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You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Leisure, Independence, Friendship And Enablement Services Ltd v Revenue And Customs [2020] EWCA Civ 452 (25 March 2020) URL: https://www.bailii.org/ew/cases/EWCA/Civ/2020/452.html Cite as: [2020] STC 898, [2020] 1 WLR 2828, [2020] EWCA Civ 452, [2020] BVC 4, [2020] STI 952, [2020] WLR 2828, [2020] WLR(D) 192 |
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ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)
Mann J and Judge Herrington [2017] UKUT 484 (TCC)
Nugee J and Judge Herrington [2019] UKUT 2 (TCC)
Strand, London, WC2A 2LL |
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B e f o r e :
LORD JUSTICE NEWEY
and
LORD JUSTICE ARNOLD
____________________
LEISURE, INDEPENDENCE, FRIENDSHIP AND ENABLEMENT SERVICES LIMITED |
Appellant |
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- and - |
||
THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
|
And between: |
||
THE LEARNING CENTRE (ROMFORD) LIMITED |
Appellant |
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- and - |
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THE COMMISSIONERS FOR HER MAJESTY'S REVENUE AND CUSTOMS |
Respondents |
____________________
Eamon McNicholas (instructed directly) for The Learning Centre (Romford) Ltd
Jonathan Davey QC and Natasha Barnes (instructed by General Counsel and Solicitor to HM Revenue and Customs) for the Respondents
Hearing dates: 12-13 February 2020
____________________
Crown Copyright ©
Lord Justice Arnold:
Introduction
EU legislation
"Member States shall exempt the following transactions:
…
(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other bodies recognized by the Member State concerned as being devoted to social wellbeing".
"Without prejudice to other Community provisions, Member States shall exempt…:
…
(g) the supply of services and of goods closely linked to welfare and social security work, including those supplied by old people's homes, by bodies governed by public law or by other organisations recognised as charitable by the Member State concerned."
Domestic legislation
"The supply by –
(a) a charity,
(b) a state-regulated private welfare institution or agency, or
(c) a public body.
of welfare services and of goods supplied in connection with those welfare services."
"(6) In item 9 'welfare services' means services which are directly connected with—
(a) the provision of care, treatment or instruction designed to promote the physical or mental welfare of elderly, sick, distressed or disabled persons,
(b) the care or protection of children and young persons, or
(c) the provision of spiritual welfare by a religious institution as part of a course of instruction or a retreat, not being a course or a retreat designed primarily to provide recreation or a holiday,
and, in the case of services supplied by a state-regulated private welfare institution, includes only those services in respect of which the institution is so regulated
…
(8) In this Group 'state-regulated' means approved, licensed, registered, or exempted from registration by any Minister or other authority pursuant to a provision of a public general Act, other than a provision that is capable of being brought into effect at different times in relation to different local authority areas.
Here 'Act' means –
(a) an Act of Parliament;
(b) an Act of the Scottish Parliament;
(c) an Act of the Northern Ireland Assembly;
(d) an Order in Council under Sch 1 to the Northern Ireland Act 1974;
(e) a Measure of the Northern Ireland Assembly established under section 1 of the Northern Ireland Assembly Act 1973;
(f) an Order in Council under section 1(3) of the Northern Ireland (Temporary) Provisions Act 1972;
(g) an Act of the Parliament of Northern Ireland."
The facts found by the FTT: LIFE
Facts found by the FTT: TLC
Issue 1: Is LIFE a "state-regulated private welfare institution or agency" within Item 9?
"Where a local authority is satisfied on the basis of a needs or carer's assessment that an adult has needs for care and support or that a carer has needs for support, it must determine whether any of the needs meet the eligibility criteria."
Where it has made a determination under section 13(1), a local authority is required to meet the adult's needs for care and support, where certain further conditions are met: see, in particular, section 18(1) and (4). Again, counsel for LIFE did not submit that either section 13 or section 18 provided for the approval or registration of providers of welfare services by local authorities.
