A recent decision handed down by the Supreme Court in the case of SAE Education Ltd -v- HM Revenue & Customs  UKSC 14 will be welcomed by commercial providers of university education, universities and students alike.
The decision centered around the question of whether or not a commercial provider of university education, which does not itself possess degree awarding powers but which collaborates with UK universities, can be considered a "college of a university" for the purposes of the VAT education exemption (the "Exemption"). This is an area which has been subject to numerous, and conflicting, decisions over recent years, often not in favour of the commercial provider. Importantly for commercial providers, the decision overturned the previous decision of the Court of Appeal.
In looking at the same question, the Court of Appeal had adopted a "hard-edged" approach when determining whether commercial providers of university education could be considered a "college of a university" for the purposes of the Exemption. The Court of Appeal determined that, in order to be considered a "college of a university", an entity must be a part of the university in a constitutional or structural sense, similar to the status of the various colleges of Oxford and Cambridge. If the Supreme court had agreed with this restricted interpretation of college of a university, this would effectively have denied the benefit of the Exemption to most commercial providers, working in collaboration with universities, forcing many to reconsider their pricing structure and relationship with the university.
In considering the scope to which it should apply to commercial providers, the Supreme Court took a purposive approach in interpreting application of the Exemption. In view of the Supreme Court, the purpose of the Exemption is to ensure that VAT does not increase the cost of, and therefore restrict access of students to, higher education services, whether or not delivered by commercial providers. Albeit the Supreme Court recognised that, in the context of a commercial provider, there must be an alignment of the objects of, and a sufficient degree of integration between, the commercial provider and the university in order for the commercial provider to be considered a "college of" that university.
Crucially, the Supreme Court made clear that, contrary to the decision of the Court of Appeal, there need not be any actual constitutional or structural connection between the commercial provider and the university. The decision instead sets out that, when considering whether a commercial provider will be a "college of a university" for the purposes of the Exemption:
- The commercial provider must as a matter of fact provide education, but the fact it is run for a profit should not preclude it qualifying as such
- The commercial provider must share the same objects as the university with which it is aligned, being the provision of university level education
- There must be shown to be a sufficient degree of integration between the commercial provider and the university
- All the characteristics of the educational services delivered by the commercial provider, and the context in which they are delivered, will be key
In assessing whether there is a sufficient degree of integration between the commercial provider and the university, and whether they indeed share the same objects, the following tests were determined to be "highly relevant":
- Whether there is a common understanding between the commercial provider and the university that the commercial provider is to be considered a college of the university
- Whether the commercial provider can enrol its students as students of the university
- Whether the students of the commercial provider are generally treated as students of the university during their time of study
- Whether the commercial provider's courses are approved by the university
- Whether the commercial provider can present its students for examination for a degree from the university
Helpfully, the judgement also recognised the following factors will now be of much less significance in determining whether a commercial provider is a "college of a university" for the purposes of the Exemption:
- Whether the commercial provider and university are financially interdependent
- Whether the commercial provider generates distributable profits
- Whether the commercial provider is entitled to public funding
- Whether there are permanent links between the commercial provider and university
- Whether the commercial provider has an obligation to offer a minimum number of places to students
Commercial providers of university education should take the opportunity to consider the impact of the decision on the VAT they charge on their fees to students, especially in circumstances where they have been subject to any previous assessment by HMRC on these matters.
Full text of the judgement can be found here.