This case concerns the meaning of non-business use of a new building constructed by a charity further education (FE) college. Although the legislation says zero rating can only apply if the building is used solely for a relevant charitable purpose, HMRC will interpret solely in such a way as to allow a de minimis amount of up to 5% business use to be disregarded. HMRC’s appeal was allowed.
The issue here concerned which of the fees paid by students who were not wholly grant funded should be viewed as business income, meaning that use of the new building to educate them was business use. 11% of the students fell into that category. The rest either paid no fees (non-business) or were not eligible for any grant and paid a full fee set at more than cost (business). Fee income amounted to no more than about 6 or 7% of the total income of the College.
Within that group of part fee paying students however, there were several different categories and it was this group that caused the problem. Some of these students had even their partial fees reduced or waived completely or paid a flat rate fee, as a result of their income levels or other factors such as whether they were in receipt of benefits, or doing community service, or the educational level they had attained. However, that group also included UK students over 19 years of age who were not eligible for any further fee remission, though the fees they did pay were nevertheless below cost, and less than the fees paid by overseas students who would not qualify for any grant.
The UT decided that in respect of those students who had fees rebated, due to their low income levels or other personal characteristic factors, the link between the education provided and the income received was broken. Therefore, the fee income from those students was not consideration for a supply of education. This was in line with the ECJ Judgment in Commission v Finland (C-246/08) about means tested payments for legal advice where the payment was based on what the customer could afford, rather than on the hours spent by the lawyer and his hourly rate.
However, the fees paid by the other students in this group, who were not eligible for any further remission, were consideration for a supply of education. The fact that they were below cost, that part of the cost of the course was covered by a grant, and that the UK students paid less than the fees paid by the overseas students, was not relevant. Being a UK national was not a personal characteristic of the type set out in the Finland case. A charge at below cost can still be consideration. The link between payment and service was not broken for these partially grant funded and part fee paying students.
HMRC’s appeal was allowed. To access the decision click here.
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