SAE Education Ltd v The Commissioners for HMRC

The common system of value added tax (VAT) was introduced into the EC as a general tax on the supply of goods and services. It is calculated by reference to the price of the goods and services in question and operates irrespective of the number of transactions which take place in the production and distribution process before the stage at which tax is charged. The tax is payable by the person making the supply after the deduction of the amount of VAT borne directly by the various cost components of the supply.

These basic features of VAT were first set out in Article 2 of the First Council Directive of 11 April 1967 (67/227/EEC) which explained in its recitals the need to achieve harmonisation in turnover taxes and to eliminate, as far as possible, factors which may distort competition. This included the perceived need to harmonise both rates of and exemptions from tax across the EC. The effect on competition of exemptions from VAT was recognised in the Second Council Directive of 11 April 1967 (67/228/EEC) which recited that:

Article 10 of the Second Directive exempted the supply of goods and services to places outside the relevant member state and the importation of goods and services. But member states also retained the right to determine the other exemptions which they considered necessary. The Second Directive was not more specific than that in identifying what other exemptions might be granted. Provisions for exemption from VAT have been carried through to the Principal VAT Directive (PVD) (2006/112/EC) but are now set out in considerably more detail than in the original EC legislation. In Article 132 one finds what are described as exemptions for certain activities in the public interest. These include in Article 132(1)(i):

The exemptions provided for in Article 132 are stated in Article 131 to apply:

Examples of the type of conditions which a member state might choose to impose are contained in Article 133. These relate to exemptions conferred on bodies other than those governed by public law and therefore to the “other organisations” referred to in Article 132(1)(i) above. They include the requirement that the body in question should not systematically aim to make a profit; should be managed and administered on an essentially voluntary basis and should charge prices which are approved by public authorities or which do not exceed such approved prices; or must not be likely to cause distortion of competition to the disadvantage of commercial enterprises subject to VAT.

The United Kingdom has chosen to implement Article 132(1)(i) not by imposing one or more of the Article 133 conditions but by identifying in domestic legislation the public or other bodies which it recognises as qualifying under Article 132(1)(i). Exempt supplies of goods and services within the United Kingdom are specified in Schedule 9 to the Value Added Tax Act 1994 (VATA 1994). The exemptions relating to education are contained in Group 6. Item 1 is:

The issue on this appeal is whether SAE Education Limited (“SEL”) was properly assessed to VAT for the periods from 1 May 2009 to 29 February 2012 in respect of supplies of education. It claims that the supplies were exempt on the basis that, since at least 1 May 2009, it has been a college of Middlesex University (“MU”) and therefore an eligible body within the meaning of Item 1 of Group 6. The First-tier Tribunal (“F-tT”) (Judge Clark and Dr James MBE) allowed its appeal against the assessments but its decision was reversed by the Upper Tribunal (Tax and Chancery Chamber) (“the Upper Tribunal”) (Judge Colin Bishopp and Judge Guy Brannan) in a decision released on 25 April 2016: [2016] UKUT 193 (TCC).

The decision of the Upper Tribunal is challenged on a number of different grounds including that the Upper Tribunal was wrong to interfere with what was a multi-factorial assessment by the F-tT that could not be said to be wrong as a matter of law. But the principal reason that permission for a second appeal has been granted by the Upper Tribunal is to allow the meaning of the phrase “college of a university” to be considered by the Court of Appeal and I propose to begin with this issue.

VAT was introduced in the UK by the Finance Act 1972 (FA 1972) and became chargeable on 1 April 1973. Exempt supplies were those set out in Schedule 5 to the 1972 Act which included as Group 6, Item 1:

Note (3) to Item 1 provided a definition of “university” in these terms:

At the time these provisions came into effect the relevant EC provisions on exemptions were those contained in Article 10 of the Second Directive which, as mentioned earlier, gave each member state (subject to consultations with the EC Commission) a broad discretion as to what other exemptions to create. The language of Item 1 in FA 1972 was not therefore intended to transpose equivalent provisions in the Directive into domestic law and it must be taken to represent what Parliament considered in 1972 should constitute the scope of the exemption for the supply of education by a “university”.

The phrase “college, school or hall of a university” has an obvious meaning in the context of UK universities as they operated in 1972. Both Oxford and Cambridge (to take the most obvious examples of universities which operate on a collegiate basis) have been organised for centuries on a federal system under which the colleges and private halls, although legally independent and self-governing, have provided the undergraduate and graduate students of the university and have assumed the primary responsibility for their tuition. The universities themselves are corporations now regulated by statute with their own separate legal identity and status. Their statutes govern such matters as admission to degrees, the giving of lectures and student discipline. The universities remain responsible for the administration of their academic and research departments but operate in terms of governance through Congregation (in the case of Oxford) and the Regent House (in the case of Cambridge) which are made up of university officers, heads and fellows of the colleges; and other academic, research and administrative staff. In each case the governing body of the university has the power to amend its statutes and regulations and to determine policy issues affecting the operation of the university. The colleges and private halls are therefore an integral part of the structure of the university and their members make up the university’s teaching staff and students. No student member of a college or hall is not a member of the university or takes a course of study which does not, if successful, lead to the conferment of a university degree.

