The First Tier Tribunal has dismissed a VAT appeal by Premier Family Martial Arts LLP on the basis that kickboxing is not private tuition, and therefore not an exempt activity under the Value Added Tax Act 1994 (VATA 1994) and the company was liable for a VAT bill of £411,497.
The Company’s dispute with HMRC
The dispute between the Company and HMRC commenced on 7 April 2017 when HMRC began a VAT enquiry into the Company. On 11 August 2017 HMRC determined that the supplies of kickboxing classes were not exempt from VAT and were standard rated (20%) and as a result issued a VAT assessment to the Company in the sum of £411,497 for output tax for the Company’s supplies of kickboxing classes from 1 August 2011 onwards.
The Company requested a review of the decision from HMRC which was upheld on 19 October 2017.
The parties subsequently entered into settlement discussions with HMRC and this resulted in the original VAT assessment being cancelled and the date of registration for VAT purposes was amended to 1 April 2018. This meant that the appellant was liable to register for VAT with effect from 1 April 2018, and the classes would be standard-rated for VAT purposes. As the supplies for the classes were not exempt they would be taxed at the standard rate of 20% VAT.
The Company’s Appeal to the Tribunal
The Company brought an appeal under Sections 83(1)(a) and 83(1)(b) of the VAT Act 1994. The Company argued that they were VAT exempt under Article 132(1)(j) of Council Directive 2006/112/EC which states: “member states shall exempt the transactions such as ‘tuition given privately by teachers and covering school or university education”.
The legislation
The main porivsions of the Council Directive 2006/112/EC have been transposed into the Value Added Tax Act 1994.
Section 31 of the Value Added Tax Act 1994 (VATA 1994) states “a supply of goods or services is an exempt supply it is of a description for the time being specified in Schedule 9″.
Group 6 of Schedule 9 of the Value Added Tax Act 1994 states “the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer“.
At the Tribunal hearing, Judge Beare explained he would proceed solely by addressing the question of whether the supplies of kickboxing classes by the Appellant properly fell within the ambit of Article 132(1)(j) of the Directive.
The Tribunal focused on four key questions:
- To consider kickboxing or martial arts as a whole?
- Is kickboxing taught at a single school or taught commonly?
- Is kickboxing taught commonly at schools in the EU?
- Is kickboxing purely recreational?
Drawing on the case Haderer v Finanzamt Wilmersdorf, Judge Beare said: ‘it is clear from the CJEU (Court of Justice of the European Union) decisions that it is possible for the tuition of an activity in a school to involve “a transfer of knowledge and skills” from teacher to pupils and yet still fall outside the exemption in Article 132(1)(j) of the Directive because the activity in question is “purely recreational”.’ The Tribunal Judge observed that “kickboxing is not an activity which is commonly taught at schools or universities in the European Union”.
The Tribunal held that kickboxing was not a VAT exempt activity and dismissed the Company’s appeal.
Premier Family Martial Arts LLP v Commissioners for HMRC [2020] UKFTT 0001 (TC)
Comment
This case provides for an in-depth analysis of VAT exempt activities and matters to be determined under the Value Added Tax Act 1994.
Reports of this case also reflect the importance of Alternative Dispute Resolution and exploring the same, together with advice on the merits of litigation.
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