[2011] UKFTT 347 (TC)

TC01207

Appeal number: TC/2009/10740

Registration for VAT –whether supplies exempt - definition of “private tuition” – appeal dismissed

FIRST-TIER TRIBUNAL

TAX 

	MRS RUTH HOLMES	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

				TRIBUNAL: J. Blewitt (Judge)
						M. Farooq (Member)

Sitting in public at Birmingham on 14 April 2011

Mr Taylor, of A & A VATCARE, for the Appellant

Mr Wastell, Counsel instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2011

DECISION

1.	The Appellant appeals against the decision of HMRC to register the Appellant for VAT from 1 March 2002 on the basis that the supplies provided by the Appellant were not exempt under Schedule 9 Group 6 Item 2 of the VAT Act 1994 (“VATA 1994”). 
Law
2.	Section 31 (1) of VATA 1994 provides:
A supply of goods or services is an exempt supply if it is of a description for the time being specified in Schedule 9 and an acquisition of goods from another member State is an exempt acquisition if the goods are acquired in pursuance of an exempt supply.
3.	Item 2 of Group 6 of Schedule 9 to the VAT Act provides:
The supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer
4.	Article 132 (1) of the Sixth Directive 2006/112, transposed into UK law via Schedule 9 VATA 1994 provides for exemptions for certain activities in the public interest includes children or young person’s education, school or university education, vocational training and tuition given privately by teachers and covering school or university education.
Background Facts
5.	HMRC reviewed the Appellant’s self assessment tax returns and found that the Appellant had potentially exceeded the VAT registration threshold. 
6.	A questionnaire was sent to the Appellant on 4 July 2008 which was completed and returned by the Appellant on 29 July 2008. In the responses given, the Appellant declared that her business was “Dietetics/Nutritional Consultation” and that her income was made up of selling nutritional supplements and consultation. 
7.	As a result, HMRC Officer Ms Breteche advised the Appellant that her business activities did not qualify for exemption under Schedule 9 Group 7 VATA 1994, which applies to the supplies of certain medical, health and welfare services, and as a consequence the Appellant was liable for VAT registration. 
8.	By letter dated 10 October 2008, the Appellant’s accountant at that time, Mr Sutton, advised HMRC that the Appellant operates as a sole proprietor who provides nutritional advice and therefore qualifies for exemption as private tuition under Schedule 9 Group 6 Item 2 VATA 1994 as a teacher of nutrition. The consequence of the exemption would be that the Appellant was not required to be registered for VAT.
9.	HMRC raised concerns by letter dated 29 October 2008 on the grounds that consultancy which meets the needs of an individual, would not cover the issue of nutrition as a whole but rather on a specific case by case basis. Further information was requested from the Appellant in support of the assertion that her business was one of teaching nutrition.
10.	On 5 November 2008, the Appellant’s agent responded setting out a number of points in support of the Appellant’s contentions. In summary, it was submitted that the Appellant does not have a formal teaching qualification but provides sessions to groups as well as individuals and that teaching both is fundamentally the same as the basic facts must be taught before any individual’s case can be looked at. Reference was made to HMRC’s Notice 701/57 which sets out that consideration should be given as to whether the provision of health/education related services is exempt as supply of education. It was stated that the Appellant does not diagnose and that half of an appointment is given to teaching general nutrition. The Nutritional diploma held by the Appellant related to teaching nutrition and the Appellant had been offered full time employment at the Institute. It was stated that the Appellant did not have any teaching plans as she has sufficient knowledge to teach without and that the Appellant often speaks to WI groups, the public and college students; providing training for the latter as therapists.
11.	On 17 December 2008, HMRC responded to the Appellant by letter in which it was stated that, having considered all of the information provided, HMRC remained of the view that the Appellant’s business activities were those of a consultancy or counselling service, which are not considered to be private tuition and therefore do not qualify for exemption.
12.	A formal review was requested by the Appellant’s agent by letter dated 22 December 2008 with further submissions made in support of the Appellant’s case. 
13.	By letter dated 13 March 2009, HMRC upheld the decision following a review.
14.	Further information was provided by the Appellant’s agent by letter dated 20 March 2009, as a result of which HMRC accepted the course content showing that the Appellant had provided tuition in a subject ordinarily taught in schools/colleges/universities in respect of the liability arising from her lectures at Cotswold Academy for Health and Beauty, however HMRC took the view that the Appellant had failed to satisfy the other requirements, namely that she acts in a freelance capacity, provides tuition on her own account and at her own risk. Consequently HMRC remained of the view that the Appellant’s supplies were standard rated.