The system which I have described is mirrored in the Education (Listed Bodies) (England) Order 2010 (“the 2010 Order”) which contains a schedule of the bodies and other organisations which are authorised to grant recognised awards as defined by s.214(2) of the Education Reform Act 1988 (“the 1988 Act”). The Act makes it an offence to grant or offer to grant a degree that is not a recognised award. Section 214(2) defines a “recognised award” as:

Any body referred to in these provisions is defined as a “recognised body”: see s.216(4).

Section 216(2) of the 1988 Act requires the Secretary of State to compile and publish by order a list of the names of the bodies which appear to him to fall for the time being within s.216(3) which provides:

In relation to s.216(3)(b) the schedule to the 2010 Order lists all the colleges and halls of the Universities of Cambridge, Durham, Oxford and the Queen’s University of Belfast together with the Institutions constituting the School of Advanced Study in the University of London: for example, the Institute of Advanced Legal Studies.

The provisions of s.216(3)(b) are all but identical to those of Group 6, Item 1 of FA 1972 in defining what is included within a university. There is nothing to indicate whether the draftsman of the 1988 Act consciously adopted the language of Item 1 but it seems unlikely that the similarity between the provisions was accidental. The statutory context and purpose of the two provisions is of course very different but both sets of provisions are seeking in terms to identify the constituent parts “of a university” and to that extent there is an identity of purpose between them. Moreover the definition of an “eligible body” in Note 1(b) to Group 6, Item 1(a) in VATA 1994 now includes the reference to an institution.

I have set out the provisions of the 2010 Order not because they are in any sense binding in determining what constitutes an eligible body for the purposes of the domestic VAT legislation but rather because they provide a useful illustration of how the statutory language has come to be interpreted and applied albeit in the context of the regulation of degrees. Ms Hall QC for SEL submitted that the definition contained in Note 1(b) in VATA 1994 differed not only in form but also in substance from the earlier provisions contained in Note (3) in FA 1972. In particular, she points to the use of the word “and” in Note 1(b) in VATA 1994 which she says should be read as extending the definition of an eligible body to institutions which may not qualify as colleges of a university on the application of a more structural or constitutional test. Her argument (which I shall come to later in more detail) is that the words should be read as including any body which can reasonably be called a college of the university having regard to the degree of co-operation (or integration) between them in the de facto running of degree and other courses validated by the university. This is, she submits, a multifactorial test which falls to be applied in this case against a long-established background of shared educational aims which have materialised and been given effect to in the various agreements between MU and SEL which again I will come to.

For the moment I need only say that I do not accept her submission that the scope of the exemption for university education has been extended by the provisions of Note 1(b) in VATA 1994. Although there are stylistic differences between Note 1(b) and the definition of a university in Note (3) in FA 1972, those differences do not seem to me to effect a change in the substance of the provisions. The exemption created by FA 1972 in exercise of the power conferred by Article 10 of the Second Directive was in respect of the provision (or supply) of education by a university. It was therefore necessary to define a university so as to bring within the exemption the bodies which in the case of universities run on a collegiate system like Oxford, Cambridge and Durham might be said to supply education in their own right and not as part of the university. The matter was put beyond doubt by Note (3).

The current exemption for university education is contained in Article 132(1)(i) PVD and first appeared in that form in Article 13A(1)(i) of the Sixth Directive (77/388/EEC). Notwithstanding the introduction of these express provisions, Parliament chose to implement them by defining what it recognised as “other organisations … having similar objects” in terms of the definition in Note 1(b) of an eligible body. The use of this form of drafting rather than a direct reference to a university as in FA 1972 meant that it was necessary as a matter of language to include both a UK university “and” any college, institution, school or hall of “such a university” within the Note 1(b) definition. But I can see nothing in these stylistic and grammatical changes to justify giving what is essentially the same language a much wider meaning. More particularly there is nothing in the relevant provisions of the Sixth Directive to justify such an interpretation.

As I explained earlier, Article 13A(1)(i) (now PVD Article 132(1)(i)) preserves the right of each member state to determine which other organisations it recognises as having similar objects to an educational body governed by public law. There is therefore nothing in the EC legislation which compelled member states to cast the scope of the exemption more widely than in the case of the UK it had previously chosen to do. One also needs to take into account (as is common ground on this appeal) that most (if not all) UK universities are not bodies governed by public law: see University of Cambridge v HMRC [2009] EWHC 434; [2009] STC 1288. They are not identified in EC law as part of the public administration of the relevant member state even though they are in receipt of public funds. This is why both the university and its colleges are grouped together in the definition of an eligible body for the purpose of giving effect to Article 132(1)(i). It seems to me that this supports the view that the focus of Note 1(b), like Note (3) before it, is on identifying the constituent parts of the university rather than applying the exemption from VAT to a much wider and less related group of institutions. The phrase “of a university” is common to both statutes and in my view is determinative of this question.

