St Patrick's International College & Ors Ltd v The Commissioners for HMRC

These are two related appeals from a decision of the Upper Tribunal (Tax and Chancery Chamber) (“the UT”) given on 24 March 2025 ([2025] UKUT 101 (TCC)). References below in the form “[Ux]” are to paragraphs of that decision.

The proceedings concern assessments for VAT made by the Respondent (“HMRC”) on supplies of services in the period 1 December 2012 to 6 August 2017 (“the relevant period”). The issue in the proceedings is whether supplies of education made by the Appellants during the relevant period should have been treated as exempt for VAT purposes by virtue of Article 132(1)(i) of Council Directive 2006/112/EC (“the PVD”) and/or Group 6 of Schedule 9 to the Value Added Tax Act 1994 (“Group 6” and “the 1994 Act”).

It is common ground that taxpayers were at the relevant times able to rely on the direct effect of Art. 132(1) if a Member State had failed to implement it properly, including if such implementation was contrary to the EU principle of fiscal neutrality.

The Appellants contended that the material provisions of the 1994 Act failed properly to implement Art 132(1)(i) and that their supplies should therefore be treated as exempt.

Alternatively, they contended that their supplies fell within provisions of Group 6 on the following grounds:

The First-tier Tribunal (Judge Jonathan Cannan, “the FTT”) handed down a decision on 3 May 2023 dismissing the Appellants’ appeals against the VAT assessments ([2023] UKFTT 00408 (TC)). References below in the form “[Fx]” are to paragraphs of that decision. The FTT decided in summary that (a) the Appellants could not rely on the direct effect of Art. 132(1)(i) because the United Kingdom’s implementation (in the form of Group 6) did not infringe the principle of fiscal neutrality; and (b) except for IMAN’s supplies of TEFL, the Appellants’ supplies did not fall within the terms of Group 6.

The Appellants appealed to the UT on the issues concerning fiscal neutrality, on whether the consideration for their supplies was ultimately a charge to funds provided by the Secretary of State, and the scope of the exemption for IMAN. It did not appeal the FTT’s decision that IMAN was not a college of a university.

The UT dismissed the Appellants’ appeals on each of these points. It then granted the Appellants permission to appeal on three grounds. These are set out in [‎45] below, but in summary they concern (a) the Appellants’ contentions based on the principle of fiscal neutrality, and (b) IMAN’s contention that, since it is an “eligible body” as a supplier of TEFL, under EU law all of its supplies of education fall to be exempted. The UT refused permission to appeal on the issue whether the consideration for the Appellants’ services was a charge on funds provided by the Secretary of State.

Although it was not cited to the UT, a key question before us has been the effect of the decision of this court in Leisure, Independence, Friendship and Enablement Services Ltd v Revenue and Customs Commissioners [2020] EWCA Civ 452, [2020] 1 WLR 2828 (“LIFE”), which considered and applied the case law of the European Court of Justice (“the ECJ”) to the issue raised by ground 1 of the appeal. For the reasons given below, I have concluded that the decision in LIFE is binding authority in the Appellants’ favour on ground 1, and that it is unnecessary to consider the further grounds.

The PVD provided materially as follows:

“TITLE IX

EXEMPTIONS

There was a measure of common ground between the parties about these provisions and their application. First, Art. 132(1)(i), like all exemptions, must be interpreted strictly. That does not mean, however, that the terms used to specify the exemptions referred to in Art. 132 should be construed in such a way as to deprive them of their intended effect. The objective of the exemption is to facilitate access to educational services by avoiding the increased costs that would result if the services were subject to VAT.

Second, the exemption under Art. 132(1)(i) is subject to two cumulative conditions: (a) a supply condition - the supply must be the provision of children’s or young people’s education, school or university education, vocational training or retraining, including the supply of closely related goods and services; and (b) a supplier condition - the service must be provided by bodies governed by public law which have the provision of such education and training as their aim or by other organisations recognised by the Member State concerned as having similar objects.