15.	By Notice of Appeal dated 3 June 2009, the Appellant appealed HMRC’s decision. It was subsequently confirmed by the Appellant’s agent by telephone on 11 and 16 June 2009 that the supplies to Cotswold Academy for Health and Beauty had not been supplied for over 2 years and therefore did not form part of the Appeal.
16.	The grounds of appeal stated that the Appellant qualifies for exemption on the basis that she provides private tuition in a subject ordinarily taught in a school or university which is provided directly to clients and supplied independent of an employer.
Evidence
17.	We were provided with a witness statement from the Appellant dated 7 July 2010, the contents of which the Appellant confirmed as true and accurate. 
18.	Mrs Holmes explained how surprised she had been when first contacted by HMRC and that there had been confusion on the part of the officer dealing with the case as to how best categorise Mrs Holmes’ business activities. 
19.	Mrs Holmes described that her “clinic” is an old solicitors’ office, now a Health Centre, which is run by individuals who rent the premises. Mrs Holmes explained that she rents one room within the building.
20.	Mrs Holmes stated that Terms of Engagement exist with her clients and that she is barred by her Code of Conduct from diagnosing, counselling or treating individuals but can provide advice and pass on nutritional expertise in an educational manner.
21.	Mrs Holmes gave examples of the variety of clients she advises and stated that clients may be referred to her from local GPs but that general reputation also provides a client base as does the BANT website. Mrs Holmes stated that she views her role as educating people about what to eat, food preparation and understanding nutrition.
22.	Mrs Holmes stated that she has, in the past, been offered lecturing posts at universities and on cruise ships but stated that she prefers sessions to be on a “1 to 1” basis or a small group as it provides greater involvement. 
23.	In cross examination, Mrs Holmes did not accept the description of her business activities as that of “nutritional consultant”, stating that she would give the description “nutritionalist”. It was put to Mrs Holmes that her response to HMRC’s questionnaire completed in July 2008 stated that she provides nutritional consultation, to which Mrs Holmes stated that she had used the term loosely without any realisation that such a constrained definition would be attached to it.
24.	Mrs Holmes did not accept that her clients came to consult with her regarding nutritional problems, stating that she provides advice and education. Mrs Holmes was asked why she referred to “clients” as opposed to “students” if the purpose of her work was educational to which she replied that her clients are a wide range of individuals which could include students; however Mrs Holmes did not accept that the relationships were ones of nutritional consultant/client as opposed to teacher/student.
25.	An extract from the BBC website was shown to the Appellant, purported to be an interview with her. Mrs Holmes explained that her brother works at the BBC and a colleague had asked to carry out an interview regarding the Appellant’s daily life. Mrs Holmes stated that the extract was not a fair reflection of the interview which had taken place and was a wholly inaccurate description of her work. Mr Wastell put to the Appellant that, irrespective of the overall inaccuracy of the article, the term “nutritional consultancy” was one that she had used, to which Mrs Holmes responded that she would use the phrase “nutritionalist”. 
26.	Mrs Holmes was referred to the Terms of Engagement which she uses in which the term “nutritional therapist” was used. Mrs Holmes clarified that the Terms state that nutritional therapy is practiced and that the term “nutritional therapist” or “nutritionalist” could be applied to her services as both give nutritional advice.
27.	When asked the difference between advising and teaching, Mrs Holmes stated that she views her role as teaching/informing as factual and educational advice is provided. Mrs Holmes went on to state that there is no distinction between giving lectures where a nutrition module is taught to future professionals and consultation.
28.	A nutritional questionnaire used by the Appellant (and provided by the Institute of Optimum Nutrition) was provided which allows for a client to provide information from which the Appellant would devise a plan to meet their needs. Mrs Holmes stated that this questionnaire would be given to individuals who attended her clinic and those to whom she would lecture, although the latter group would not fill them in but instead use them as a tool to assist in their future profession.
