The Supreme Court held that SAE Education Ltd was a college of Middlesex University, so its supplies of higher education in the United Kingdom were exempt from VAT. A body need not be a constitutional part of a university to be “a college of such a university”. What matters is whether its educational work is so integrated with the university’s that it shares the university’s objects.
SAE Education Ltd (SEL) is the United Kingdom company through which the SAE Institute group has, since 1 May 2009, taught higher education in audio and digital media technologies. It said those supplies were exempt from VAT because it was a college of Middlesex University. HM Revenue and Customs assessed it for the periods from 1 May 2009 to 29 February 2012. Later assessments were stayed by agreement. The First-tier Tribunal allowed SEL’s appeal. The Upper Tribunal allowed the Commissioners’ appeal, and the Court of Appeal dismissed SEL’s further appeal.
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The link with Middlesex University
Middlesex University had no financial interest in the SAE group, no employee on its boards, and no SAE representative on its governing body. The relationship was created by agreement. From 1998, memoranda of cooperation provided for SAE to teach bachelor’s courses as validated collaborative programmes of the university. The university kept overall responsibility; SAE directed the courses day to day. Under the 2009 memorandum, SAE set entry requirements that conformed to the university’s general requirements, selected students under agreed procedures, and enrolled them for a Middlesex qualification. Those students were members of the university. SAE taught and assessed them, subject to the university’s quality safeguards and regulations, and successful students received a Middlesex degree.
Partnership agreements in 2003 and 2009 recorded that the university would consider accrediting SAE so that it could itself validate courses leading to Middlesex awards. In September 2010 the university accredited SAE to validate, provide, monitor and review specified degrees. SAE could hold Middlesex graduation ceremonies, and students could also graduate at the university, while keeping its own governing council, academic board and financial management. A Special Associate College Agreement in July 2011 recorded 14 years of cooperation and a long-term partnership built on SAE’s existing status as an associate college.
The exemption and the test
Education supplied by an eligible body is exempt from VAT. Under the Value Added Tax Act 1994, an eligible body includes a United Kingdom university and any college, institution, school or hall of such a university. Parliament did not limit those bodies to organisations that make no profit.
The provision gives effect to EU law. Member states must exempt university education supplied by public-law bodies and by other organisations they recognise as having similar objects. They may exempt education supplied commercially by private bodies, but they may not exempt all educational services without regard to the supplier’s objects. Their discretion is also limited by principles including fiscal neutrality, legal certainty and proportionality. The purpose of the exemption is that access to higher education should not be made more expensive by VAT.
Lord Kitchin, with whom Lord Reed, Lord Sumption, Lord Briggs and Lady Arden agreed, held that the right question is one of integration. A document making a college a constituent part of a university will ordinarily be enough, but it is not required. Universities and their colleges are arranged in many different ways, and some universities are themselves private and run for profit. The same approach must apply to a college of such a university. A rule limited to constitutional parts would usually exclude a commercial provider such as SEL, contrary to fiscal neutrality.
Five questions are likely to be highly relevant: whether the body and the university share an understanding that the body is a college of the university; whether it can enrol students as students of the university; whether those students are generally treated as university students during their studies; whether it provides courses approved by the university; and whether it can present them for a university degree. If all five are present, the body is highly likely to qualify, although other circumstances may also be enough. Independence, financial dependence, profit, public funding, permanent links, physical proximity and any duty to offer a minimum number of places are unlikely to decide the issue.
Where the courts below went wrong
The First-tier Tribunal had weighed a longer list of factors taken from an earlier case, School of Finance and Management. The Upper Tribunal turned that assessment into a sequence of hurdles, beginning with whether the parties had a common understanding of their relationship and understood the body to be a college. Lord Kitchin held that a shared understanding matters, but as part of the overall assessment, not as a preliminary barrier.
The Court of Appeal wanted evidence that the provider was a constituent part of the university in an institutional sense. The Supreme Court held that this put too much weight on constitutional arrangements. The substance of the educational relationship could establish integration even without common ownership or formal representation on governing bodies.
Why SEL qualified
The First-tier Tribunal’s findings had a sufficient basis in the evidence. From May 2009 the parties had proceeded on the basis that SEL, as the United Kingdom arm of SAE Institute, was an associate college. The links were established and likely to endure. Most of SEL’s courses were supervised by the university, which regulated their quality. SEL’s purposes were similar to the university’s. Its students became Middlesex students and received Middlesex degrees, including at university ceremonies, and its activities were substantially integrated with those of the university.
The Upper Tribunal’s criticisms were not accepted. In May 2009 SEL had taken over the United Kingdom teaching previously carried on through another SAE company. The tribunal was entitled to look at the activities actually carried on through SEL, rather than treating the corporate arrangements, or any initial unawareness of SEL as a separate company, as fatal. It was entitled to conclude that SEL had become, and remained, a college of Middlesex University.
Verdict: The Supreme Court unanimously allowed SAE Education’s appeal. The First-tier Tribunal was entitled to find that from May 2009 it was a college of Middlesex University for the VAT exemption.
Source: SAE Education Ltd v Commissioners for Her Majesty’s Revenue and Customs [2019] UKSC 14