With those preliminary observations on the scope of the exemption I can turn now to the authorities. A convenient starting point is the decision of this Court in Customs and Excise Commrs v University of Leicester Students’ Union[2001] EWCA Civ 1972; [2002] STC 147. The issue on the appeal was whether the supply of soft drinks by the students’ union was exempt from VAT under Group 6 of Schedule 9 VATA 1994 because they were made by an eligible body and were closely related to the supplies of education: see Group 6, item 4. The students’ union did not contend that it was a college or institution of the university and therefore an eligible body in its own right under Note (1)(b). Its case was that it was an integral part of the university so that the supplies of drinks which it made fell to be treated as supplies made by the university which was an eligible body.

The Court of Appeal rejected this argument on the basis that the union was a separate educational charity distinct from the university and that it provided no supplies of education. The fact that the union occupied university premises was immaterial. The Court did not therefore have to decide whether the union was (e.g.) an institution of the university or any issue about the scope of the definition of an “eligible body”. But in his judgment (with which Morland J agreed) Peter Gibson LJ did offer some guidance about the meaning of Note 1(b):

Arden LJ disagreed with the majority as to whether a college or institution of the university within the meaning of Note 1(b) had to be a supplier of education but she did not in terms dissent from the proposition that they had to be part of the university:

The judgment of the Court of Appeal in the Leicester University case was handed down on 21 December 2001 shortly after judgment was given by Burton J in Customs and Excise Commissioners v School of Finance and Management (London) Ltd [2001] STC 1690 (“SFM”). The decision in SFM does not appear to have been brought to the attention of the Court of Appeal. It is a case which is much closer on its facts to the present appeal. SFM Ltd, like SEL, provided degree courses to fee-paying students which led to the award of a university validated degree. It did so pursuant to a memorandum of co-operation under which SFM and the University of Lincolnshire and Humberside offered in partnership with each other a number of university approved courses. SFM provided the courses at its own premises which were an approved centre for those purposes and undertook the assessment of students’ work subject to moderation by university staff. Students enrolled on the courses were bound by university regulations in force at the time but did not have the right to be automatically transferred to courses delivered by the university itself. They did, however, have a right of access to university guidance services and a right to an interview for any further courses they applied for at the university. The awards relating to the courses run by SFM were subject to the university’s quality control and assurance procedures and the agreement to validate the degree courses was for a period of 5 years.

SFM Ltd sought exemption from VAT for the supplies of education it made on the basis that it was an eligible body as a college of the university within the meaning of Note (1)(b). The VAT and Duties Tribunal held that it was eligible for exemption. On appeal Burton J held that the Tribunal had been right to weigh up all the relevant factors such as the relationship between the university and SFM and the way it operated in relation to the education of the students and that the decision disclosed no error of law.

At the hearing of the appeal both the Commissioners and SFM put forward a number of factors or conditions which they said needed to be satisfied in order to determine that SFM was a college of the university. Those suggested by the Commissioners were: (i) the presence of a foundation or constitutional document establishing the college as part of the university; (ii) an absence of independence on the part of the college; (iii) financial dependence or interdependenceon the university; (iv) the absence of distributable profit; (v) entitlement to public funding; (vi) permanent links between the college and the university; (vii) physical proximity between the two; and (viii) an obligation to offer a minimum number of university places. The Commissioners argued that the first four were necessary conditions which had to be satisfied.

SFM accepted that all the above factors were arguably relevant factors (but not necessary conditions) but suggested seven more of its own: (ix) having a similar purpose to that of the university; (x) providing courses leading to a degree from the university; (xi) having the courses supervised by the university and quality standards regulated by the university; (xii) admitting students as members of the university with university identity cards; (xiii) submitting those students to disciplinary regulations and requirements of the university; (xiv) entitling successful students to receive a degree from the university at a university degree ceremony; and (xv) being described as an associate/affiliated college of the university. The Commissioners in turn accepted that all those were relevant factors to consider.

Burton J endorsed this wide multi-factorial approach to the determination of whether SFM was a college of the university for VAT purposes:

The result of the decision in SFM has been that in subsequent cases tribunal hearings have been taken up with an extensive and open-ended examination of whether and, if so, to what extent any one or more of the listed factors is a feature of the relationship between the university and the taxpayer body which seeks to establish its status as a college of the university. No one or more of the factors has been treated as decisive. An example of this is the decision of the VAT and Duties Tribunal in HIBT Ltd v HMRC: Decision No. 19978 of 17 January 2007.

