19912

VALUE ADDED TAX- supply of books under Group 3 Schedule 8 VATA 1994 zero rated -  supply of education by a non-eligible body under group 6 schedule 9 VATA 1994 standard rated – supply of education - standard rated -  appeal dismissed

MANCHESTER TRIBUNAL CENTRE

	R S H ASSOCIATES LIMITED	Appellant

	- and -

THE COMMISSIONERS FOR HER
                               MAJESTY’S REVENUE AND  CUSTOMS 	Respondents

			Tribunal:	DAVID S PORTER  (Chairman)
					GILIAN PRATT       (Member)

Sitting in public in Manchester on 4 October 2006

Nigel Gibbon a solicitor instructed for the Appellant

Jonathan Cannan of counsel instructed by the acting solicitor for the Commissioners for HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2006
DECISION

1.	  R H S Associates Limited (“the Appellant”) appeals against the decision of the Commissioners contained in a letter dated 2 December 2005 in which they ruled that the Appellant was supplying home study courses which amounted to a single supply of education and was therefore standard rated. The Appellant contends that as the majority of the supply is represented by accountancy books it should be zero-rated.

2.	  Jonathan Cannan of counsel appeared on behalf of Her Majesty’s Revenue and Customs and produced a bundle of documents for the tribunal. Nigel Gibbon a solicitor appeared on behalf of the Appellant which was represented by Michael Hughes its Managing Director (“Mr Hughes”). Both Parties produced bundles of documents and skeleton arguments. Mr Hughes took the oath.

3.	  We were referred to the following cases:-

International Correspondence Schools Limited v The Commissioners for Her Majesty’s Revenue and Customs  Decision number 17662
College of Estate Management v The Commissioners for Her Majesty’s Revenue and Customs   2005 UKHL 62    

The Facts

4.	We find the following facts:

Mr Hughes is a Teacher and having been made redundant from Grimsby College he decided to set up his own business. He started by selling accountancy text books for the purpose of preparing candidates for CIMA and ACCA examinations. The books had questions at the end of each chapter and as his customers wanted to know the correct answers he started supplying correspondence courses. He traded initially by means of a company known as P T I Associates Limited (using  Premier Training as the trading name) but that company went into administration and the business was taken over by the Appellant

5.	 The Appellant registered its business for VAT purpose on the 23 May 2005 confirming its trade name to be Premier Training and its principal activity to be Bookkeeping Trainers. It also has a web site which expounds the benefits of:
•	Personal Tuition. Choosing Premier Training as your partner in your distant learning will bring you many benefits and rewards.
•	Your tutor can spend as long as necessary explaining without the rest of the class becoming impatient 
•	Time is focussed on areas that need it, and provision is tailored to fit rather than “off the peg”.
•	Premier Training will write a timetable individually for each student based on the rate at which they wish to progress
•	Our tutors are chosen for their expertise in accountancy their knowledge of open learning  and their broad experience in adult learning

6.	 There then followed a series of testimonials from delighted students stating that their tutors were friendly and helpful, who went above and beyond the call of duty to respond to questions immediately. The web site also hosts a VIP room, which only students can access, where different questions and answers can be obtained.

7.  Mr Hughes explained that the web site was a marketing ploy to persuade individuals to ring the Appellant so that his operatives could persuade them to take the course. It was clear from the figures provided to the Tribunal that:

•	Out of the 688 students studying for the AAT qualification only 53 called in to use the tutoring facility. Of those 53 many merely wanted help with the English language or were making enquiries about future careers.
•	On average only 14% of the entire student group sent in the course assignments for marking.
•	The Appellant employs 12 people including himself, his sale director and an apprentice. Dawn Weedon was the only qualified accountant employed by the Appellant and she spent 40% of her time teaching at Grimbsby College
•	From the accounts: Book sales amounted to £17,114; Course books represented £117,761 and Tutor support amounted to £259,051 out of total sales of £442,988
•	The Appellant’s dedicated book business is zero rated and the provision of Dawn Weedon to the Grimsby College is standard rated.