Third, in relation to the supplier condition, it is for the Member State to lay down the rules in accordance with which recognition may be granted to organisations that are not governed by public law. The Member States had a discretion in that respect. In exercising that discretion, Member States had to comply with the principles of EU law, in particular that of equal treatment which, in the field of VAT, takes the form of the principle of fiscal neutrality.

Art. 132(1)(i) is implemented in United Kingdom legislation by the 1994 Act. Section 31 provides that supplies of goods or services described in Schedule 9 are exempt. The education exemption is found in Group 6 of Schedule 9 which includes the following material parts:

“1.

The provision by an eligible body of –

(a)

education;

(b)

research, where supplied to an eligible body; or

(c)

vocational training.

…

Notes

(1)

For the purposes of this Group an “eligible body” is:

…

(b)

a United Kingdom university, and any college, institution, school or hall of such a university;

(c)

an institution -

(i)

falling within section 91(3)(a) … of the Further and Higher Education Act 1992;

…

(e)

a body which –

(i)

is precluded from distributing and does not distribute any profit it makes; and

(ii)

applies any profits made from supplies of a description within this Group to the continuance or improvement of such supplies;

(f)

a body not falling within paragraphs (a) to (e) above which provides the teaching of English as a foreign language.

(2)

A supply by a body, which is an eligible body only by virtue of falling within Note 1(f), shall not fall within this Group insofar as it consists of the provision of anything other than the teaching of English as a foreign language.”

Institutions falling within section 91(3)(a) of the Further and Higher Education Act 1992 are known as further education corporations (“FECs”).

It is common ground that the Appellants (which fall into the category known as Alternative Providers or “APs”) were not United Kingdom universities, colleges of such universities or FECs.

It is also common ground that the Appellants have supplied education (and thus satisfy the supply condition in Art. 132(1)(i)), and that the Appellants had similar educational aims to universities, colleges of universities and FECs.

The Appellants are providers of higher education. Higher education is education which is part of an undergraduate or postgraduate degree course. Higher education includes Higher National Certificates (“HNCs”) and Higher National Diplomas (“HNDs”), also referred to as Level 4 and Level 5 qualifications, as well as degree courses, which are Level 6 qualifications.

An HNC is equivalent to the first year of a degree course and an HND is equivalent to the second year of a degree course. Further education is post-secondary school education which does not include Level 4, 5 or 6 qualifications.

Providers of higher education include:

Some providers of higher education have degree awarding powers (“DAPs”) and/or university title, but not all do.

The Appellants are APs which do not have DAPs or university title. During the relevant period, SPIC operated a further and higher education college in London supplying a range of HNCs and HNDs in business management, tourism and hospitality, technology, and health and social care. LCCA was a provider of further and higher education courses in fashion, visual arts, media, business and hospitality in partnership, from 2016, with South Thames College and Walsall College, both of which were providers of further and higher education. IMAN offered undergraduate and postgraduate degree courses as well as HNC and HND courses, professional programmes and certain English language courses, including TEFL. It was divided into four schools: an accountancy school, a business school, an English language school and a vocational school. Until 2016 IMAN also provided courses in collaboration with the University of Wales, London Metropolitan University, and Grenoble Graduate School of Business.

The Appellants considered that all or some of the supplies made by them should have been treated as exempt for the purposes of VAT. HMRC disagreed and issued various decisions and assessments for VAT relating to supplies made by the Appellants in the relevant period. In 2019 the Appellants appealed to the FTT.

In the light of my conclusions on ground 1, this summary is limited to the issues concerning the direct application of Art 132.

In [F149] the FTT noted that there was much common ground (which was not challenged on appeal):

“(1)

If Group 6 Schedule 9 does not properly implement Article 132(1)(i) then the appellants can rely on the direct effect of the PVD.

(2)

The appellants make supplies of education and have similar educational aims to universities, colleges of universities and FECs, which all fall within the definition of “eligible body” for the purposes of Group 6.

