Summary
The Courts, Tribunals and HMRC have been busy this month.
The High Court has dismissed the Judicial Review application by the private schools consortium, the Supreme Court has listened to the final round of the Hotel La Tour dispute (VAT recovery on vendor deal fees) and the Court of Appeal has heard the submissions by Hippodrome Casino (partial exemption) with these two decisions awaited in the next month or so.
HMRC has issued new policy briefs in respect of employers’ rights to recover VAT on defined benefit scheme pension costs and the charity fund raising exemption, with both announcements leading to widening VAT reliefs.
We have success for taxpayers claiming the Covid related reduced rate, exemption for university pathway courses, exemption for websites providing leads to financial advisors and zero rating of prescription drugs subsequently administered by a nurse in the patient’s home.
On the downside for taxpayers, JPMorgan has lost its Upper Tribunal appeal on the requirement to apply the reverse charge to intra-group supplies from the USA, and several small dance schools have been denied the education exemption.
News from the UK Courts and Tribunals
Upper Tribunal
[2025] UKUT 00188 (TCC) JPMorgan Chase Bank N A (JPMorgan) – whether banking support services are standard rated and subject to the reverse charge.
The Upper Tribunal has upheld the FTT decision that found for HMRC that JPMorgan made a single taxable supply of 'support function' services and that that was a standard-rated supply to its associated UK bank.
Readers may recall from ITU 2023/11 that this is a case about section 43(2A) of the VAT Act and whether the normal rules on intra-group supplies to make them outside the scope of VAT still applies. JPMorgan is a bank with headquarters in USA. It has a branch established in the UK with many employees and is the representative member of a VAT group. The American HQ buys in services from third parties in the USA and then provides services to its subsidiaries or branches around the world. In the UK there is a charge by JPMorgan its operating subsidiary JPMorgan Securities plc ('Securities), which is in the same VAT group, and which provides mainly exempt supplies to third parties.
HMRC asserted that services provided by JPMorgan to Securities over a period of several years were an exception to the normal disregard of intra-group supplies because of section 43(2A) of the VAT Act 'resupply within a VAT group of services bought in from overseas', and the supplies were not exempt. The FTT agreed with HMRC.
JPMorgan appealed to the UT on six different grounds, including that the FTT misconstrued or ignored key aspects and limitations of the contracts, and also that it misapplied the single v multiple supply tests and placed too much reliance on the invoices. Despite the best efforts of JPMorgan’s counsel, the UT was not persuaded by any of these grounds, and the appeal was dismissed.
In order to complete the picture, reflecting the approach of the FTT, the UT also considered JPMorgan’s case that many of the elements which combine to make up each supply of services fall within the securities exemption and that those exempt elements predominate with the result that each supply is exempt. Again, despite the persuasive submissions of JPMorgan’s counsel the UT was not convinced that the FTT had made any significant error.
Comment: While it appears to be a comprehensive defeat for JPMorgan, the detail of the arrangements set out in the FTT decision may provide guidance on how to structure contracts to lead to a different exempt conclusion.
High Court
The High Court has now dismissed the application for judicial review challenging aspects of the government’s introduction of VAT on private school fees. The applicants have lost their argument that the new rules infringe the human rights of certain students who attend private schools due to a lack of suitable options in the state school sector.
In dismissing the application, the court found:
- The imposition of VAT does not impair the essence of the right to education.
- The state is not obliged to subsidise private education.
- The measure was proportionate, given the government’s aim to raise £1.5 billion annually for public education.
- While the tax affects some groups more than others, the lack of exemptions was justified. Parliament had a broad margin of discretion in tax and social policy.
- The tax did not interfere with the “possessions” of schools or parents in a way that breached property rights.
Comment: This outcome was widely expected, however articles in the media suggest that some of the litigants are considering a further appeal.
First-tier Tax Tribunal
TC09528 Ingliston Driving Experiences – reduced rating during Covid crisis
Ingliston won its claim for reduced rating of its driving experience days in the FTT. These experience days involved high performance cars either as passengers, or as drivers (always driven or accompanied by a professional driver). The appeal related to one VAT quarter to 31 October 2020 (before IP Completion Day), so the FTT was content to consider the UK legislation in the light of the identical wording of the PVD, which allows member states to apply the reduced rate to 'admission to shows, theatres, circuses, fairs, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events and facilities'.
The FTT was persuaded that only paying customers had access to the area where the cars were driven from, so this amounted to 'admission'. It differentiated the facts from this in the appeal of The Young Driver Training Ltd TC08748 where the FTT denied reduced rating. In that case the promotional materials emphasised provision of driving lessons and that its customers were being taught driving skills.
Having decided this, the FTT turned to whether the admission was to 'similar cultural events and facilities'. This led to the FTT's overall impression that the customers wanted excitement and thrills that had sufficient similarities with fair and amusement parks to justify reduced rating.
Comment: The appeal related to a single VAT period that predated the UK’s final departure from the EU, (31 December 2020) so the FTT applied EU law. This reduced rate applied until 31 March 2022 so four year claims for overpaid output tax are still possible.