29.	Mr Wastell questioned the Appellant as to the distinction between the teaching of a subject and its practical application, to which the Appellant stated that the two are interchangeable and she saw no difference between lecturing to an individual, group or school. When asked how the progress of those to whom she teaches is tested/evaluated/examined Mrs Holmes stated that she would always evaluate clients although they would not be examined as students would.
Submissions
30.	In addition to the bundle of documents with which we were provided, both parties helpfully summarised their submissions in skeleton arguments which were expanded upon during the course of the hearing.
31.	On behalf of the Appellant it was submitted that Mrs Holmes is a teacher of nutrition who cannot, under the terms of her engagement between a BANT (the British Association for Applied Nutrition and Nutritional Therapy Nutritiona)l therapist and client, provide diagnosis or counselling to clients. Mrs Holmes’ role is to provide guidance on nutritional matters, and typically more than 50% of any session is spent providing general education. 
32.	It was accepted on behalf of the Appellant that the services provided by Mrs Holmes do not fall within Group 7, Schedule 9 VATA 1994.
33.	It was submitted that Mrs Holmes had never considered VAT and assumed her accountant would inform her of any VAT issues if they arose. When initial contact was made by HMRC, Mrs Holmes did not mention that her role was analogous to a private tutor as Mrs Holmes had not given any consideration as to how her services may be viewed for VAT purposes. 
34.	It was submitted that HMRC had made inaccurate assumptions and taken a view as to how the services provided by Mrs Holmes should be classified, despite never having visited the Appellant and that until Mrs Holmes had been informed about the legislation affecting VAT liability, there was no way in which she would have been able to inform HMRC that she believed the services qualified for VAT exemption.
35.	HMRC subsequently informed MRS Holmes that her business activities were viewed as consultancy or counselling despite the fact that Mrs Holmes is specifically barred from providing counselling. It was submitted that HMRC made no effort to see if Mrs Holmes’ claim had merit and that the conclusion reached in the review decision was made without speaking to Mrs Holmes. 
36.	Following the review decision, the Appellant’s representative provided further information to HMRC following which it was accepted that nutrition was a subject ordinarily taught in schools or universities. The Appellant’s agent confirmed by letter dated 3 June 2009 to HMRC that Mrs Holmes works on a freelance basis providing tuition on her own account and engaging all clients directly. 
37.	It was submitted on behalf of the Appellant that HMRC are seeking to construe the exemption available too narrowly and that to educate a person can involve teaching, training or instructing. It is submitted that it is not relevant that the services are not provided in a classroom nor is it relevant that information specific to an individual may be provided in addition to general guidance.
38.	Mr Taylor submitted on behalf of the Appellant that on the basis that the Appellant cannot treat, diagnose or counsel the only proper description left for the Appellant’s services is teaching. 
39.	A number of cases were referred to in support of the Appellant’s contentions; TK Phillips t/a Bristol Motorcycle Training Centre, VTD 7444, 18 March 1982 and Clarke School of Dance, VTD 15201, 9 October 1997.
40.	Mr Wastell on behalf of HMRC referred us to the case of Haderer v Finanzamt Wilmersdorf [2008] STC 2171 in which the ECJ considered the test to be applied under Article 132 (1) (j) as to whether an activity constituted private tuition by teachers and school/university education. The Court ruled that in order to qualify for exemption, the individual must act in a freelance capacity and such activities must consist of tuition given on the teacher’s own account, at his own risk and in a subject ordinarily taught in schools or universities. The principle that the exemptions provided for in Article 13 of the Sixth Directive are to be interpreted strictly was reiterated.
41.	HMRC submitted that the Appellant’s services cannot be characterised as private tuition in a subject ordinarily taught in a school or university such as to fall qualify for exemption. HMRC submitted that the Appellant does not provide private tuition and, even if the services could be deemed as such, they are not in a subject ordinarily taught in schools or universities. It was submitted that the Appellant advises and provides therapy to clients as opposed to educating, that the clients cannot be properly characterised as “students” nor can the Appellant properly be described as a “teacher”. It was contended that the Appellant’s representative’s description in a letter to HMRC dated 10 October 2008 which states “the business she operates involves the provision of nutritional advice” and the Terms of Engagement between the BANT Nutritional Therapist and client corroborate support HMRC’s submissions.