(3)

The reference in Article 132(1)(i) to “bodies governed by public law” has a specific and very narrow meaning. Such bodies must be part of the public administration of the state. UK universities are not governed by public law because they are legally independent and autonomous institutions (see Cambridge University v HM Revenue & Customs [2009] EWHC 434 (Ch)). The reason why UK universities, colleges of universities and FECs are exempt from VAT on their supplies of education to students is because HMRC has recognised them as having similar objects to bodies governed by public law.

(4)

The exemption must be interpreted strictly, but also in a way which is consistent with its objective. The objective of the exemption is to facilitate access to supplies of education by certain bodies, avoiding the increased cost that would result if those supplies were subject to VAT (see Minister Finansów v MDDP sp z oo Akademia Biznesu sp komandytowa Case C-319/12).

(5)

Activities which are carried out on a for-profit basis may still be exempt. Parliament has chosen not to limit the exemption to non-profit making institutions (See Lord Kitchin in SAE Education Ltd v HM Revenue & Customs [2019] UKSC 14 at [28]).

(6)

Institutions must fulfil the condition of pursuing objects similar to those of bodies governed by public law if their supplies of education are to be exempt (See MDDP at [35]). This may be described as a “supplier condition”.

(7)

HMRC has a discretion in laying down conditions by reference to which organisations will be recognised as having similar objects to bodies governed by public law. Member states are given such a discretion because they may have very different education systems (see Advocate General Kokott in MDDP at [19]).

(8)

HMRC does not have an unfettered discretion in identifying which bodies should be treated as having such objects. Its discretion is limited by reference to the principles of equal treatment and fiscal neutrality (see MDDP at [38] and SAE at [45]).

(9)

The principle of fiscal neutrality precludes economic operators carrying out similar transactions from being treated differently (see JP Morgan Fleming Claverhouse Investment Trust Plc v Revenue and Customs Commissioners (Case C-363/05)). It may be engaged where the supplies in question are sufficiently similar from the point of view of the consumer, where differences between them do not have a significant influence on the choice of the consumer and where they meet the same needs of the consumer (see Rank Group Plc v Revenue and Customs Commissioners (Joined Cases C-259/10 and C-260/10)).”

The FTT then explained that there were issues between the parties as to the nature and scope of the limits on the discretion of the Member States and, specifically, how the principle of fiscal neutrality operated to limit that discretion ([F150]).

In a passage starting at [F161] the FTT considered the parties’ submissions concerning fiscal neutrality.

At [F166] the FTT summarised the Appellants’ submissions as follows. The principal question in relation to fiscal neutrality is whether from the point of view of students, the supplies by APs of designated courses are sufficiently similar to the supplies of eligible bodies and whether they meet the same needs of the consumer. The Appellants’ aims were consistent with the aims of designated higher education providers generally, and the courses they offered were the same or substantially similar to courses offered by exempt higher education providers. HMRC was focusing too much on the viewpoint of the regulator. Differences in the regulatory framework were not a key factor. From the point of view of typical students those differences would be immaterial. Students would be concerned about the distinction between designated providers of higher education, including the Appellants, on the one hand, and other providers of higher education falling altogether outside the regulatory regime on the other. The purpose of regulation was in part to reassure students as to the quality of the course and the financial sustainability, governance and management of the provider, so that they could expect to satisfactorily complete their course. In other words, this was not an exceptional case where differences in the regulatory framework were relevant to the choice of a typical consumer.

At [F167] the FTT recorded the Appellants’ argument that they shared the central objects and characteristics of other designated providers of higher education.

At [F168] the FTT stated that it was satisfied that the regulatory regime for universities was “significantly stronger” than the regulatory regime for APs with designated courses. The differences were not simply a matter of detail but were a matter of degree and substance. They arose from the additional regulations applicable to obtaining DAPs and university title. For these purposes there is no distinction between universities and colleges of universities.