Subsequently attempts have been made to refine the test in SFM. In London College of Computing Ltd v Revenue and Customs Commissioners[2013] UKUT 404 (TCC); [2014] STC 404 (“LCC”) the Upper Tribunal rejected a claim for exemption as a college under Note 1(b). Having considered the authorities Judge Hellier said:

In his own judgment Judge Bishopp concentrated on the nature of the links between college and university The reference to MU is to Middlesex University which also features in the present appeal:

The most recent decision in which Note 1(b) has been considered is that of this Court in Finance and Business Training Ltd v Revenue and Customs Commissioners[2016] EWCA Civ 7; [2016] STC 2190 (“FBT”). The taxpayer company provided courses leading to the grant of degrees by the University of Wales. Its claim to be a college of the university was rejected by the F-tT on the basis that the provision of university education was only a small part of its activities and the link with the university was purely commercial and short-term. Its appeal to the Upper Tribunal was dismissed. Permission for a second appeal was granted solely in order for the F−tT to raise an argument based on European law to the effect that a provider of university courses should be entitled to exemption from VAT in the same way as a university even if not so entitled under domestic law. This argument was based on the principles of fiscal neutrality and legal certainty which feature in the current appeal. The appeal was dismissed on the basis that the UK had exercised its powers under Article 132(1)(i) PVD in an EU law compliant manner. But for present purposes the judgment of Arden LJ is principally of interest for what she says about the content of Article 132(1)(i):

Having considered the various views expressed in the authorities I remain of the opinion that the test of eligibility set out in Note (1)(b) is considerably more hard-edged than the approach adopted in SFM and the subsequent tribunal decisions. It is of course correct, as Ms Hall emphasised in her submissions, that for both economic and to some extent technological reasons university education is now provided in many different ways. But it is important to emphasise that the exemption from VAT is not granted either under Article 132(1)(iv) or under Schedule 9 VATA 1994 in respect of the provision of university education simpliciter. Exemptions from VAT are narrowly construed and it is evident from the language of Article 132(1)(i) that the type of body which the draftsman of the Sixth Directive (and now the PVD) had in mind was very restricted. We are also not concerned on this appeal with the issue of whether the provision of degree courses by a university through the medium of some other entity falls to be treated as the provision of educational services by the university itself. SEL seeks exemption from VAT in respect of the courses it runs on the basis that it is itself an eligible body within the meaning of Note (1)(b) and its sole qualification for that exemption is its claim to be a college of the university.

In my view, in order to succeed, it must establish that it is what Peter Gibson LJ described in the Leicester University case as part of the university in the sense of being a constituent part of the university with all the rights and privileges for its students and other members which that entails. Inherent in that concept is the need to demonstrate some legal relationship between the university and college which establishes and confirms the status of the latter. Whether this is a formal foundation or constitutional document as opposed to some other binding arrangement seems to me to be a matter of form rather than substance. Nor would I treat the word “college” as confined to a body or institution within a university run on a collegiate basis. It would apply even if (as in the present case) there was only one institution (apart from the university itself) which provided some of the university education services. But the arrangement must, as I see it, be one which in a real sense makes the college a part of the university and not simply a suitable educational provider to whom the university has outsourced the courses which it has been unable for whatever reason to provide itself.

For these reasons I would reject the approach taken by Burton J in SFM which has been adopted with the slight change of emphasis I have mentioned in later tribunal decisions. I think Mr Singh is right to say that there must be a high degree of integration between college and university and that factor (i) in the list put forward in SFM encapsulated and will ordinarily be decisive of the issue. The other factors are of course relevant in the sense that many of them will be consistent with and a reflection of the collegiate status of the taxpayer and its relationship with the university. But some of them need to be treated with care. A college may have a considerable degree of self-governance and independence yet be clearly part of the university. Most Oxford and Cambridge colleges fall into that category. Similarly financial independence is not inimical to the college being part of the university. Factors (ix)-(xv) are all common features of a college which is part of a university but they do not in themselves make the body in question a college of the university where they are simply terms of an otherwise arm’s length contractual relationship designed to provide students with an external route to a university degree. In other cases they are present because the college is part of the university with, as I have said, the rights which go with that. The starting point in every case is to look at the core legal relationship between the college as an institution and the university.

It follows that I would not endorse the statement in [42(2)] of Judge Hellier’s judgment in LCC insofar as he treats the status of the college and its academic links with the university as alternatives. The reference to academic links is derived from the dissenting judgment of Arden LJ in Leicester University and, as I read it, is simply a way of describing the various types of arrangement under which a college can be part of the structure of the university. It is not an alternative to that requirement.

