HM Revenue and Customs Brief 27/08
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Issued 19 May 2008
Interpretation of Article 13 of the Principal VAT Directive – “bodies
governed by public law” and “special legal regime”
HM Revenue and Customs has reconsidered its interpretation of the terms
“bodies governed by public law” and “special legal regime” in the context of
article 13(1) of the Principal VAT Directive (Directive 2006/112/EC) (“article
13(1)”) as well as the application of this provision.
Our current interpretation is based on the decisions in the Court of
Session’s judgment in Edinburgh Telford College (ETC)  CSIH 13
XA18/05;XA22/05, the High Court’s judgment in Riverside Housing Association
(Riverside)  EWHC 2383 (CH) and the decision of the VAT and Duties
Tribunal in The Chancellors, Masters and Scholars of the University of Cambridge
(Cambridge University) LON/05/0958.
This Revenue & Customs Brief explains HMRCs’ current thinking on the matter.
While the Brief is of immediate interest to further and higher education
providers, it may be relevant to other bodies as well.
1. Legal position
Under article 13(1), “states, regional and local government authorities and
other bodies governed by public law” are not regarded as taxable persons when
they engage in activities as “public authorities”. Case law has confirmed that
such public bodies engage as public authorities when they undertake their duties
under a legal regime which applies to them and not to other bodies (a “special
legal regime”). This is subject to certain mandatory exclusions and competition
This provision therefore only applies to the types of body specified, and
only in the circumstances when they engage as public authorities. In any other
circumstance the normal VAT rules apply.
ETC is a further education college providing further education as defined in
the Further and Higher Education (Scotland) Act 1992 (amended by the F&HE
(Scotland) Act 2005) and is funded by the Scottish Education Funding Council.
ETC argued that, when it provided further education courses for which it
charged fees, it did so as a “public authority” within the meaning of article
13(1) so that it should not be treated as a taxable person in respect of that
activity - taking the provision of such education outside the scope of VAT.
There was no dispute over courses which are wholly funded through grants paid by
the Scottish Further Education Funding Council which are outside the scope of
VAT as the grant funding is not consideration for any supply either to the
funding provider or to the students.
The Court of Session agreed with ETC, finding that the College’s activities
were undertaken under the umbrella of a special legal regime deriving from the
Further & Higher Education (Scotland) Act 1992, the Scottish Further Education
Funding Council (Establishment)(Scotland) Order 1998 and implemented in the
funding agreement between the Scottish Further Education Funding Council and the
College. The essence of the dispute was whether (as ETC argued) it is necessary
to make judgements based on the wider legal regime governing the management and
conduct of an activity, or (as HMRC argued) to focus solely upon the legal
regime governing the delivery of a particular service. Although cases must be
examined in the light of their own facts and on their own merits, HMRC accept
that it is necessary to consider the wider legal regime.
The question of whether or not ETC was a body governed by public law was not
considered by either the VAT and Duties Tribunal or the Court of Session because
HMRC had accepted that the College was such a body. However, the High Court
decision in Riverside has led HMRC to reconsider its interpretation of what is
meant by a “body governed by public law” for the purposes of article 13(1) and
to revise its policy in this area as set out below. This policy change will be
reflected in changes to the current guidance on the meaning of a “body governed
by public law” which is currently to be found at paragraph 3.7 of V1-14.
Riverside is a large social housing provider registered with the Housing
Corporation as a ‘Registered Social Landlord’ (RSL). So far as is relevant
hereto, Riverside argued that its activities were non-business on the basis that
it was a body governed by public law for the purposes of article 13(1) and that
the Housing Corporation rules, to which RSLs must adhere, amounted to a special
legal regime. That contention was rejected by the Tribunal and the High Court.
Even though Riverside was subsidised by Government funds and required by
statute to adhere to certain rules applying to RSLs, its supplies of social
housing were nevertheless held to be made in the course of business.
In referring to article 13(1), the Tribunal stated that “The provision
clearly contemplates government organisations which are institutions of a
democratic state and the European jurisprudence on the topic shows that the
concept of a public body is to be narrowly construed……..It is in my view clear
from the legislation itself, interpreted in accordance with the jurisprudence of
the Court of Justice, that the "other bodies" contemplated by the article are
those of a kind similar to government bodies, carrying out quasi-governmental
functions, of which examples might be the Financial Services Authority and the
Housing Corporation itself, with organisations such as the Institute of
Chartered Accountants when undertaking its regulatory role. Riverside, by
contrast, does not have a regulatory or similar role; it is itself the subject
of regulation. It is a private sector organisation which happens to undertake
functions on behalf of the state, but that does not make it a public body”.
Body governed by public law
In the light of the decision in Riverside, HMRC has concluded that the term
“body governed by public law” in article 13(1) is narrow in application. HMRC
consider that a body will only satisfy this criterion if it is a public sector
body which forms a part of the UK’s public administration, such as a government
department, a local authority or a non-departmental public body. Article 13(1)
is not intended to enable other bodies to claim special treatment merely because
they have delegated powers, are regulated in some way by the State, are funded
by public money or are subject to certain specific rules in the pursuit of their
This view has recently been endorsed by the VAT and Duties Tribunal in the
Cambridge University case.
Accordingly HMRC no longer accept that the generality of FE and HE providers
are bodies governed by public law as defined in article 13(1).
A number of FE and HE bodies have sought to rely on article 13(1) to support an
argument for entitlement to zero-rating under Group 5 of Schedule 8 and/or
reduced rating under Schedule 7A to the VAT Act. FE and HE bodies should be
aware that HMRC does not agree that such bodies can assume that they fall within
this provision: rather it is necessary to examine the facts of each case
Further, HMRC is of the view that, even were a body to come within article
13(1) in respect of a particular activity, that would serve only to take
supplies in respect of that activity outside the scope of VAT and would not
affect the liability of supplies made to that body.
For further help and advice please contact HM Revenue and Customs’ National
Advice Service on 0845 010 9000.
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© Crown Copyright 2008.
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Article Published/Sorted/Amended on Scopulus 2008-05-28 23:24:10 in Tax Articles