At [F171] the FTT referred to the Appellants’ case that typical consumers would regard APs and HEIs as being subject to essentially the same regulatory regime. The real distinction from a consumer perspective would be between regulated providers (including APs like the Appellants) and non-regulated providers who did not offer designated courses. The FTT, however, accepted HMRC’s submission that under EU case law the focus is not only on whether the supplies are similar from the perspective of the consumer, but also on whether the suppliers are comparable. In the ECJ cases relied on by the Appellants, such as Rank Group Plc v Revenue and Customs Commissioners (Joined Cases C-259/10 and C-260/10)) [2020] STC 23 (“Rank”) and Pro Med Logistik GmbH v Finanzamt Dresden-Süd (Case C-454/12) the ECJ was concerned solely with the perspective of the consumer because the exemption in those cases did not involve a supplier condition and only had a supply condition ([F175]).

The FTT concluded as follows:

“176.

In my view, the exclusion of the appellants from exemption by virtue of Note 1(b) does not breach the principle of fiscal neutrality. The UK was entitled to recognise universities and their colleges as having similar objects to bodies governed by public law. That was established by the Court of Appeal in FBT [sc. Finance and Business Training Ltd v HMRC [2016] EWCA Civ 7, [2017] 1 ALL ER 758 (“Finance and Business Training”)]. The regulatory regime for DAPs and university title did not apply to the appellants. As such, they were not in a comparable position to a university or a college of a university, unless it can be said that they are a college of a university. That is Issue 3 in relation to IMAN.

177.

Similarly, the appellants and FECs covered by Note 1(c) are not comparable for these purposes. FECs are required by section 22A Further and Higher Education Act 1992 to be charities. None of the appellants were charities. The UK was clearly entitled to restrict the exemption for FECs to non-profit making organisations by virtue of Article 133(a) PVD.”

At [U30] the UT framed the issue about the proper approach to fiscal neutrality as follows:

“The first sub-issue in relation to this ground raises the question of what is the correct approach to determining whether there is a breach of the principle of fiscal neutrality where there is a supplier condition. The FTT applied a test of comparability (see [175]) and concluded that the Appellants were not sufficiently similar to universities and colleges of universities based on the applicable regulatory regimes or to FECs based on their charitable status. Ms Shaw contended that the correct test required the FTT to consider the issue of comparability from the perspective of the typical consumer rather than by reference to the regulatory regimes that applied to the different bodies. Viewed in that way, any differences in the regulatory regime applicable to the Appellants and to other providers eg those which had DAPs and university title, would be irrelevant as they would not be regarded as significant by the typical consumer as the Appellants offer the same courses, leading to the same qualifications and qualify for the same SLC [sc. Student Loans Company] funding as those other providers. The Appellants did not dispute that the United Kingdom was entitled to recognise universities, colleges of universities and FECs as organisations with similar objects to providers governed by public law for the purposes of the exemption. The Appellants’ case was that the United Kingdom was also required to recognise the Appellants because they also provided education which qualified for public funding and are comparable to universities, colleges of universities and FECs. Failure to recognise the Appellants was a breach of the principle of fiscal neutrality.”

The UT then considered the European case law, including Rank and JP MorganFleming Claverhouse Investment Trust Plc v Revenue and Customs Commissioners (Case C-363/05) [2008] STC 1180 (“JP Morgan”). At [U32] the UT said this:

“Ms Shaw submitted that, from the point of view of the typical consumer, there was no material difference between supplies of ‘designated’ HND and HNC courses by APs such as the Appellants and supplies of equivalent HND and HNC courses by universities, colleges of universities or FECs. That may be so but, as stated above, the issue is whether the typical consumer’s point of view is the right test where there is a ‘supplier condition’.”

The UT did not disagree with the proposition that from the point of view of the typical consumer, there was no material difference between supplies of ‘designated’ HND and HNC courses by APs such as the Appellants and supplies of equivalent HND and HNC courses by universities, colleges of universities or FECs. Indeed the UT started the second sentence just cited by saying “that may be so,” seemingly accepting the proposition. Rather, the UT said that the relevant issue was the legal one whether, in assessing the supplier condition, similarity fell to be assessed from the typical consumer’s point of view.