In his own judgment in LCC Judge Bishopp refers to there usually being some evidence of the recognition of the college as such by the university. This point has featured in the Upper Tribunal decision in the present case for reasons which I will come to. But the judge is, I think, doing no more than to make the obvious point that if the college and the university are in the necessary type of relationship that will inevitably be reflected in the university’s own understanding of the position. The important point is that for that understanding to exist there must be the necessary relationship between them.

I can now turn to the facts of the present case. We were taken in some considerable detail to the underlying documents but the contractual and other arrangements between the university and SEL are not really in dispute and I can take the salient facts from the decision of the F-tT.

SEL is an English company and is a subsidiary of SAE Technology Group BV (“SAEBV”), a Dutch company. Both are part of the SAE group (“SAE”) which trades worldwide under the name “SAE Institute”. SAE is an acronym for “School of Audio Engineering”. The parent company of the SAE group is now Navitas Limited, an Australian company. SAE has for many years provided educational training in audio and digital media technologies and has an established reputation in that field.

Since 1985 SAE has operated in the UK through a succession of English subsidiaries of which SEL is the most recent. Since 29 April 2009 (when it took over from SAE Educational Trust Limited (“SETL”)) it has operated under a licensing agreement of that date with another SAE company, SAE Licensing AG. On 1 May 2009 the assets and business of SETL were transferred to SEL and SETL went into liquidation. Until 2008 the headquarters of SAE Institute was its Australian campus at Byron Bay in New South Wales. But in July 2008 it acquired premises at Littlemore near Oxford which is now used as its global headquarters and what is described in its literature as the central hub for its educational and infrastructural operations.

The relationship between SAE Institute and MU has existed since 1998 when the first Memorandum of Co-operation was signed on 19 January of that year. This was a contractual document which provided for BA courses in Recording and Multimedia Arts to be taught by “SAE Technology College” at specified campuses as “validated collaborative programs” of MU.

Subsequently MU and SAE Institute have entered into further Memoranda of Co-operation (“MOC”) which have replaced the earlier agreements and provided for the validation of additional courses. The parties entered into a new MOC with effect from 1 April 2007 which provided for the validation by MU of three SAE programs comprising BA (Hons) degree courses in Applied Multimedia, Interactive Animation and Games Programming. This was superseded with effect from 1 September 2009 by a further MOC described in the evidence as a consolidation in a common framework of the SAE programs previously validated in 1998 and 2007.

The 2009 MOC was for a period of 6 years and provided for its terms to be reviewed in the event that SAE Institute was granted accredited status by MU which would enable it to validate its own degree courses. It sets out the terms on which MU agreed to validate the courses referred to including the admission requirements for students. They were to be selected by SAE Institute using procedures agreed by MU and the admission requirements imposed by SAE Institute were to conform to the university’s general entrance requirements. Students were to be enrolled with SAE Institute as candidates for one of the university’s qualifications and be subject to the SAE Institute’s normal rules and regulations. Students enrolled on the validated courses were to be “considered members of [MU]” but were not entitled to receive university student ID cards.

Tuition was to be provided by SAE Institute subject to quality assurance safeguards. SAE Institute was to provide library, computer and other facilities but clause 10 provided that SAE students would not normally be entitled to access or use what are described as the University’s Learning and Resource Services unless negotiated at extra cost. Nor were they to be entitled to access MU’s accommodation and other social welfare services or to apply for financial support from the University’s Access to Learning Fund. They were entitled to access MU’s Disability Support Services but again at an additional cost.

The MOC set up a board of study for the validated programs including link tutors for both institutions and MU retained responsibility, in liaison with staff from SAE Institute, for the resolution of any quality enhancement issues. But for the validated courses the assessment of students was the responsibility of SAE Institute subject to MU’s assessment regulations. Students who successfully completed the programs received a BA/BSc (Hons) degree certified by MU and were to be eligible for consideration for entry to a postgraduate level course at MU.

In addition to the various MOCs, the parties also entered into Partnership Agreements which provided for the establishment of a Joint Liaison Group which included the Chief Executive of SAE and the Deputy Vice-Chancellor of MU. A new Partnership Agreement was entered into with effect from 1 July 2009 which provided for three yearly meetings of a Steering Group consisting of senior executives from SAE and MU. The parties recorded their agreement to work in partnership and collaboration on undergraduate and postgraduate courses of study and other possible areas of mutual co-operation.

An important development in and facet of the parties’ relationship was the decision by MU to grant SAE Institute accredited status. On 22 September 2010 an instrument of accreditation was signed under which SAE Institute was accredited to validate, monitor and review courses of study leading to MU undergraduate awards in Recording Arts, Film Making, Digital Film Animation and Multimedia Arts. This gave SAE Institute the ability to validate the specified programs itself although MU staff would continue to be involved in the assessment of the programs. The evidence of Professor Klich was that this represented a further stage in the development of what he described as a close and trusted association between the two partners and indicated that SAE Institute had satisfied the key academic staff at MU that it had the systems necessary to ensure high academic standards were delivered. It was, he said, a vote of confidence by MU in the academic quality assurance processes of SAE Institute and demonstrated that it was capable of operating as a trusted long-term partner of the university.

