In Wakefield College v HMRC  EWCA Civ 952, the Court of Appeal decided that income from students who are partly subsidised and pay a small additional fee for courses, amounted to a business activity. This meant the construction of a new building could not be zero-rated.
The Construction costs of a new building can be zero-rated if the building is intended to be used solely for a relevant charitable purpose.
Relevant charitable purpose means use by a charity otherwise in the course of furtherance of a business.
This case centred around whether the supplies of Education by the College, to the extent they were carried on in the new building, were non-business.
- Wakefield provide educational courses to around 10,000 students, including further education, vocational training, and higher education.
- 90% of students are further education students (equivalent to University)
- HMRC accepted that vocational education subsidised by the Learning and Skills Council (LSC) was non-business income. Around 73% of the student population were entitled to full fee coverage.
- Some courses were not eligible for any government funding. The College accept that these courses were business supplies.
- Other students, who were on a course which qualified for government funding, but who did not meet the criteria for full fee coverage would instead pay a fixed fee, significantly less than the cost to the College of providing the course. The fee was then supplemented by a reduced LSC funding.
- The College contended that this provision of education was not a business.
- HMRC contended that it did amount to a business.
Relying on EU law, the Court determined that there were two questions to consider:
- Is there a supply for consideration?
- This is not sufficient on its own to constitute an economic activity but is a necessary requirement for there to be an economic activity.
- Does the supply for consideration constitute an economic activity?
- Is the supply made for the purposes of obtaining income therefrom on a continuing basis?
- In other words, is the supply made “for remuneration”?
It was accepted by the College that the partly funded students were giving consideration for the education provided to them. It was contended that there was no economic activity:
- The fees only covered 25-30% of operating costs of the course.
- The College charged less than the LSC permitted and expected, as it wanted to serve the local area. The deliberate decision to charge a lower fee so it was affordable to poorer students pointed away from economic activity.
- The subsidised fees accounted for only 6-8% of the relevant income.
The Court of Appeal found for HMRC:
- The sole activity of the College is the provision of education courses.
- The provision of courses to students paying subsidised fees is a significant, albeit minority, part of the College’s total undertaking.
- The fees paid are significant in amount, some courses costing around £900.
- The subsidised fees made a significant contribution to the cost of providing courses to the students paying those fees (25 – 30%).
- The fees were fixed by reference to the cost of the courses.
- The fees were not fixed by reference to the means of the students or employers paying the fees. The fee was fixed for each course.
- There is a market for these courses and the College is not atypical or a unique participant in that market.
It was found that the partly funded course fees were an economic activity and the construction costs of the building could not therefore be zero-rated.
External link: Wakefield College v HMRC  EWCA Civ 952
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