The UT then considered a number of decisions of the ECJ including TNT Post UK Ltd v HMRC (Case C-357/07) [2009] STC 1438 (“TNT”); Christoph-Dornier-Stiftung für Klinische Psychologie v Finanzamt Giessen (Case C-45/01) [2005] STC 228 (“Dornier”); Kingscrest Associates Ltd v Customs and Excise Commissioners (Case C-498/03) [2005] STC 1547 (“Kingscrest”) and Finanzamt Steglitz v Zimmermann (Case C-174/11) [2016] STC 2104 (“Zimmermann”). These cases each concern exemptions contained in other sub-paragraphs of Art. 132(1), but HMRC contended that the same reasoning applies equally to the supplier condition contained in Art. 132(1)(i). The UT also considered other ECJ cases relied on by HMRC, including Minister Finansów v MDDP sp z oo Akademia Biznesu sp komandytowa (Case C-319/12) [2014] STC 699 (“MDDP”), and HMRC v Bridport and West Dorset Golf Club Limited (Case C-495/12) [2014] STC 663 (“Bridport”).

After reviewing this body of ECJ case law, in [U42] the UT concluded:

“Mr Hill submitted, and we accept, that where the PVD imposes a supplier condition, a person cannot obtain the benefit of an exemption simply because their supplies are similar to those provided by other entities that meet the condition. He further contended that the CJEU has not suggested in any case concerning a supplier condition that whether the national legislation breaches the principle of fiscal neutrality must be determined by reference to the perspective of the typical consumer. We consider that is correct on the CJEU case law authorities provided to us.”

The UT concluded that this interpretation of the case law was consistent with other decisions of the ECJ including I GmbH v Finanzamt H (Case C-228/20) and Happy Education SRL v Directia Generala Regionala a Finantelor Publice Cluj-Napoca (Case C-612/20).

In [U49] the UT agreed with HMRC that the correct approach to fiscal neutrality in this context is to focus not only on whether the supplies are similar from the perspective of the consumer, but also on whether the Appellants as suppliers were comparable to universities, colleges of universities or FECs.

In [U50] the UT concluded that once the correct test was understood, it followed that Ms Shaw's submissions based on the point of view of the typical consumer lost their force. The UT went on to reject the Appellants’ challenge to the FTT’s factual findings about the differences in the regulatory regime for bodies recognised as exempt on the one hand and APs on the other.

The parties did not refer the UT to the decision of the Court of Appeal in LIFE.

The UT granted permission to appeal on three grounds:

The Appellants submitted that when assessing whether a Member State’s decision to recognise certain bodies for the purposes of Art. 132(1) infringes the principle of fiscal neutrality, the national court must apply the test set out in Rank at [36], namely:

“ … the principle of fiscal neutrality must be interpreted as meaning that a difference in treatment for the purposes of VAT of two supplies of services which are identical or similar from the point of view of the consumer and meet the same needs of the consumer is sufficient to establish an infringement of that principle…”.

That is, a distinction between two supplies does not permit a difference in treatment unless that distinction has a significant influence on the choice of the typical consumer.

It has not been in dispute that the supplies of HNC and HND courses by the Appellants on the one hand, and by universities, colleges of universities and FECs, on the other, are sufficiently similar from the perspective of the typical consumer (i.e. that any distinctions in the courses provided would not impact the choice of the typical consumer); [6] and [23] of the Appellants’ skeleton argument).

HMRC’s position (accepted by the FTT and UT) that the perspective of the typical consumer is not a decisive factor in this case ([U49]) is an error of law.

The cases of the ECJ concerning fiscal neutrality do not support the UT’s conclusion that the Rank test does not apply to the supplier condition. On the contrary, the ECJ case law indicates that compatibility with fiscal neutrality is to be assessed using that test. For instance TNT included a supplier condition as did Solleveld v Staatssecretaris van Financien (Joined Cases C-443/04 and C-444/04) [2007] STC 71 (“Solleveld”).

