SAE Education Ltd (Appellant) v The Commissioners of Her Majesty’s Revenue and Customs (Respondent)

Cite as:[2019] UKSC 14
Hand-down Date:March 20, 2019

Hilary Term [2019] UKSC 14 On appeal from: [2017] EWCA Civ 1116


SAE Education Ltd (Appellant) v Commissioners for Her Majesty's Revenue and Customs (Respondent) before

Lord Reed, Deputy President Lord Sumption

Lord Briggs Lady Arden Lord Kitchin JUDGMENT GIVEN ON 20 March 2019 Heard on 30 October 2018 Appellant Respondent Melanie Hall QC

Sarabjit Singh QC (Instructed by HMRC Solicitors Office) Elizabeth Kelsey (Instructed by Gordon Dadds LLP (London))

LORD KITCHIN: (with whom Lord Reed, Lord Sumption, Lord Briggs and Lady Arden agree)

  1. Supplies of education to students in the United Kingdom are exempt from value added tax ("VAT") if they are made by a college of a university within the meaning of Note 1(b) to Item 1, Group 6 of the Value Added Tax Act 1994 ("the VAT Act"). This appeal concerns the criteria to be applied in determining whether an undertaking is such a college.

  2. In these proceedings the appellant ("SEL") contends that its supplies of education to students in the United Kingdom were and are exempt from VAT because it was and remains a college of Middlesex University ("MU"). For this reason, it appealed against assessments raised by the Commissioners for Her Majesty's Revenue and Customs ("the Commissioners") in respect of its accounting periods 1 May 2009 to 29 February 2012. It has also appealed against subsequent assessments, but these have been stayed by agreement with the Commissioners pending the outcome of this appeal.

  3. SEL's appeal was allowed by the First-tier Tribunal (the "FTT", Judge John Clark and Dr Michael James MBE) by its decision dated 28 February 2014: TC/2011/022521. The Commissioners appealed that decision to the Upper Tribunal (the "UT", Judge Colin Bishopp and Judge Guy Brannan) which allowed the appeal by its decision dated 25 April 2016: [2016] UKUT 193 (TCC); [2016] STC 1837. SEL then appealed to the Court of Appeal. The appeal was heard over three days in June 2017. The Court of Appeal dismissed the appeal by its decision dated 28 July 2017 (Patten, Black and Sales LJJ): [2017] EWCA Civ 1116; [2017] STC 2166.

  4. SEL now appeals to this court. In broad terms the appeal gives rise to the following questions: first, whether the Court of Appeal adopted the correct approach in determining whether SEL was a college of MU for the purposes of Note 1(b) to Item 1, Group 6 of the VAT Act; and secondly, if it did not, whether, upon application of the correct test, SEL was such a college.

    The relevant facts

  5. SEL is an English company and a subsidiary of SAE Technology Group BV, a Dutch company. Both are part of the SAE group of companies which trades around the world under the name "SAE Institute" ("SAEI"). SAE is an acronym for "School of Audio Engineering" and SAEI has for many years provided education in audio

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    and digital media technologies, and as a result has gained a significant reputation in that field. SAEI has conducted business in the United Kingdom since 1985, first through SAE Educational Trust Ltd ("SETL") and, since 1 May 2009, through SEL. From that date SEL has taught in the United Kingdom the higher education courses to which I shall come in a moment.

  6. MU is a United Kingdom university within the meaning of the VAT Act, Group 6, Item 1, Note 1(b). It has never had any financial interest in any SAE group company, and no MU employee has ever been a director of any such company. Similarly, no SAE group company has had a representative on MU's governing body or has played any direct part in its governance. Nevertheless, the relationship between MU and SAEI has been very close and is a reflection of a series of agreements addressing the nature of that relationship, the validation by MU of SAEI programmes of education and the accreditation of SAE group companies.