The accreditation of SAE Institute was to be subject to six-yearly reviews but MU reserved the right to withdraw the accreditation if at any time it had concerns about quality or standards issues to which SAE Institute had not responded satisfactorily. Clause 5 of the instrument of accreditation permitted graduating students to attend graduation ceremonies at the SAE Institute but they could also attend an annual graduation ceremony at MU if they so wished. The parties also entered into a further MOC which as previously anticipated set out the detailed arrangements for operating the system of accreditation. The MOC provided for the appointment by MU of an Accreditation Tutor who would be a member of the Joint Liaison Group and be responsible for communications between the two parties in relation to accreditation. The MOC confirmed that it did not affect the “independent status” of SAE Institute “which shall retain its own Governing Council, Academic Board and full responsibility for its own financial management”. Clause 7 provided:

In July 2011 the parties entered into what is described as a Special Associate College Agreement (“SACA”). The agreement records that the parties had successfully collaborated for over 14 years in the provision of higher education courses including programs leading to MU undergraduate and graduate awards. Accredited status had been given after an extensive assessment by MU of SAE quality assurance processes. The SACA continued as follows:

A proposal to designate SAE Institute as an Associate College of MU was first made in about 2008 and the MU website included a reference to this at least from the time in 2010 when SAE Institute received accredited status. The F−tT said at [190] of its decision:

The issue of recognition relates to the point made by Judge Bishopp in his judgment in LCC about it being necessary to identify evidence that the university in question recognises the taxpayer as one of its colleges. No representative of MU gave evidence at the F-tT hearing but in relation to this point the F-tT was asked to consider notes made of two meetings between HMRC officials and representatives of MU. In each case the notes were submitted for approval and correction by MU. The first note is of a meeting held on 28 November 2009 at which the MU representatives included Mr Baillie, the University’s International Partnerships Manager, and Ms Caroline Hinch, the Assistant Academic Registrar for Collaborative Programs. This first meeting therefore pre-dates both accreditation and the SACA. According to the note, MU identified various bodies (described as Associate Colleges) with which it had a “strategic relationship” in relation to the delivery of higher education. SAE Institute was not included in this category. It was described as a partner institution which designed and delivered to its students at its own venue validated programs for which (like all validated programs) MU was answerable to the QAA. Students on the courses did not have access to MU learning support or student welfare unless negotiated for an additional fee. Validated programs were said to “maintain the greatest distance between MU and its partner” because, subject to validation, they were designed and delivered by the partner institution. MU has its own Schools in the form of academic departments but according to the note the MU representatives said that SAE Institute was not regarded as one of them. Its programs were very specialised, niche products.

The second meeting was held on 19 July 2012 following a letter to HMRC from Dr Terry Butland, the then Deputy Vice-Chancellor International of MU, in which he set out the history of the relationship between MU and SAE Institute which he described as a prestigious and long-standing associate college of MU. The note of the 2012 meeting records Mr Melvyn Keen, MU’s Deputy Chief Executive, as saying that the SACA was a unique document and that MU did not have such an agreement with anyone else. It had been put in place as the quid pro quo for an increase in the amount paid by SAE Institute to MU for the validation of its courses. The main differences were the additional facilities for students referred to in section 8 of the agreement such as the use of MU’s library. But the SACA was described by Mr Keen as a “fairly bland document” which merely repeated what was in the instrument of accreditation.

The F-tT was reluctant to place much, if any, weight on this evidence. They said that there was no evidence verifying the accuracy of the 2009 note although, as I have said, it was in fact sent to MU for approval and correction. But these notes were the only indication (beyond the MOCs and other agreements themselves) as to how MU regarded the status of SAE Institute and Mr Singh for HMRC of course relies on them as negating any suggestion that SAE Institute was regarded at the relevant time as anything but a course provider. They are, he submits, in any event inconsistent with the finding of recognition in [190] of the F-tT decision which I have quoted above.

The F-tT’s reasons for its conclusion that SEL is a college of MU are set out in [288]-[294] of its decision as follows:

The Upper Tribunal took a different view. In its decision it noted that all of the MOCs and other agreements up to the SACA were entered into with SAE Institute rather than with SETL or SEL. It described the F-tT’s contractual analysis under which the negotiations and agreements with SAE Institute resulted in obligations being imposed on SETL and later SEL as surprising. It had not been suggested that SAE Institute was acting as an agent for the UK operating companies and the more obvious analysis was that SAE Institute undertook obligations to provide courses in accordance with the relevant standards which it was therefore required to ensure were carried out through its operating subsidiary. Ms Hall described the contractual arrangements as difficult to interpret coherently. She accepted that SAE Institute as such had no legal personality and therefore no capacity in which to contract. But the answer to the question whether SEL was a college of MU was not to be found, she said, in the formal contractual documentation but in the way in which the parties operated in tandem during the relevant period.