The Appellants contended that the UT’s conclusion on this issue was inconsistent with the decision of this court in LIFE.

In [46] of their skeleton argument the Appellants submitted that had the UT applied the Rank test it would inevitably have concluded that Parliament had breached the principle of fiscal neutrality by excluding APs from the exemption.

HMRC submitted that the FTT and UT were right to reject the application of the Rank test to the supplier conditions provided for in Art. 132(1)(i).

The case law of the ECJ about other exemptions, including (b), (g) and (h), showed that the Rank test did not apply to supplier conditions. The ECJ’s reasoning about those other exemptions was applicable to the education exemption in Art. 132(1)(i). The relevant cases relating to those other exemptions included Dornier, Kingscrest, Zimmermann and L.u.P. GmbH v Finanzamt Bochum-Mitte (Case C-106/05) [2008] STC 1742.

The Rank case, by contrast, was about similarity of supplies. The relevant provision considered in that case, Art. 135(1)(f), did not contain a supplier condition.

HMRC’s position is further bolstered by the reasoning of the ECJ in the Bridport and MDDP cases.

HMRC contended in [23] of its skeleton argument that the key issue in the appeal was whether fiscal neutrality is to be assessed from the consumer’s perspective when applied to the supplier conditions in exemptions (b), (g), (h), (i), (l), (m) and (n). In none of the European case law concerning exemptions (b), (g) and (h) is there any support for the Appellants’ contention that the comparison of suppliers subject to different regulatory regimes has to be limited by the requirement that they are significant from a consumer’s perspective. The same applies to exemption (i).

HMRC accepted that the decision in LIFE was inconsistent with its position but argued that this court was not bound by it, for reasons addressed further below.

In LIFE there were two cases, in each of which the taxpayer was a company which provided day care services for adults with learning difficulties who had been assessed as being in need of care and support under the Care Act 2014. HMRC determined that the supplies were subject to VAT at the standard rate. The taxpayers appealed on the ground that the supplies fell within the exception for supplies of welfare services by a “state-regulated” private welfare institution or agency contained in item 9 of Group 7 of Sch. 9 to the 1994 Act, which implemented Art. 132(1)(g) of the PVD. The FTT allowed the taxpayers’ appeals but those decisions were reversed by the UT. The taxpayers appealed to this court. There were two issues: first whether one of the taxpayers was “state regulated”; and, second, whether item 9 contravened the principle of fiscal neutrality, which precluded treating similar goods and services differently for the purposes of VAT. The taxpayers argued that item 9 imposed differential treatment as between charities on the one hand and other private operators on the other. This court dismissed the appeals.

The leading judgment was given by Arnold LJ, with whom Floyd and Newey LJJ agreed. In relation to the fiscal neutrality issues, Arnold LJ started at [38] by setting out the principle of fiscal neutrality by citing passages from Rank. These included the following propositions. The principle of fiscal neutrality precludes treating similar goods and supplies of services, which are thus in competition with each other, differently for VAT purposes ([32] of Rank); according to that description of the principle the similar nature of two supplies of services entails the consequence that they are in competition with one another (ibid. [33]); the actual existence of competition between two supplies of services does not constitute an independent and additional condition for infringement of the principle of fiscal neutrality if the supplies in question are identical or similar from the point of view of the consumer and meet the needs of the consumer (ibid. [34]); in order to determine whether two supplies of services are similar account must be taken of the point of view of a typical consumer (ibid. [42]); two supplies of services are therefore similar where they have similar characteristics and meet the same needs from the point of view of consumers, the test being whether their use is comparable, and where the differences between them do not have a significant influence on the decision of the average consumer to use one such service or the other (ibid. [43]); and, in certain exceptional cases, the ECJ has accepted that, having regard to the specific characteristics of the sectors in question, differences in the regulatory framework or the legal regime governing the supplies of goods or services at issue, such as whether or not a drug is reimbursable or whether or not the supplier of a service is subject to an obligation to provide a universal service, may create a distinction in the eyes of the consumer, in terms of the satisfaction of his own needs (ibid. [50]).