42.	In response to the cases cited by the Appellant, HMRC submitted that the distinction lies in the fact that the recipients of services can be more readily characterised as “students” and the supplier as “teacher” in those cases and that a different statutory test applied (the VAT Act 1983) in TK Phillips t/a Bristol Motorcycle Training Centre which may have been decided differently today.
43.	Mr Wastell confirmed that HMRC had accepted that the Appellant had taught a subject ordinarily taught in a school or university in respect of lectures provided to Cotswold Academy for Health and Beauty where evidence had been provided by the Appellant to show that the Academy was providing a vocational course “to produce expert quality professional therapists.” It was accepted by Mr Taylor on behalf of the Appellant that Mrs Holmes generated very little income from this activity. Had the Appellant generated her main income in this way, there would be no issue before the Tribunal. We found that this was not the case and that the majority of the Appellant’s business and income derived from dissimilar activities, namely the consultations carried out at her clinic.
44.	Mr Wastell went on to draw a distinction between teaching a vocational course to future professionals and the day to day application of the principles of the subject. It was not accepted by HMRC that applied nutrition and nutritional therapy are subjects ordinarily taught in a school or university beyond vocational courses. 
45.	The principle argument on behalf of HMRC was that the Appellant does not provide “private tuition” but rather practices applied nutrition and provides nutritional therapy as confirmed by the descriptions used by the Appellant herself in describing her business activities.
46.	It was accepted by HMRC that the Appellant cannot diagnose, however Mr Wastell submitted that the services provided by the Appellant are akin to medical or healthcare advice/therapy, which is corroborated by the BANT Terms of Engagement which confirm that it is an application of nutrition and therapy provided to clients.
47.	HMRC relied on the confirmation from BANT that dietetics which is registered under the Health Professionals Order 2001 is subject to an exemption for supplies of medical care, however nutritional therapy is “based on biochemical individuality through genetic uniqueness” and is therefore tailored to an individual.
48.	HMRC submitted that the Appellant’s services of consulting or advising cannot fall within the definition of “tuition” as there is no course/class/lesson of instruction involved. It was submitted that the questionnaire used by the Appellant is further evidence of the fact that her services address an individual’s requirements and areas upon which to provide advice, not tuition.
49.	HMRC relied upon Notice 701/57, which states under the heading “education services”:
Doctors undertake a wide variety of education-related activities and consideration should be given to whether they qualify as an exempt supply of education (see Notice 701/30 Education and vocational training) before considering whether they qualify as a supply of exempt healthcare.
Lectures (be they one-off or a series) given as part of a medical training course or Continuing Professional Development and training sessions to first aiders, which are provided by a doctor in either a sole proprietor or partnership capacity, are exempt as a supply of private tuition under the education exemption.
Presentations aimed at promoting health are also considered to be exempt as their principal purpose is to protect the health of the individuals attending. However, presentations given to a non-medical audience on, for example, the latest medical developments are considered to be taxable.
50.	Mr Wastell referred us to the Appellant’s university prospectus which makes a distinction between those who go on to became nutrition advisors or consultants and those in teaching, research and clinical capacities.
51.	In applying a strict interpretation of the exemption for private tuition, HMRC submitted that the Appellant cannot qualify.
Decision
52.	The issue for us to determine in this case is whether or not the Appellant provides private tuition in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer, which would give rise to an exemption to VAT registration.
53.	It was confirmed by Mr Taylor that there is no issue as to the date from which HMRC have calculated VAT registration should take effect.
54.	Our decision in this case is independent and we found that the complaints made on behalf of the Appellant as to the treatment by HMRC officers had no relevance to the issues to be decided in this case.
55.	We considered the cases cited by the Appellant carefully. We noted that in the case of TK Phillips t/a Bristol Motorcycle Training Centre there was no issue as to whether tuition was provided; the issue determined by the Tribunal related to whether it was education of a kind provided by a school or university. We  found it significant that at that time, the legislation applicable was broadly drafted; the Judge remarking:
“Item 2 does not say education of a kind provided in every or most schools or universities nor is it limited to education of a kind normally provided in schools or universities”