"The following are examples of the ways in which a local authority may meet needs under sections 18 to 20—
(a) by arranging for a person other than it to provide a service;
(b) by itself providing a service;
(c) by making direct payments."
Issue 2: Does Item 9 contravene the principle of fiscal neutrality?
The principle of fiscal neutrality
"32. According to settled case-law, 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 (see, inter alia, Case C-481/98 Commission v France [2001] ECR I-3369, paragraph 22; Case C-498/03 Kingscrest Associates and Montecello [2005] ECR I-4427, paragraphs 41 and 54; Case C-309/06 Marks & Spencer [2008] ECR I-2283, paragraph 47, and Case C-41/09 Commission v Netherlands [2011] ECR I-0000, paragraph 66).
33. According to that description of the principle the similar nature of two supplies of services entails the consequence that they are in competition with each other.
34. Accordingly, 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 same needs of the consumer (see, to that effect, Case C-109/02 Commission v Germany [2003] ECR I-12691, paragraphs 22 and 23, and Joined Cases C-453/02 and C-462/02 Linneweber and Akritidis [2005] ECR I-1131, paragraphs 19 to 21, 24, 25 and 28).
…
42. In order to determine whether two supplies of services are similar …, account must be taken of the point of view of a typical consumer (see, by analogy, Case C-349/96 CPP [1999] ECR I-973, paragraph 29), avoiding artificial distinctions based on insignificant differences (see, to that effect, Commission v Germany, paragraphs 22 and 23).
43. 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 (see, to that effect, Case C-481/98 Commission v France, paragraph 27, and, by analogy, Joined Cases C-367/93 to C-377/93 Roders and Others [1995] ECR I-2229, paragraph 27, and Case C-302/00 Commission v France [2002] ECR I-2055, paragraph 23).
44. In accordance with settled case-law, as regards the levying of VAT, the principle of fiscal neutrality precludes any general distinction between lawful and unlawful transactions (see, inter alia, Case 269/86 Mol [1988] ECR 3627, paragraph 18; Case C-158/98 Coffeeshop 'Siberië' [1999] ECR I-3971, paragraphs 14 and 21, and Joined Cases C-439/04 and C-440/04 Kittel and Recolta Recycling [2006] ECR I-6161, paragraph 50).
…
50. … in certain exceptional cases, the Court 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 (Case C-481/98 Commission v France, paragraph 27, and Case C-357/07 TNT Post UK [2009] ECR I-3025, paragraphs 38, 39 and 45)."
Case law of the Court of Justice concerning Article 13A(1)(g)
LIFE's first submission
"Applying [the reasoning of Arden LJ in Finance and Business Training at [53]-[56]] to the present case, the conferring of the exemption on a regulated body is plainly a rational choice open to the United Kingdom. It is sufficiently certain, and paragraph 57 of Kingscrest demonstrates the acceptability and rationality of regulation as a criterion. There is no way in which LIFE can equate itself with entities which are subject to the sort of regulation regime which is applied to regulated bodies. Those bodies are obliged to conform to certain standards. For LIFE that is optional, even if it chooses for the time being to do so."
"40. In order to determine whether medical care is similar, it is appropriate to take into account, concerning the exemption laid down in Article 13A(1)(c) of the Sixth Directive and having regard to the objective pursued by that provision, the professional qualifications of the care providers. In fact, where it is not identical, medical care can be regarded as similar only to the extent that it is of equivalent quality from the point of view of recipients.
41. It follows that the exclusion of a profession or specific medical-care activity from the definition of the paramedical professions adopted by the national legislation for the purpose of the exemption from VAT laid down in Article 13A(1)(c) of the Sixth Directive is contrary to the principle of fiscal neutrality only if it can be shown that the persons exercising that profession or carrying out that activity have, for the provision of such medical care, professional qualifications which are such as to ensure a level of quality of care equivalent to that provided by persons benefiting, pursuant to that same national legislation, from an exemption."