Arnold LJ then considered the case law of the Court of Justice concerning the predecessor of Art. 132(1)(g). He referred to a number of cases which have featured in the arguments before us in the present case, including Ambulanter Pflegedienst Kügler GmbH v Finanzamt für Körperschaften I in Berlin (Case C-141/00), Kingscrest and Zimmermann. He then set out a number of propositions between [40] and [50] about the general approach of the ECJ to the exemptions, including that in sub-para (g). These propositions are consistent with the common ground between the parties in the present appeal as stated by the FTT in the passage set out in [‎25] above.

At [54] Arnold LJ again referred to Rank and stated that it shows that the principle of fiscal neutrality requires that supplies of goods and services which are similar, and therefore are in competition with each other, not be treated differently for VAT purposes: supplies of services are similar where they have similar characteristics and meet the same needs from the point of view of consumers, so that their use is comparable, and where the differences between them do not have a significant influence on the consumer's decision to use one or the other.

At [61], Arnold LJ said this:

“Counsel for LIFE advanced two main criticisms of [the UT’s] reasoning. First, he submitted that the UT had been wrong to rely on Finance and Business Training because, to put it shortly, the structure of Article 132(1)(i) was materially different to that of Article 132(1)(g), and therefore the reasoning of the Court of Appeal concerning the former was inapplicable to the latter. Secondly, he submitted that the UT had failed to ask itself the right question, which was whether regulation made any significant difference to the consumer. I accept the second submission, and therefore it is unnecessary to consider the correctness of the first submission.” (underlining added.)

In [62] Arnold LJ referred to some further cases, including Solleveld and TNT, where the ECJ had accepted that differences in the regulatory framework or legal regime governing the supplies of goods or services may create a distinction in the eyes of the consumer. He referred again to the passage in Rank at [50] which described such cases as exceptional.

Arnold LJ then considered whether the UT was entitled to conclude on the facts that the welfare services provided by state-regulated bodies were significantly different to those provided by non-state-regulated private welfare bodies in the eyes of consumers. He concluded in [73] that it was. In [78] he concluded that, viewed through the eyes of the consumer, there is a significant difference between welfare services provided by private welfare bodies which are not state-regulated, and those which are provided by charities.

In my judgment, part of the essential reasoning (or ratio decidendi) of LIFE is that, when assessing similarity for the purposes of compliance with fiscal neutrality in relation to Art 132(1)(g), the national court or tribunal must adopt the point of view of the typical consumer.

It was common ground between counsel before us that the reasoning of the ECJ case law concerning Art. 132(1)(g) applies in the same way to the exemption in Art. 132(1)(i). HMRC did not seek to distinguish the decision in LIFE on this or, indeed, any other basis. As already noted, counsel for HMRC accepted that LIFE was inconsistent with its position on this appeal.

HMRC acknowledged that, as a matter of domestic procedural law, this court is bound by its own decisions, subject to certain established exceptions (see Young v Bristol Aeroplane Company Ltd [1944] KB 718). HMRC nevertheless contended that we were not bound by the decision in LIFE for two reasons.

The first reason was that it is difficult to discern any reasoned basis on which the court reached the conclusion in [61] of LIFE. I am unable to accept this submission. Arnold LJ set out the principles of fiscal neutrality by citing passages from Rank. He referred to the Rank test in [40] to [50] and summarised his understanding of that test in [54]. In [61] he concluded that the test drawn from Rank applied to the supplier condition in Art. 132(1)(g). He then went on to consider the application of the Rank test to the facts as found by the FTT. I think that the process of reasoning is transparent. But even if this were not the case it would not render the decision per incuriam. HMRC did not identify any legal rule of which the court in LIFE was said to have been ignorant. Nor did it identify any material changes in the jurisprudence of the ECJ since the LIFE decision.