8.	 Mr Hughes produced sample invoices to the Tribunal. These identified “Home Study” as the supply except for one which referred to “Book keeping Course Books”. Mr Hughes explained that that was a mistake and it should not have referred to books. He could not understand how the reference to books had arisen. 

9.	  Mr Hughes also presented to the Tribunal the “Welcome Pack” which gave details of the extensive number of books that were supplied to the students. These consisted of:-

•	Office skills (AAT Course)
•	Foundation Accounting
•	Foundation work book with questions and answers 
•	Business Accountancy books 1 and 2
•	Their own blue binder consisting of their printed matter

All the books could be purchased from any professional studies book shop.

The Law

10.  Schedule 9 Group 6 item 1 Value Added Tax Act 1994 (VATA 1994) exempts “education” supplied by an eligible body. The parties agree that the Appellant is not an eligible body because it is a profit making organisation.
 
     Notice 701/30/02 defines education at paragraph 5.1 and says:

	“Education includes;
•	Distance teaching and associated materials (provided the student is subject to assessment by the teaching institution)”.

Group 3 Schedule 8 VATA 1994 at item 1 zero rates

 “The supply of books, booklets, brochures, pamphlets and leaflets”

Summing up

11.   Jonathan Cannan submitted on behalf of the Commissioners that although the Notice of Appeal contended that the supplies are either a single supply of zero rated books or two separate supplies, one of zero rated books the other of standard rated education it was clear from the presentation of the case by Nigel Gibbon that the matter before the tribunal was whether the supply was of books or of education. 

12.	  Lord Hoffman in Dr Beynon and Partners v Customs and Excise Comrs [2004] UKHL 53 at [19]. [2005] STC 55 at [19]  [2005] WLR 86 drew attention to the restatement of principle by the Court of Justice of the European Communities in Card Protection Plan Ltd v Customs and Excise Comrs (C-349/96) [1999] STC 270 [1999] 2 AC 60 and suggested that, in future, it would not be necessary to go back to any earlier cases.

13.   The question whether a supply is a single supply or multiple supply and, if a single supply, the nature of that supply was considered in the House of Lords in College of Estate Management v Customs and Excise Commissioners [2005] UKHL 62 (“CEM”).  CEM provided distance learning courses to the property and construction industries. The House of Lords upheld the decision of the Tribunal and of Lightman J in the High Court that CEM made a single supply of education. In doing so it considered and provided authoritative guidance on the application of the case of Card Protection Plan. In particular it divided the cases into two categories:
1.	Cases susceptible to a principal supply and ancillary supply
2.	Cases of supplies involving more than one element or component where it is artificial and at odds with economic reality to describe one element as ancillary to another
14.	   Cases within the first category may be analysed by reference to paragraph 30 of the ECJ judgement in College of Estate Management:

“There is a single supply in particular in cases where one or more elements are to be regarded as constituting the principal service, whilst one or more elements are to be regarded, by contrast, as ancillary services which share the tax treatment of the principal service.  A service must be regarded as ancillary to a principal service if it does not constitute for the customers an aim in itself, but a means of better enjoying the principal service supplied”

This analysis is appropriate for example when considering the transport element supplied by an hotelier to his customers or the delivery element of a car and the labels, tags and medical cards in a package of insurance services.

15.   It was held to be highly artificial to describe the supply of printed materials as ancillary to education services in College of Estate Management or indeed vice versa. Similarly food is an integral part of restaurant services and drugs and medicines an integral part of the provision of medical care

16.	   In College of Estate Management Lord Rodgers described the correct approach in the following terms at paragraph 12:

 “But the mere fact that the supply of the principal materials cannot be described as ancillary does not mean that it is to be regarded as a separate supply for tax purposes. One has to decide whether, as a matter of statutory interpretation, the College should properly be regarded as making a separate supply of the printed materials or, rather, a single supply of education, of which the provision of the printed materials is merely one element….. The answer to that question is not to be found simply by looking at what the taxable person actually did since ex hypothesis, in any case where this kind of question arises, on the physical plane the taxable person will have made a number of supplies. The question is whether, for tax purpose, these are to be treated as separate supplies or merely as elements in some over arching supply…. The criterion to be applied is whether there is a single supply “from an economic point of view”. If so, that supply should not be artificially split, so as not to distort the functioning of the VAT system. The answer will accordingly be found by ascertaining the essential features of the transaction under which the taxable person is operating when supplying the consumer, regarded as a typical consumer.”

