal evidence that other similar businesses had been advised their supplies were exempt from VAT, was insufficient to establish any breach of the principle of fiscal neutrality.

Finally, the Tribunal commented that HMRC’s shift in position might appear unfair but it had no jurisdiction to decide the Appeal on general “fairness” grounds.

Conclusion

It is easy to feel sympathy for Ms Lalou, given HMRC’s “volte face” in her case, and her experience that other businesses were not charging VAT.

But it wasn’t enough to argue that HMRC was treating her unfairly. The Tribunal agreed with HMRC’s position that she had to prove that dog grooming was commonly taught, and not just in English FE colleges. The Tribunal criticised the lack of documentary evidence she provided. Well prepared files with, for example print outs from the websites of providers across Europe, would have helped her case. It should be noted the Tribunal decision related to a period pre-dating Brexit.

If your business supplies private tuition and you would like to discuss your VAT position, or you are in dispute with HMRC and want advice on your case, please contact Steve or Richard.

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