The difficulty about that submission is that without reference to the contractual arrangements, it is impossible to determine what the legal relationship between MU and SEL actually was. It is clear from the evidence including the agreements themselves that the SAE group has always presented itself as SAE Institute both for the purposes of the agreements validating the courses run in conjunction with MU and for similar collaborations with universities in other parts of the world. This suggests that the contracting party was SAEBV rather than one of the operating subsidiaries which, as I mentioned earlier, have changed from time to time in the UK without any perceived need to replace the existing contractual arrangements. In the end, however, it may not be necessary to identify who was the contracting party under the relevant MOCs and the instrument of accreditation. What the documentation indicates and what the F-tT accepted is that it was not SEL and that the first agreement to which SEL was a party was the SACA.

The Upper Tribunal examined these matters in the context of whether MU and SEL (as opposed to any other SAE entity) shared a common understanding that they were in a relationship of university and college. The Upper Tribunal in setting out what it considered to be the correct legal approach returned to what Judge Bishopp had said in LCC about recognition:

As I indicated earlier, I accept the obvious force of the point that if the taxpayer institution is a college of the university one would expect that to be evidenced in some way by the university’s recognition of its status. But I am doubtful whether that justifies the imposition of what on one reading of [109] is a sequential test nor do I accept that the fact of recognition should be treated as in any way conclusive of the status which the college in fact enjoys.

The Upper Tribunal placed emphasis on the fact that the majority of the relevant agreements with MU were made by SAE Institute rather than SEL. This was said to be inconsistent with a treatment or recognition of SEL as a college of MU and it is inconsistent. But in my view even had the MOCs, the instrument of accreditation and the SACA all named SEL as the relevant counterparty it would have made no difference. Ms Hall’s argument is that the various agreements simply recognise the long-established relationship between MU and SAE Institute conducted through SETL and now SEL in the provision of validated degree courses which result in MU qualifications. She emphasised in considerable detail the closeness of the working relationship (which she described as unique in terms of MU’s collaborative activities) and the degree of confidence placed in SAE Institute for the delivery of academic standards. There had been a QAA endorsement of this relationship which was described as strong. She pointed to the organisational links between the two bodies generated as part of these arrangements including the steering and joint liaison groups I mentioned earlier. MU and SAE Institute had shared objects manifested in their collaboration over a period of more than 14 years.

Ms Hall drew our attention to what has been said in cases about the content of university education. In Stichting Regionaal Opleidingen Centrum Noord-Kennemerland/West-Friesland (Horizon College) v Staatssecretaris van Financiën (Case C-434/05; [2008] STC 2145) AG Sharpston at [49] of her Opinion gave the content of Article 13A(1)(i) of the Sixth Directive a wide meaning:

College and university must therefore provide an environment, Ms Hall says, in which this framework existed and that has been provided in the present case through the arrangements between MU and SEL which the F-tT summarised in [293]-[294] of its decision.

I have no doubt that she is right to submit that education for the purposes of what is now Article 132(1) PVD should be given a liberal interpretation as in the Horizon College decision. Nor do I have any doubt that SAE Institute delivers quality teaching and promotes high academic standards in the courses which it provides in collaboration with MU. But none of this is in issue on this appeal or is relevant to its determination. The question is not the quality of the education which SEL delivers but whether it does so as a college of MU. The answer to that question depends, as I explained earlier in this judgment, on a much more hard-edged test than that previously suggested in the cases which have followed SFM.

The word “college” is derived from the Latin word “collegium” meaning a partnership. It denotes a group of people organised as an institution usually (but not necessarily) in the field of education. The use by SAE Institute of the word “college” to describe its Littlemore campus could not therefore be said to be a misuse of language, but whether it can properly be described as a college of MU is a different question which cannot in my view be answered simply by reference to a document under which the University agreed that SEL should be called an “associate college” of MU or the fact that for a long time the two bodies have collaborated in the delivery of a limited range of degree courses leading to an MU qualification.

The test is whether SEL (or SAE Institute) is or was part of the University in the constitutional or structural sense described earlier. That test is not satisfied in this case for a number of reasons. The only document which arguably gives SEL the right to call itself a “college” of MU is the SACA. But it is clear that this agreement merely recognised and “built on” the “special relationship” between the parties in relation to the courses which SEL provides. Neither SAE Institute nor SEL is in any legal sense a composite part of MU. They have always been and remain separate companies operating in the educational field and in particular in relation to audio and digital media technologies. They were chosen because of their expertise in this field to provide a limited number of special courses which would qualify successful students for an MU degree. For that purpose it was necessary for the courses to be validated by the university in terms of qualitative assessment but that would have been and is necessary in the case of any university degree course which is outsourced to an external provider. The accreditation of SAE Institute with its concomitant ability to validate its own courses was undoubtedly, as Professor Klich observed, a vote of confidence in SAE Institute’s ability to set and assess its own courses but I do not accept that this in any way altered the constitutional or structural relationship between the two bodies.