17.	  There are factual differences between this case and College of Estate Management,  principally:

•	The College produced its own materials, which were generally not on sale
•	Students were expected to complete their assignments which were assessed and counted towards the qualification
•	There were face to face teaching sessions, although a significant proportion of students did not attend those sessions.

18.	  Jonathan Cannan submitted that these differences are not material to the analysis in the present case. It is clear that the materials are available for sale generally. However it is evident from both the marketing literature, pricing lists and invoicing that the Appellant is supplying training courses. The students clearly felt that there was an added value provided by the Appellant’s tutoring and support. The Appellant is supplying much more than books. In particular the home study courses are:

•	Specifically tailored to each individual
•	Provide access to course advisers and tutor support by post, telephone, fax or email
•	Provide for assignments to be undertaken by students with feed-back in respect of those assignments
•	Include web-based support.

19.  Mr Gibbon referred to the tribunal decision of International Correspondence Schools Limited v The Commissioners for Her Majesty’s Revenue and Customs Decision number 17662 a case decides in April 2002 and predating the House of Lords decision in College of Estate Management. Although the facts of that case were similar to the present case Lord Walker in College of Estate Management has expanded on the judgement of the Court of Justice of the European Communities in Card Protection PlanLimited by confirming that that case does not require a finding that there must always be a principal and ancillary supply. 

20.  Jonathan Cannan submitted that when the present transactions are properly analysed this is not a case where one can identify either the printed materials or the educational services as being ancillary in a meaningful way to the other. Rather it is a case of identifying the economic reality of the transaction. It is submitted that this is a single supply of educational services of which the materials form a component part. In simple terms, in supplying the home study courses the Appellant is supplying educational services and books. As a result the Appellant is making a single supply, rather than a multiple supply and it is properly characterised as a supply of educational services.

21.   Nigel Gibbon submitted that the Appellant provides study packages to students who are studying for professional examinations. The packages consist of self study books together with a small ring binder with instructions and projects. There is telephone support but from the evidence this is very rarely used. Even the students, who ring in, rarely ask about the particular course but ask more about career strategy

22.    Notice 701/30/02 defines “education” at paragraph 5.1 and states;

“Education includes-.
-distance teaching and associated materials (provided the student is subject to assessment by the teaching institution)”

The word “assessment” means the act of assessing or appraising. The verb to “assess” means to evaluate or estimate or to determine the value, extent or significance of something.  The Appellant does not assess students. CIMA and ACCA specifically disallow the Appellant from any form of assessment. Assignments, which are optional and do not form part of the student’s final grade, are marked and returned with a model answer. Assignments are very straight forward (many are multiple choices) and have been designed to make marking fast and efficient so that trained teachers are not required to carry out the marking.  The study packages are not assessments because they do not count towards the students final grades and, in any event, they are optional, and only a small percentage is returned. As a result the Appellant is not providing “education” as defined in Notice 701/30/02.

23.   The facts of this case are similar to those presented to the Scottish VAT & DutiesTribunal in International Correspondence Schools Limited v The Commissioners for Her Majesty’s Revenue and Customs Decision number 17662 where the Tribunal found the take up of tutorial facilities was sufficiently low as not to disturb the predominant nature of the supply which was of written material

24.   Nigel Gibbon produced to the Tribunal a comprehensive analysis of those differences, the most important of which is that the Appellant:

•	  Is not affiliated to or associated with any University or other eligible body.
•	does not have a large number of academic staff
•	does not create or write the study package material
•	does not assess students in any of the study packages. this fact is the most important, as it confirms that the Appellant does not assess students sufficiently to bring it within the meaning of education in Notice 701/30/02

25.    The support services offered to the students in addition to the purchase of the printed material ( i.e. telephone support and the submission of assignments) do not disturb the predominant nature of the supply of printed material because:

•	There is a very low take up of telephone support and, in any event, the support given is rarely tutorial support,
•	Only a very small percentage of assignments are returned by the students

The Appellant’s sales of printed material are not the medium through which education is supplied (as was the case in College of Estate Management) any more than a bookshop selling identical study books. The Appellant’s supplies are zero rated printed materials

The decision

26.	We have considered all the facts and the law and have decided that the Appellant is making a single supply of educational services which must be standard rated

27.	There is no doubt that the case of College of Estate Management has provided     authoritative guidance on the application of Card Protection Plan Limited v Customs and Excise Comrs (C-349/96) [1999] STC 270 [1999] 2 AC 601 by dividing the cases into two categories:

•	Cases susceptible to a principal supply/ancillary supply analysis 

•	Case of supplies involving more than one element or component where 
it is artificial and at odds with economic reality to describe on element      as ancillary to another.

Our view is this case falls into the second category.

28.	   According to the facts given to us, Mr Hughes had been a teacher at Grimsby College and when he was made redundant he formed P T I Associates Limited trading as Premier Training. That company went into administration and he started the Appellant. P T I Associates Limited initially sold books. As the books had questions at the end of each chapter his customers wanted to know the correct answers. He decided to provide a tutoring service. When he formed the Appellant he continued to sell books and to provide the necessary answers. The Appellant’s web site makes it abundantly clear to any student wishing to take up a course that tutors and training are inherent in the service.  It is misleading for Mr Hughes to maintain that this was merely an advertising ruse to persuade the students to ring his operatives, who could then sell the books and enrol the students on the course. Any reasonable student would undoubtedly believe that he/she was being supplied with a distance learning course. It matters not that the take up for the tutoring was slight. The students could decide for themselves whether to take advantage of the facility. The Appellant was undoubtedly selling an education service.

29.	   Under cross-examination it became clear that  Mr Hughes believes that he is selling an education service. When looking at the invoices, most of which we understood referred to “Books and support” he stated that he could not understand where the reference to Books had come from. He said:  “It must be a typing error. It should read Bookkeeping Study Course”

30.	   We cannot accept Mr Gibbon’s submission that the Appellant could not be involved in “education” as defined in Notice 701/30/02 because the Appellant did not assess the students. We are satisfied that the students understood that their written work could not only be assessed in terms of very useful comments, model answers and a critique could be offered by a dedicated tutor. As Lord Rodger observed in College of Estate Management :

“ Lightman J ….. seems, with respect, to be hindered by the same perception that every case has to be squeezed into a matrix of what was  ‘principal’ and what was ‘ancillary’. What the judge called ‘a component part of a single supply’ may be (in the fullest sense) essential to it- a restaurant with no food is almost a contradiction in terms, and could not supply its customers with anything- and yet the economic reality is that the restaurateur provides a single supply of services. Without the need to resort to gnomic utterances such as ‘the medium is the message’, the same sort of relationship exists between the educational services which the College provides to a student who takes one of its distance-learning courses and the written materials which it provides to the student”

31.	   We were referred to International Correspondence Schools Limited v The Commissioners for Her Majesty’s Revenue and Customs Decision number 17662 a tribunal decision decided before the case of College of Estate Management. A case which would appear to be similar to the one before us. We are, however, not bound by that case, and indeed we are exhorted by Lord Slynn of Hadley in Card Protection Plan Limited:

“…to have regard to the “essential features of the transaction” to see whether it is “several distinct principal services “ or a single service and that what from an economic point of view is in reality a single service not to be “artificially split”. It seems that an overall view should be taken and over-zealous dissecting and analysis of particular clause should be avoided”

32.	   The Appellant already sells books and if it wishes to do so, it could abandon its distance-learning and merely sell the books. By keeping the distance learning in place it was undoubtedly providing an added value to the sale of the books, as was intended by the Appellant, and it cannot now contend that it is not providing education

33.    For all the above reasons we dismiss the Appellants appeal but award no costs as none were requested.

DAVID S PORTER
CHAIRMAN
RELEASE DATE: 29 November 2006

MAN/05/0852