"In so far as investments, whether composed of transferable securities or immovable property, are subject to comparable specific State supervision, there is direct competition between those forms of investment. In both cases, what matters for the investor is the interest he derives from those investments. According to settled case-law, the principle of fiscal neutrality precludes treating similar supplies of services, which are thus in competition with each other, differently for VAT purposes …"
"We accept that in the case of welfare services, which are necessarily personal, services provided by regulated providers are of their nature different from services provided by unregulated providers, because the system of regulation provides a system of protections and guarantees which is absent in the case of unregulated services. We therefore consider that the UT in the first appeal in the LIFE case was right to say that providers such as LIFE (and TLC) cannot be equated with regulated providers. This is so even though (i) they may in fact be providing similar services to those that would be provided in Scotland and Northern Ireland by regulated bodies; and (ii) they in fact provide services to the same standard of care as would be required if they were regulated. They are not subject to the same level of state supervision. Nor is it an answer to say that the local authorities (Havering and Gloucestershire) with whom they respectively deal inspect and monitor the quality of service. This is no more than one would expect a responsible local authority to do, but this cannot be regarded as the equivalent of a statutory system of regulation."
Point (i) relates to LIFE's third submission which is considered below.
"So far as being a charity is concerned, that too, in our view, is a rational criterion as contemplated by the CJEU in Kingscrest. Charities are, in their own way, regulated by the state and therefore controlled (though not in the same way as a regulated body). It also operates, as a charity, for the public benefit, in a way analogous to public law bodies. This is not to use the absence of profit as a criterion. It is to acknowledge the public benefit functions of a charity. Again, LIFE cannot say that it falls within the same class as a charity. It is not subject to the same constraints and regulation as a charity, and does not operate for the public benefit."
LIFE's second submission
"… That assumption does not mean that all charities would have the benefit of the exemption, contrary to the assumption apparently made by the FTT. Not all charities can properly make the supply of welfare services within the meaning of Item 9. It is only charities whose objects include such activities that could properly supply such things. A charity with such an object would, in our view, be 'devoted to social well-being' and therefore capable of being recognised pursuant to Article 132(1)(g). Those without such an object would not. So the constitutional ability to make the exempt supplies becomes the factor which divides charities which can have the benefit of the exemption from those which cannot. It is not the case that the reference to charities in Item 9 automatically includes all charities, irrespective of their objects."
"… any body which is recognised under UK domestic law as a charity must be regarded as being a body 'devoted to social well-being' for the purposes of Article 132(1) (g) because any such body must operate to benefit the public, in the sense and manner referred to at [36] above and will therefore work to enhance, in some regard, the well-being of society. On this analysis the FTT erred in finding that some charities were not 'redolent of social welfare'. They all are."
"… if we are wrong in our choice of the true construction [of Item 9(a)], and if that would mean that our analysis on fiscal neutrality would therefore fail, then we would have held that the exemption should be construed so as to conform [with Article 132(1)(g)] by saying it applies to charities whose objects include devotion to social well-being. Contrary to the submissions of [counsel for LIFE], that does not go against the grain of the legislation because it is clear that Parliament intended to exempt welfare services provided by charities, and accordingly it would not involve this Tribunal in making policy decisions."
"(c) the advancement of religion;
…
(f) the advancement of the arts, culture, heritage or science;
(g) the advancement of amateur sport;
…
(k) the advancement of animal welfare;
(l) the promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services."
LIFE's third submission and TLC's contention
"It is accepted that the UK had a discretion. It is accepted, or has already been found, that the way in which it exercised that discretion in 2002 was rational and lawful. We see no basis on which it could be said that as introduced in 2002 it breached the principle of fiscal neutrality as it applied uniformly across the UK to all private suppliers of welfare services. To the extent that there is now a difference between such suppliers in England and Wales on the one hand, and Scotland and Northern Ireland on the other hand, this is not caused by any lack of neutrality in the VAT legislation, but by the fact that the UK has devolved regulation of this sector to the devolved nations and they have made different decisions in that respect, as they are entitled to do."
Conclusion
Newey LJ:
Floyd LJ: