4 Eyes Ltd: VAT, Tax and Customs Consultants

The First Tier Tribunal (FTT) has decided that the supplies of a UK intermediary in the arrangement of sports scholarships on behalf of UK students hoping to attend US colleges take place, for VAT purposes, where the education is supplied, in this case the US.

The Appellant is a UK business which acts for UK clients, i.e. private individuals who wish to attend US universities and colleges on sporting scholarships.

Under the terms of the agreement with its client, the Appellant provides the client with a wide range of advice and assistance aimed at finding and securing a sports’ scholarship. In summary, this encompasses assessing the client's educational achievements against the US 'grade point average' system of determining educational standards, finding the educational establishments offering courses which would suit the client, assessing the quality of US coaching staff, obtaining offers, and assistance with the application and scholarship process. The client pays the Appellant for these services but, since 2010, the Appellant has undertaken to refund a proportion of the fee in the event that no scholarship offer is received. The FTT sets out a very comprehensive description of the full range of services in its decision. The Appellant gave evidence that it would be approached by c. 15,000 potential candidates each year but would sift these down to around 400, who would be taken on as fee-paying clients.

The case concerns the place of supply of these services. In 2006 and 2008, HMRC had inspected the Appellant and agreed that its supplies were outside the scope of VAT, being supplied outside the EU. However, following another inspection in 2010, HMRC revised its position and issued a decision that the Appellant's supplies were made in the UK and liable to UK VAT. That decision was based, in part, on the fact that the fee was (until 2010) payable by the client irrespective of whether any offer of a scholarship was received, and therefore HMRC considered that the Appellant's service could not constitute those of an intermediary in the arrangement of an educational supply if no such supply were to take place (although it was the Appellant's evidence that this would be exceptional).

The FTT considered that the relevant EU legislation was Art 46 the VAT Package Directive (Directive 2008/8/EC):

The relevant UK legislation was Part 3, Sch 4A VAT Act 1994 concerning exceptions relating to supplies not made to a relevant business person

(2) This paragraph applies to a supply to a person who is not a relevant business person consisting of the making of arrangements for a supply by or to another person or of any other activity intended to facilitate the making of such a supply."

The FTT did not consider that HMRC had properly examined the legislation in coming to its decision. It regarded the sifting of candidates down to 400 as being indicative that the likelihood was that a scholarship offer would be obtained in most cases: had fees been taken from all 15,000 potential applicants with only 400 successful, that would have been a different matter. The FTT considered that the nature of the services was clear from the outset, and the Appellant's negotiations with individual coaches on behalf of its clients, visits to universities and colleges to assess educational standards and ensuring that the client could fulfil all US visa requirements showed that the Appellant was clearly 'standing between' its clients and the educational establishments as an intermediary. In the FTT's opinion, even if no offer of scholarship or education were received, for the purposes of para 10(2), the Appellant's services were intended to facilitate the making of such a supply, and therefore were intermediary services. The place of supply was the US, and the appeal was therefore allowed.

Similar businesses which consider that their supplies may be taking place outside the UK need to consider the matter extremely carefully. UK educational establishments receiving similar supplies from outside the UK also need to carefully consider the place of supply, and again this will be heavily fact-sensitive.

If you would like any advice on the issues raised in this case, please contact 4 Eyes Ltd.