TC09536 Solent Pathway Campus Ltd – exemption for university pathway courses
The FTT has found in favour of Solent Pathway Campus Ltd (SPCL) that can exempt its educational supplies as both a college of Solent University and a provider of Tuition in English as a Foreign language.
SPCL was set up as a joint venture partnership between Solent University and QAHE Solent Ltd to provide pathway courses, which aim to develop international students’ ability to use English in an academic context while studying for their chosen pathway subject. The aim is to prepare students for entry into higher education courses at the University. QAHE operates the pathway courses and charges the cost to SPCL, which charges the course fees to the students. Solent University provides academic oversight of these pathway courses.
SPCL initially charged VAT on its supplies of education to students, then submitted a claim for overpaid output tax on the basis it was an 'eligible body' either as a college of a university or as a provider of teaching English as a foreign language.
The FTT’s applied the five tests identified in the 2019 Supreme Court decision in SAE Education, three of which were not disputed by HMRC.
The FTT accepted SPCL can enrol students at the University when they have successfully completed their pathway course, so this test is passed. The FTT also accepted that SPCL can in due course present its students for a degree from the University. This is despite HMRC’s argument that the pathway courses were equivalent to NVQ level 3, and University degree courses are recognised as starting at NVQ level 4 with completion at level 6. This led to the conclusion that all 5 tests are met and SPCL is a College of the University sufficient to decide the appeal in favour of SPCL, but the FTT went on to hypothetically consider whether SPCL provides TEFL.
HMRC argued the courses were not TEFL because they did not cover general English but instead taught English for a specific academic purpose. The FTT rejected this argument, accepting evidence presented by SPCL from official bodies that the International Foundation Programme (IFP) was the same as English for Academic purposes which is a form of TEFL. There was no requirement for TEFL to be restricted to general English or taught at a basic level.
The FTT also ruled that the IFP was a single supply of TEFL and it would be artificial to split its elements into separate supplies of English and subject specific modules.
Comment: This case appears to have been decided on its individual facts but provides a very useful summary of the tests to be applied to establish that an entity is a college of a university and therefore an eligible body for the education exemption.
TC09534 Rushby Dance and Fitness Centre & Others – exemption for dance and fitness classes
Four dance and fitness related businesses appealed HMRC’s decision to deny VAT exemption for their classes. The FTT considered two main issues: whether the classes were in subjects ordinarily taught in schools or universities, and whether LLP members were teaching independently or on behalf of the LLP.
Rushby Dance and Fitness Centre, Jagers Dance and Event, and Karen Hilton were denied exemption. The FTT found insufficient evidence that their specific dance styles (e.g., Latin, ballroom, kettlebell-based fitness) are commonly taught in schools. While some classes involved tuition (i.e., transfer of knowledge and skills), they did not meet the 'ordinarily taught' requirement.
Dance Consultants International LLP was treated differently. HMRC withdrew its argument that LLP members were not independent, so the FTT allowed exemption for classes taught by designated members, pending further negotiation on which classes meet the 'ordinarily taught' test.
Comment: The case highlights the difficulty small dance schools, or other training providers, face in proving their classes align with school curricula, and the appeals were dismissed because of the lack of direct evidence that the specific dance styles are taught in schools. The judgement also indicates the evolving interpretation of VAT exemptions for LLPs.
TC09543 Performance Leads Ltd - financial advice/pensions websites – whether exempt financial intermediation
The FTT has ruled that website income from providing leads to Independent Financial Advisors is exempt as financial intermediary services.
Performance Leads (PLL) operates two websites (financial-advisors-near-me.co.uk and pension-advisers-near-me.co.uk) through which it identifies and gathers information about individuals who are seeking financial advice of various kinds. It uses this information to provide leads to its Independent Financial Adviser (IFA) clients, who pay a fee per lead received.
PLL initially treated its income as standard rated, but then decided it was consideration for an exempt supply of financial intermediary services and claimed a refund of overpaid output tax of about £250,000, which HMRC rejected.
The FTT accepted PLL was not just providing advertising (there were no IFAs named on its websites. It’s filtering and assessment of individuals’ information determined their suitability for and IFA appointment.
The functionality of the website and the contractual obligations of the IFA (to respond to all leads provided) resulted in PLL bringing together potential clients and financial advisers with a view to financial services of investment planning being provided. In addition, intermediary services can be exempt even if no contract is ultimately concluded.
Comment: It is surprising that HMRC seems to be attacking exemption in these circumstances where we would normally advise that the website income was exempt consideration for a supply of financial intermediation services.
TC09544 Clatterbridge Pharmacy Limited - zero-rating of prescription drugs – whether for ‘personal use'
The FTT has agreed that prescription-only medicines supplied to outpatients can be zero rated, even when NHS staff administer the drugs at the patient’s home.
Clatterbridge Pharmacy (CPL) is a wholly owned subsidiary of the Clatterbridge Cancer Centre NHS Foundation Trust, which dispenses prescription-only medicines including injectable and IV cancer treatments, to outpatients.
