Company’s supplies were not made outside of the EU

In Mandarin Consulting Limited v HMRC [2021] UKUT 0292 (TCC), the Upper Tribunal (UT) found that a company supplying career coaching services was unable to demonstrate that all of its students were usually resident outside of the EU, meaning that UK VAT applied.

• Mandarin Consulting Limited (MCL) supplied career coaching and support to students of Chinese origin.
• Prior to July 2016, contracts were made between MCL and the students. After July 2016, the contract was made between MCL and the parents, who were usually resident in China.
• MCL did not account for VAT on the basis that its supplies were consultancy services that were outside the scope of UK VAT due to an exception to the general Place of supply rules.
• HMRC raised VAT assessments of £1.3million on the basis the MCL was making supplies of Education services that were within the scope of UK VAT as they did not fall within the place of supply exception.

MCL appealed to the First Tier Tribunal (FTT), which found that the services supplied by MCL constituted consultancy services for the purposes of Article 59 of the Principal VAT Directive and not educational activities within Article 54.

This meant that where MCL had entered into contracts with the students (before July 2016), the question became where the students had their permanent address or usually resided.

• The services would be outside the scope of UK VAT if supplied to persons whose permanent address or usual residence was outside the EU.

The FTT:

• Allowed MCL’s appeal for periods from July 2016 when the contracts were with the parents. Their usual residence could be established as outside of the EU.
• Dismissed MCL’s appeal in respect of periods before July 2016 when the contracts were with the students.
  • MCL did not take the steps required under Article 23 of the Council Implementing Regulation 282/2011/EU to establish the usual residence of its customers before the time it made supplies to them.
  • This failing precluded MCL from establishing that its pre-July 2016 supplies were outside the scope of VAT.

MCL Appealed to the Upper Tribunal (UT) which found that:

• Although MCL did not satisfy the requirements of Article 23 before July 2016, it was nevertheless entitled to seek to establish that its customers had their usual residence outside the EU.
  • This disagreed with the FTT which found that MCL had to comply with Article 23 in order to demonstrate usual residence outside the EU. This meant the FTT judgement contained an error of law.
• MCL was not limited to evidence that it gathered at, or before, the time of supply. In addition, there was no limitation in principle on the nature of the evidence that MCL was entitled to use.
• While MCL’s students will often have been usually resident in the same jurisdiction as their parents (China), this is not the same as all students being so resident. This is due to the multi-factorial nature of the test of residence.
• MCL could not demonstrate that supplies to all of its students pre-July 2016 were made outside the EU such that they would be outside the scope of UK VAT.

As the FTT had erred in law, the UT set the FTT decision aside and remade it, dismissing MCL’s appeal and leaving the result unchanged in respect of periods prior to July 2016.

Useful guides on this topic

Place of supply: Services
The Place Of Supply (POS) of a service determines whether the supply is within the scope of UK VAT and whether VAT is payable on that supply.

Education & VAT
What rate of VAT applies to education? What sort of services are classed as education? What do you do if you have multiple supplies including education? What cases are there on VAT and education?

Career coaching is consultancy and not education for VAT
In Mandarin Consulting Limited v HMRC [2020] TC07714, a career coaching service to Chinese students was found to be a supply of consultancy services and not of education. The place of the supply for VAT turned on whether the supply was made to students staying in the UK or their parents in China.

External link

Mandarin Consulting Limited v HMRC [2021] UKUT 0292 (TCC)