HMRC’s second argument was based on the principle of the supremacy of EU law, exemplified by the ECJ case of Minister of Justice and Equality, Commissioner of An Garda Siochana v Workplace Relations Commission (Case C-378/17). The question was whether a tribunal in Ireland was obliged to disapply a rule of national law which was contrary to EU law. The ECJ referred at [35] to the primacy of EU law, which meant that national courts called upon to apply the provisions of EU law must be under a duty to give full effect to those provisions, if necessary refusing to apply any conflicting provision of national law. At para [36] the court said:

“Accordingly any provision of a national legal system and any legislative, administrative or judicial practice which might impair the effectiveness of EU law by withholding from the national court having jurisdiction to apply such law the power to do everything necessary at the moment of its application to disregard national legislative provisions which might prevent directly applicable EU laws from having full force and effect are incompatible with the requirements which are the very essence of EU law.”

This was a recital of the well-known principle established in R v The Secretary of State for Transport ex p. Factortame (Case C-213/89) [1990] CMLR 1 at [20].

HMRC submitted that Young v Bristol Aeroplane, as a rule of judicial practice, could not be relied on to prevent the directly applicable EU law being given full force and effect. I am unable to accept this argument. The Factortame principle is concerned with cases where there is a potential incompatibility between EU law and a rule of domestic law. It is a rule of priority. EU law is to be given primacy and any conflicting or incompatible domestic law must make way. That is not the issue with which we are concerned. The Appellants do not seek to rely on a conflicting rule or incompatible provision of domestic law to trump or override EU law. On the contrary they rely entirely on EU law. The decision in LIFE is an existing decision of this court which interprets and applies the same body of EU case law that HMRC invites the court to apply (but which HMRC says should be interpreted and applied differently).

This question whether we are bound to follow the decision in LIFE does not therefore involve any issue of priorities as between EU and domestic law. It is common ground that EU law applies. What is instead in issue is the correct interpretation and application of EU law in the present context. In my judgment where this court has already carried out the same exercise in relation to the relevant body of ECJ case law, a later court is bound (in the absence of one of the recognised Young exceptions) to follow the earlier decision and reach the same conclusion. To do otherwise would serve to undermine the certainty and predictability created by the system of precedent. It is also to be observed that we are not the apex appellate court: one of the reasons why this court is bound by its own decisions is that there is the possibility of a further appeal where an earlier decision of this court is said to be wrong.

For these reasons in my judgment we are bound by the decision of this court in LIFE on the very question raised by ground 1 of the appeal. Given this conclusion it is unnecessary to consider the further question (on which we heard no argument) whether the principle of the primacy of European law is capable of applying to this court, in the light of the legislative abolition of the supremacy of EU law following the UK’s exit from the EU.

In my judgment LIFE decides that the Rank test applies to the supplier condition in Art. 132(1)(g). It was common ground that the same reasoning applies to Art. 132(1)(i) and cannot be distinguished. For these reasons, in my judgment the Appellants are correct to say that FTT and the UT erred in law in concluding that the Rank test does not apply to the supplier condition in exemption (i). HMRC did not take issue in its skeleton argument with the Appellants’ contentions in [6], [23] and [46] of their skeleton argument that, had the lower tribunals applied the Rank test, they would inevitably have concluded that Parliament had breached the principle of fiscal neutrality in excluding APs from the exemption. This point was repeated by counsel for the Appellants in oral submissions during the hearing of the appeal and again counsel for HMRC did not take issue. In these circumstances I agree with the submission of counsel for the Appellants that the appeal must be allowed.

Accordingly, I would allow the appeal on ground 1 on the basis that we are bound by the decision in LIFE. Other than recording that I considered there to be considerable force in HMRC’s position, I prefer not to express any views on the merits of the arguments we heard about the underlying substance of the issues under ground 1. In the light of this conclusion, grounds 2 and 3 do not arise.

I agree.

I agree that the underlined passage from the judgment of Arnold LJ in LIFE is part of the ratio decidendi of that case; and I also agree that we are bound by it. Whether it is right or wrong is not for us to say. I, too, would therefore allow the appeal.