The Tribunal heard a great deal of evidence as to the training provided by the Appellant in the TK Phillips case which was used by many schools as part of their curriculum. We found as a fact that this case was distinguishable from the case before us on the basis that the issue we have to determine was whether tuition was provided by Mrs Holmes at all and that the legislation requires different conditions to be met, namely that the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer. We found that the case before us differs too much on its facts for the case of TK Phillips to be of any real assistance.
56.	As regards the case of Clarke School of Dance, again we found that the case differed so much on its facts as to be distinguishable. There was no issue that tuition was provided by the school of dance, the question for the Tribunal in that case was whether the tuition was of a type “ordinarily taught in a school or university”. For reasons that will become apparent, we took the view that there is a distinction to be drawn as to the subject taught in the case of Clarke School of Dance and the issue in this case, i.e. whether Mrs Holmes taught or practiced in her area of expertise.
57.	The factors to be met in this case are as follows:
(a)	The supply of private tuition,
(b)	 in a subject ordinarily taught in a school or university,
(c)	 by an individual teacher 
(d)	acting independently of an employer
58.	The issues for us to determine relate to (a) and (b), which are, to a degree, interlinked.
59.	We accept, as did HMRC, that the subject of nutrition may well be one which is taught in schools and universities. The evidence of Mrs Holmes was that she had given lectures to students on courses designed to qualify those students as healthcare professionals but this generated very little income as compared to the rest of her business activities. 
60.	We found the note provided by Ms Natalie Gillan, dated 25 August 2009 and unsigned, which stated that Ms Gillan, in addition to being a nutritional therapy practitioner, also runs seminars and workshops a helpful guide as to the different types of activities undertaken by such professionals. That said, we found that there is a distinction to be drawn between the teaching of nutrition as a vocational subject, and its practical application; indeed, Ms Gillan makes the distinction herself by reference to “practicing”. We note that Ms Gillan states that educating her clients is a prime objective, but we do not accept that this amounts to teaching in the manner necessary to qualify for exemption. We found that Ms Gillan’s statement, which goes on to set out the educational seminars taught by her, is indicative of the fine line to be drawn between the practical application of the subject and vocational teaching.
61.	We found the Appellant to be an honest witness. We found that her evidence reflected that of Ms Gillan, in that there was a clear distinction between the activities of advising and practicing nutrition as a therapist and teaching to future professionals. 
62.	We found as a fact that the evidence provided by the Appellant to assist us with an understanding of her area of expertise, corroborated the distinction we drew; the questionnaire filled out and used in advice given to clients as opposed to its use as a general tool to explain to students the relevant information to be sought prior to advising a future client; the information from the Institute of Optimum Nutrition which clearly describes nutritional therapy as “the art of creatively applying these facts to...the health of an individual” thus drawing a distinction between human nutrition as a subject and the practice/application of it; the information from BANT confirming that nutritional therapy is tailored specifically to an individual as opposed to general education on the subject which would not differ on a case by case basis; and the Terms of Engagement between the BANT therapist and client, which clearly shows the relationship to be one of advisor/client as opposed to teacher/student.
63.	We found as a fact that there is a clear difference between teaching the subject of nutrition in a school or university to future professionals on a vocational basis to that of practicing and applying the skill. We accept Mrs Holmes’ evidence that she would, as part of any consultation, provide education as to the subject generally, however we found this to be indicative of Mrs Holmes’ genuine care for the clients and her subject, as opposed to a standard method of practice.
64.	We considered carefully Mr Taylor’s submission that such a strict interpretation should not be applied to the exemption, however we found that even f we were at liberty to construe the provisions in a broader manner, the facts of this case are such that we could not reach a different conclusion. It is clear to us that the Appellant’s activities fall into the category of consultation/analysis and advisory as distinct from privet tuition.
65.	The appeal is dismissed.
66.	This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

TRIBUNAL JUDGE
RELEASE DATE: 25 May 2011