  7. As early as 1998 SAEI and MU agreed a memorandum of cooperation which provided for the teaching by "SAE Technology College" of Bachelor of Arts ("BA") degree courses in Recording and Multimedia Arts at specified campuses. These courses were described as "validated collaborative programmes" of MU. Overall responsibility for the courses was retained by MU but their day-to-day direction was undertaken by employees of an SAEI group company. Over the years that followed this memorandum was superseded by other memoranda of cooperation and the validation of BA degree courses in Multimedia, Interactive Animation and Games Programming. In 2009 another memorandum of cooperation was agreed which consolidated into a single framework the programmes which had by that time been validated by earlier memoranda. It set out the terms on which MU agreed to validate specified courses and how entry requirements were to be set and satisfied. In short, admission requirements would be set by SAEI but conform to MU's general requirements; students who met those requirements would be selected by SAEI using procedures agreed by MU; selected students would be enrolled by SAEI for one of MU's qualifications; enrolled students would be considered members of MU and taught by SAEI subject to MU's quality safeguards; and in due course those enrolled students would be assessed by SAEI subject to MU's regulations and, if they completed their programmes of study successfully, would be awarded a degree by MU.

  8. From time to time SAEI and MU also entered into what have been termed partnership agreements which made more general provision relating to the relationship between them. The first such agreement, entered into in 2003, recorded the intention of the parties to work together to develop undergraduate and taught graduate degree courses at SAEI centres in the United Kingdom and around the world. It was intended at that time that within five years MU would consider an application from SAEI for MU accreditation which would allow SAEI to validate for itself courses leading to the award of undergraduate degrees by MU. In 2009

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    SAEI and MU entered into another partnership agreement which recorded that within 12 months MU would consider an application from SAEI for such accreditation. To this end, it was agreed that senior executives of MU and SAEI would meet three times a year to develop their collaboration on undergraduate and postgraduate courses of study.

  9. In September 2010 SAEI was accredited by MU to validate, provide, monitor and review courses of study leading to MU BA degrees in Recording Arts, Film Making, Digital Film Animation and Multimedia Arts. The instrument of accreditation permitted SAEI to conduct MU graduation ceremonies but graduating students could also attend a graduation ceremony at MU if they so wished. A memorandum of cooperation confirmed the independent status of SAEI and allowed it to retain its own governing council and academic board and responsibility for its own financial management.

  10. In July 2011 MU and SAEI entered into what was described as a Special Associate College Agreement ("SACA"). This recorded their successful cooperation over 14 years in the provision of courses of education, including courses leading to MU undergraduate and graduate awards. It provided, by clause 2:

    "As a further extension of that special relationship in the context of higher education in the United Kingdom, the University and SAE Education, UK (hereinafter referred to as SAE-UK) have agreed a long-term partnership, which is detailed below. This builds upon the existing status of SAE-UK as a Middlesex University Associate College."

    The legal framework

  11. The origin of the common system for the collection of VAT in the European Union lies in the First Council Directive 67/227/EC of 11 April 1967 on the harmonisation of legislation of member states concerning turnover taxes ("the First Directive"). This recognised the interest of the common market in achieving a harmonisation of legislation concerning turnover taxes so as to eliminate, so far as possible, factors which might distort competition, and it provided, in article 2, that the principle of the common system involved the application to goods and services of a general tax on consumption which was proportional to their price.

  12. The Second Council Directive 67/228/EEC, also of 11 April 1967, on the harmonisation of legislation concerning turnover taxes and procedures for application of the common system of VAT ("the Second Directive") made further

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    provision for harmonisation and recorded in its fifth recital that the introduction of zero rates of tax gave rise to difficulties and it was highly desirable to limit strictly the number of exemptions. However, article 10 of the Second Directive exempted from VAT in any member state the supply of goods to places outside the territory of that state and the provision of services relating to such goods or goods in transit, and, of particular relevance to this appeal, also provided that, subject to consultation, any member state could determine the other exemptions it considered necessary.

  13. The First and Second Directives were followed by the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonization of the laws of member states relating to turnover taxes ("the Sixth Directive"). This recited the need for a common system of exemptions and, in Title X, article 13, part A, made express provision for the exemption of certain activities in the public interest, including the supply of services related to education. Article 13A(1) provided, so far as material:

    "A. Exemptions for certain activities in the public interest

  14. Without prejudice to other Community provisions, member states shall exempt the following under conditions which they shall lay down for the purpose of ensuring the correct and straightforward application of such exemptions and of preventing any possible evasion, avoidance or abuse:


    (i) children's or young people's education, school or university education, vocational training or retraining, including...

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