HMRC argued that CPL’s supplies of the drugs should be standard rated because they were not for the 'personal use' of the patient.
However, the tribunal found that 'personal use' means use by the individual, not necessarily self-administration. It rejected HMRC’s argument that 'personal use' must mean use in a private setting without professional involvement.
The medicines were prescribed to named individuals and could not be reused or returned. The fact that a nurse administered the medicine did not change the fact that it was for the patient’s own use.
The FTT observed that HMRC’s interpretation would lead to inconsistent VAT treatment depending on whether a patient was 'signed off' to self-administer, which could change over time.
Comment: This exact scenario does not seem to have been foreseen in HMRC guidance on the zero rate for dispensed drugs - VATHLT6060 and we have not identified any specific case law on the ‘personal use’ point. Given our understanding that CPL’s zero rated treatment is typical of similar arrangements, it is surprising that HMRC has tried to attack it in this way.
Court of Justice of the European Union
C-785/23 - Bulgarian posts – whether all postal services are exempt
The CJEU has ruled that postal services provided under separate contracts by a licensed provider of universal postal services cannot be exempt from VAT if those services are customised for specific customers, not available to everyone, and offered on better terms than those approved by the national postal regulator or set by official service standards.
Comment: This judgment should come as no surprise as it follows the guidance of the Court provided in TNT Post UK, C‑357/07, which led to the Post Office/Royal Mail charging VAT on individually negotiated contracts.
HMRC News
Various sources, including the Joint VAT Consultative Committee (JVCC), indicate HMRC are intending to increase the capital goods scheme threshold increase to £600,000 without retrospective effect in 2026. However, the precise date and the details are yet to be announced.
HMRC is in the process of considering the impact of the EU’s proposals VAT in the Digital Age on the UK, particularly what the package means for Northern Ireland.
Other matters under review by HMRC with the JVCC – reform of the option to tax (including anti avoidance rules), buildings constructed prior to 1948, clarification of the VAT relief for medical equipment, and the importance of good guidance. No further details have been given on the precise issues involved.
The main point from HMRC is that in principle at least, employers are now entitled to treat VAT incurred on the costs of the investment management of defined benefit funds as their own input tax. In most cases, we expect these changes will simplify and enhance overall VAT recovery levels for sponsoring employers or their defined benefit pension schemes.
In addition, HMRC says that VAT registered trustees who supply pension fund management services to the employer and charge for them, will be able to recover treated VAT as input tax.
The new policy came into force on 18 June, the date the brief was published. HMRC also mentions that any claims made for additional input VAT will be subject to the four year cap, which may imply that it will apply the policy retroactively and consider paying retrospective VAT refunds.
Comment: At the time of writing, HMRC has not updated the guidance manual that sets out the detailed position, so much remains uncertain, including the precise contractual and invoicing relationships that will need to be in place to support input tax recovery. Trustees and employers will need to review who pays for the costs, how much is recharged, and whether this should be changed to maximise VAT recovery under the new rules.
Following the recent Upper Tribunal decision in Yorkshire Agricultural Society, which HMRC are not appealing further, HMRC has clarified its policy on the exemption for charity fundraising events. It has also updated its public notice, internal and online guidance on this topic.
The Upper Tribunal upheld the FTT’s earlier ruling that the Great Yorkshire Show has two main purposes, fundraising and education, which had equal importance. Therefore, as both should be regarded as its main purpose, and one of those is fundraising, the UT confirmed that the primary purpose condition had been met.
HMRC now accepts that ‘fundraising’ can be ‘a primary purpose’ and not only ‘the primary purpose’ of an event. This widens the scope of the relief to accept that, in certain circumstances, an event may have two primary purposes. Where these cannot be separated in importance, the exemption can still apply provided one of those primary purposes is fundraising.
However, HMRC say charities must be able to evidence this and provide a clear explanation as to why they cannot be separated in terms of importance. HMRC will expect charities and other qualifying bodies to be able to provide objective documentary evidence that the event was organised as a fundraising event, and not that there was simply an intention to obtain income from the event.
HMRC’s new interpretation has been reiterated in paragraph 3.3 of Charity fundraising events: exemptions and HMRC’s internal guidance manual VCHAR9300 - Fund-raising: Exempt charity fund-raising events.
Comment: HMRC’s acceptance of the Upper Tribunal’s decision is welcome and it may be possible for some charities to secure exemption for their events under this new interpretation. However, it is also important to note that exemption isn’t always the most advantageous position for all charities, e.g. where significant amounts of input tax are incurred in putting on an event, and this decision may increase the risk of unintentionally falling within the exemption.
Other news
The Supreme Court heard the appeal of Hotel La Tour (VAT recovery on vendor deal costs) in the first half of June, and the Court of Appeal heard the appeal in Hippodrome Casino in the last week of June. Both decisions are expected in the next month or so and we will be providing further insight as soon as we have sight of the judgments.