The fact remains that SAE Institute through SEL provides only a very small number of highly specialised courses for MU. It is not accredited to run all the degree courses available at the university and the students enrolled on the courses have strictly defined rights in terms of the use of MU facilities rather than becoming full members of the university by virtue of their acceptance as an SAE Institute student. This is merely reflective of the fact that SAE Institute is not part of the university with corresponding general rights of admission for all its students. It remains a separate commercial organisation which MU, for perfectly legitimate economic and other reasons, has chosen to provide some of its external degree courses. This is recognised by the inclusion of SAE Institute in Part 1 of the Schedule to the 2010 Order as one of the bodies which provides courses in preparation for a degree awarded by a recognised body under s.216(3)(a) of the 1988 Act but not as a college of a university under s.216(3)(b). The contractual arrangements with SAE Institute are subject to periodic review and can be terminated in the event of concerns about academic standards. The SACA is for a period of 6 years. Again none of this is consistent with SEL being institutionally part of the university.

I can turn now to the grounds of appeal. Ground 1 challenges the test introduced by the Upper Tribunal in [109] of its decision based on a common understanding between university and college about the status of the taxpayer. Ms Hall submitted that the test contravened the EU principles of legal certainty, fiscal neutrality and proportionality because SEL’s status as a college of MU was a matter to be ascertained on an objective basis and not by reference to MU’s perception of its relationship with SEL. Exemptions from VAT are autonomous concepts under EU law and must be interpreted strictly: see Case C-91/12Skatteverket v PCF Clinic AB ECLI:EU:C:2013:198; [2013] STC 1253. To introduce a subjective element into the test breaches the principle of legal certainty: see BLP Group Plc v C & E Commissioners [1996] 1 WLR 174; [1995] STC 424. There would also, Ms Hall submits, be a breach of the principle of fiscal neutrality since two objectively identical relationships may be taxed differently depending on the parties’ understanding of it.

Had the Upper Tribunal intended to make the status of the college dependent on the university’s subjective opinion of that matter then there would be some force in this criticism. But my own reading of [109] is that the Upper Tribunal were seeking to emphasise the point made by Judge Bishopp in LCC that if a body is a college of a university one would expect that fact to be recognised by the university itself. Because I do not regard this as the critical test to be applied, it is not necessary to take the point any further. I accept that the test is an objective one and, on that basis, Ms Hall’s criticisms fall away. She accepts that the existence of exemptions from VAT may have an adverse effect on competition as the authors of the Second Directive also recognised. But, if properly defined, they do not breach the principles of legal certainty or fiscal neutrality as the decision of this Court in FBT recognised.

Ground 2 is that the Upper Tribunal failed to appreciate that the SAE Institute had no legal personality and therefore lacked the capacity to enter into any legal relationship. It therefore disregarded the evidence that SAE Institute was merely the name used by SAE group of which SEL was a part.

There is nothing in this criticism. The Upper Tribunal was clearly aware that SAE Institute was the trading name used by the SAE group of companies. This was the basis of its criticism of the F-tT for treating the agreements made with SAE Institute as imposing contractual obligations on SEL. The real point being made by the Upper Tribunal was that the recognition by MU of SAE Institute and therefore the SAE group as its trading partner was inconsistent with SEL’s claim to be a college of MU in its own right.

Grounds 3-5 are really aspects of grounds 1 and 2 and I need say no more about them. Grounds 6-8 criticise the Upper Tribunal for having set aside what was a multi-factorial assessment by the F-tT in respect of which an appeal court would not ordinarily interfere. Some decisions by the F-tT in a VAT context undoubtedly fall within this category. A notable example can be found in the decision of this Court in Procter & Gamble UK v Revenue and Customs Commissioners[2009] EWCA Civ 407; [2009] STC 1990 where the question was whether Pringles fell within the exception from zero rating in Item 5 of Group 1 for “potato crisps … and similar products made from the potato, or from potato flour, or from potato starch”. The Court of Appeal held that the Upper Tribunal had been wrong to set aside the decision of the F-tT absent some clear error of law. Mummery LJ said:

I have already explained why I consider that the test to be applied in this case is not one of that kind and in my view, by adopting the approach set out in the decision in SFM, the F-tT has erred in law. None of the factors identified by the tribunal in [293] of its decision were sufficient either individually or collectively to support a finding that SEL was at the relevant time a college of MU.

For these reasons, which are not the same as those of the Upper Tribunal, I would dismiss this appeal.

I agree.

I also agree.