The FTT has decided that only a proportion of services provided by the US-based Church of Scientology to its UK churches constituted exempt educational services for the purposes of Schedule 9, Group 6, VATA. The remainder being standard-rated ecclesiastical management services11.


The Church of Scientology International (CSI), a Californian charity, is classified in the US as a religious or charitable organisation and therefore exempt from US federal income tax. CSI provides a range of services to the appellant who is registered in the UK for VAT purposes. As part of an ongoing process to ensure strict uniformity with the teachings of Scientology’s founder, L Ron Hubbard, these services range from the provision of educational course and examination materials to overall quality control and financial and legal support.

Since 1 January 2010, those services have been treated as having their place of supply in the UK. If, as HMRC contended, the supplies were taxable, the appellant would be required to account for VAT under the reverse charge provisions. Since the appellant is partially exempt, the effect would be that a significant proportion of the VAT would not be capable of recovery by the appellant. If the supplies were found to be exempt, there would be no reverse charge to apply.

FTT’s decision

The FTT undertook a detailed review of the precise nature and content of the services being supplied, taking as its lead the principles established in CPP and Levob Verzekeringen12. The question before the FTT was whether the transaction comprised a single supply from an economic point of view, or a number of distinct and independent supplies. The enquiry is objective, with the reference point being a typical consumer and the emphasis being on establishing the economic reality of a transaction, or series of transactions.

On a straightforward reading of the contractual position, HMRC argued that the supply was one of ecclesiastical services. That position was rejected, however, since the services supplied by the appellant covered a range of activities from educational material to financial and legal support.

The appellant argued that it was an educational establishment and the only establishment which provided orthodox Scientology services to the public. Since the only services considered orthodox were those supplied to it by CSI, it must necessarily be the case that the supplies made were predominantly educational with all other aspects of the services being ancillary.

This argument was likewise rejected, the FTT said this approach:

“confuses [the] purpose of the customer with [the] purpose of the contract, and is not decisive of the economic reality”.

The FTT concluded that the supplies were multiple supplies and adjourned the case for the parties to agree a suitable apportionment.


Establishing the precise nature of services under a contract can be difficult in circumstances where elements of those services may fall under certain exemptions. Naturally, such questions tend to have an impact upon charity, religious and educational institutions as well as those providing financial products. This decision represents a further, measured, restatement of the law following CPP and acts as additional warning to practitioners to consider the economic reality of contracts for services, rather than simply relying on their stated purpose when ascertaining the correct VAT position.

To read the decision click here.