19806

ZERO-RATING – Books etc – Supplies of distance learning courses – Substantial written material provided together with tutorial support – Single supplies – Whether supplies of education or of printed material with VATA 1994 Sch 8, Grp 3, item 1 0 Held not zero-rated – Appeal dismissed

LONDON TRIBUNAL CENTRE

	RUSLAND EDUCATION & TRAINING LTD 	           Appellant
T/A RUSLAND COLLEGE

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

				Tribunal:	THEODORE WALLACE (Chairman)
						SHEILA WONG CHONG FRICS

Sitting in public in London on 18 and 19 September 2006

Simon Anslow, of Tenon tax, for the Appellant 

Sarabjit Singh, counsel, instructed by the Acting Solicitor, for the Respondents

© CROWN COPYRIGHT 2006

DECISION

1.	This appeal concerns the liability to VAT of supplies by the Appellant, which traded as Rusland College, of distance learning courses in the field of health and welfare to students who paid a single fee for substantial written material and support from tutors by post, e-mail and telephone.

2.	The Appellant was not an eligible body within Note 1 of Schedule 9, Group 6 to the VAT Act 1994 so that supplies by it of education were not exempt.

3.	Customs ruled that it made composite supplies of education which were standard-rated and made assessments for the periods 03/02 to 09/04 which have since been reduced to £28,725.

4.	The Appellant contends that it made single supplies of printed matter which were zero-rated under items 1 and 6 of Schedule8, Group 3 which provides:

“1.	Books, booklets, brochures, pamphlets and leaflets.
…
6.	Covers, cases and other articles supplied with items 1 to 5 and not otherwise accounted for…”

5.	The supplies are expressed to be in the past not only because the assessments were for past periods but also because the Appellant company is no longer trading, the business being carried on by Rusland College Ltd from December 2005.

6.	The only witness was Richard Achilles, a director of the Appellant company.

7.	There was a substantial bundle of documents including course material.

8.	We find the following facts.

9.	The Appellant offered four Nutrition related courses, twelve Psychology related courses and four introduction courses. The Nutrition Courses were in human nutrition, nutritional medicine, sports nutrition and child nutrition. Psychology related courses were in psychology, child development and psychology, mental health care, psychiatric studies, careers counselling, couples counselling, play therapy, counselling, stress management, sport psychology, criminology and counselling psychology and psychotherapy. The introduction courses were in nutrition, counselling, psychology, aromatherapy and stress management.

10.	A prospectus showed fees for various courses varying from £385 for nutritional medicine and counselling psychology and psychotherapy to £195 for careers counselling and £85 for the introductory courses.  The fee for twelve of the courses was £275 or £295 if paid by instalments.

11.	The turnover declared in the Appellant’s accounts for 2003 was £265,031.  Turnover in 2005 was down to £121,850.  In 2002 when turnover was over 10 per cent higher, 1345 students enrolled of which 660 submitted study assignments and 156 completed the necessary assignments to receive diplomas.  About 20 per cent of students were overseas.  The average duration of courses was 9-12 months.

12.	The Appellant’s prospectus of 26 pages around 2004 started with the statement in capitals : “RUSLAND COLLEGE … PROVIDING QUALITY EDUCATION FOR YOU.”  It stated that the college was accredited by the Open and Distance Learning Quality Council awarded after a rigorous independent assessment of the educational service offered.  The college was a member of the Association of British Correspondence Colleges, associated with the Complementary Medical Association and registered with the Department of Education and Skills.

13.	The following appeared on page 3, Tuition.

“Tuition is entirely by distance learning.  Each course is completely self-contained and includes:

A course textbook(s) and a reading list suggesting books which you may also find useful.  These can be purchased from the college.

Student handbook giving practical advice on study method and timetabling, together with a study log by which you can maintain a record of study time.

Study aid or workbook with stage-by-stage questions to ensure systematic study and accurate understanding.  The notes you make in your study aid are likely to help with assignment completion and provide a valuable source of reference.

Personal tutor support by post, e-mail and telephone. Your tutor is there to help you to achieve your study aims, to offer advice and constructive criticism as seems appropriate and to bridge the gap that is an inevitable part of distance learning.

Assignments for submission.  Whilst assignments vary from course to course, they generally contain a mixture of multiple-choice questions, case studies for analysis and comment and one or more essays.  These will be marked by your tutor and returned, giving you guidance on your progress.”

14.	The prospectus stated that anyone could study with Rusland College and that there was no fixed timescale to complete a course and that “you should feel free to spend as much time on your studies as you require.”

15.	It was stated that the College Diploma was awarded subject to the completion of the course to an acceptable standard.

16.	The prospectus then gave details of the courses and introduction courses offered, including a course for an Advance diploma in counselling psychology and psychotherapy.  The material for child development and psychology was produced to the Tribunal as an example.  The prospectus stated,

“This course is designed to provide those who work with young children, whether as parents, teachers or playgroup/nursing staff, with a solid foundation of knowledge which should be of practical benefit.”

21 topics were listed as covered by the course.  The prospectus then stated that there were six tutor-marked assignments, each containing 30 multiple-choice questions and two essay or case-study questions apart from the final one which had 30 questions and a five essay question.

17.	The current website for child development and psychology stated that the course would provide a good understanding of the factors that can influence a child’s social, emotional and intellectual development, introducing some of the best-known theories of child development and the methods devised by psychologists to evolve and test these theories.  The website states that the assignment at the end of each module will test “your understanding of your reading” and give an opportunity to comment on the issues raised.  It states, “Yours personal tutor will provide you with individual assistance should you require it.”  The website states the fees and contains an enrolment form with payment of a lump sum or a deposit with four monthly instalments.

18.	On enrolling students were given a student roll number and a study pack.  A study pack for 2006 for child development and psychology was produced as an example on the basis that there had been no substantial change in the paperwork.  This consisted of a textbook, study aid, study handbook, assignment one and course details.  The covering letter also stated that the College has a “chat room” on the website.

19.	The textbook is “Child Development – A first course” first published by Blackwell Publishing in 1982 and reprinted 19 times.  The authors are Kathy Sylva, a professor at London University Institute of Education, and Ingrid Lunt, a lecturer at the institute.  It is a serious academic work of 261 pages.

20.	Students are advised to read the handbook of 20 pages first.  Unfortunately the exhibit only contained even number pages.  It stated that essays and case studies would be marked “and commented on by your tutor” with grades.  An average grade of at least B – was required for a diploma.  The handbook gave advice on studying, answering questions and writing essays.

21.	The study aid consisted of 84 pages and was in a plastic binder as was the handbook.  It contained a series of questions on each chapter.  An example is question 3 in Chapter 1, “What ensures that the sequence of development of all human babies will be much the same?”  The study aid contained spaces for answers after each question and was designed to be kept by the student although the “course details” said that students could send it or any part of it for checking.

22.	Assignment One was on nine pages stapled together, containing 30 questions and setting two essays on Chapters 1 to 3 of the text book.  Some questions were quite complex, thus question 29 was:

“Bowlby argued that early separation of a child from his/her mother would cause irreparable harm.  On what grounds did Clarke and Clarke refute this argument?

(a)	They pointed to studies showing that imprinting in animals can be reversed.”

(b) and (c) were further possible answers and (d) was “all of the above.”  The student was instructed to tick the one most appropriate answer.  The second essay was:

“Describe Michael Rutter’s survey of boys aged between 9 and 12.  How do his findings differ from those of John Bowlby?”

23.	The course details are on four pages stapled together and repeat some of the material in the student handbook.  It tells students how to use the study aid and gives hints on essay writing.  It lists recommended websites for psychology students.

24.	The pack also contained a reading list of books on Child Development available from bookshops.

25.	The prospectus included extracts from unsolicited letters from students.  One included the following:

“I speak very highly of the method of studying and course syllabus used by Rusland College which I completed under the excellent expertise of my tutor.”

Another expressed thanks for help and advice and confidence building comments.

26.	The 2006 website contained eight unsolicited testimonials, all but one of which referred to the support received, for example “help, guidance and support throughout the course”, “My tutor’s comments were very useful and helpful” and “I found her comments so constructive.”

The evidence of Mr Achilles

27.	The only witness was Richard Achilles, a director of the Appellant company and of Rusland College Ltd.  His evidence took up most of the first day.

28.	He said that he had joined the College in 1997. The basic courses and operation of the business were substantially the same throughout. During the period covered by the assessment the college was operating from a small office but following a downturn in 2003 moved to the attic in the house of Mr Carpenter, another director, with only Mr Achilles and a part-time administrative assistant.

29.	He said that the tutors were paid £6.75 for each assignment marked. In addition they were paid a flat fee for writing the courses. The diplomas were not recognised by any other body and only certified that a student had successfully completed the prescribed course: this was by completing the assignments.  If a student did not submit any written work no diploma was given. Since he had been at the college, no student who submitted his or her assignments had been failed. The introduction courses were marked in-house and not by tutors. Multiple choice questions were marked on a mechanistic basis. Very little qualitative assessment was needed for essays; it was enough if three or four points were covered and 30 per cent were marked in-house.  He said that at one time there were four self-employed tutors, including a nutrition teacher at a high school, a retired counsellor and a former college lecturer.

30.	Mr Achilles said that there was a wide cross-section of students, many being from the caring professions including nursing staff. Once a student had enrolled, the course materials were printed off the computer and put in a plastic covering. Having enrolled it was down to the student to return the assignments to the Appellant for marking. After marking these were returned with another assignment paper. There might be comments.  Students could telephone the tutor for advice, although this did not happen often.  One-third of students did not contact the Appellant again after receiving the initial material.  He said that academic contact between tutors and students was minimal.

31.	He produced a record or survey of contacts between students and one tutor for two weeks from 23 October 2003.  She recorded 16 telephone calls and 16 e-mails.  He said that there were about 500 new students a year and that at any time there might be 1200 active students.

32.	He said that in its website and prospectus the Appellant tried to give the impression that it was offering a great deal. The testimonials were used as a marketing tool.

33.	Cross-examined, he said that the statement “Providing Quality Education for you” (see paragraph 12 above) was marketing : it was a bending of the truth, making the Appellant look better than it was. The Appellant was offering a good quality product but not an educational service.

34.	He accepted that students did get an offer of tutorial support but said that in reality a very small number took it up.  He agreed that the promise of availability was an essential feature and that the Appellant was obliged to meet any demand.

35.	Questioned on the survey (paragraph 31 above) he agreed that general advice on essay-writing, essay help and essays tips were academic questions. He accepted that questions as to presentation, English, spelling and grammar were education.  He agreed that seven of the telephone queries were academic.  He agreed that six of the e-mail queries were academic.  He said that a tiny amount of education was imparted by tutors in response to queries.  Tutors would have told him if they were spending a lot of time on a student: they were only paid for the assignments.  He agreed that in 2002 660 people started to submit assignments and thus benefited from tutorial support in the sense of being marked.  Tutors would have marked the answers to questions and essays and pointed out errors in case studies.

36.	Asked about the testimonials, he agreed that some students did use the support and found it useful. He said that the Appellant used the best feedback for testimonials.  Some students got a lot more help than others.  He said that there had been no complaints from students as to lack of feedback although on occasions students complained abut tutors’ availability.  He agreed that tutorial support was a part of what was supplied but said that it was not essential.

37.	He said that the cost to the Appellant of the tuition element was around £55, six assignments at £6.75; we note that in fact that comes to £40.50.  He estimated the cost of the printed element for a course at some £30.  A considerable part of the price was in administrative costs, overheads, profit and tax.

38.	When Mr Singh put it to him that students would perceive the supply to them as education, he said “I guess that is how they would see it.  They are certainly gaining something out of it.”

Submissions

39.	Mr Anslow submitted that students obtained printed material in distance learning packs which were capable of standing alone.  No formal qualification was awarded.  Students enrolled to get self-contained material which they could read to educate themselves.  The tutors were a component but not the end or key.  The cost component represented by tutors was only around 16 per cent.  In College of Estate Management v Revenue and Customs Commissioners [2005] 1 WLR 3351, an essential finding was that students took the courses to get the qualification; further there was face-to-face tuition and examinations. Here there was no face-to-face contact and the diploma was not the primary benefit.  He relied on the decision of the Scottish Tribunal in International Correspondence Schools v Customs and Excise Commissioners (2002) Decision No.17662 where there was minimal tutor contact.  He submitted that the Tribunal should look behind the way in which the Appellant presented itself. In answer to a question from the Tribunal, he said that the assignments which were stapled together were leaflets or booklets. The supply was essentially of printed material within item 1 and stopped short of being a supply of education.

40.	Mr Singh, for Customs, said that there was more than one element in the supply with both printed material and education but those were properly regarded as elements of a single supply there being a single consideration, see Lord Rodger in College of Estate Management at [10].  It is necessary to examine the essential features of the transactions.  He distinguished International Correspondence Schools on the grounds that there was no evidence that the schools held themselves out as providing education. In the present case there was no doubt that students regarded themselves as purchasing education : Mr Achilles had accepted that that was their perception.  The fact that the take-up of tutoring may not have been high did not affect the fact that the transactions covered the entitlement to tutoring.  He submitted that students took the courses to obtain the diplomas offered but said that a qualification was in no way essential to a supply of education.  Again there was no need for face-to-face tuition for a supply of education.  He submitted that here the printed materials were not an end in themselves.  The Appellant was not merely a publisher of course materials.  The cost component of the printed material was roughly half that of tutorial support.

Conclusions

41.	Both parties agreed that the supplies in the present case were single supplies.  The issue therefore is whether the Appellant has established that those supplies qualified for zero-rating under item 1 of Group 3 as “Books, booklets, brochures, pamphlets and leaflets.”

42.	It was not suggested that all the printed material must fall within the same description. We have some reservations as to whether, for example, the stapled questionnaires were booklets or leaflets and they certainly were not books, brochures or pamphlets in the normal use of those words.  However the appeal was conducted on the footing that the generic description of printed matter covers item 1.

43.	In our judgment the characterisation of supplies whether for the purpose of determining whether an exemption applies or for determining whether there are single or separate supplies must be decided by considering what the consumer obtains for the consideration given.  It is necessary to have regard to the “essential features of the transaction” and to consider the reality from an economic viewpoint, see per Lord Slynn in Card Protection Plan Ltd v Customs and Excise Commissioners (No.2) [2001] STC 174 at [21].

44.	In analysing the transactions what matters is not what the Appellant considered it was supplying, but the supply to which the customer was entitled under the agreements.  In so far as the aim or purpose of the parties may differ what matters is the aim of the customer, see paragraph 30 of the judgment of the Court of Justice in Card Protection Plan.  In Customs and Excise Commissioners v BT plc [1999] STC 758, the House of Lords focussed on the fact that BT wanted a delivered car.

45.	We have no hesitation in finding as a fact that the admission by Mr Achilles that students would perceive the supplies to them as education was correct. We note that throughout his evidence he referred to the Appellant’s customers as students.

46.	While we accept the purely factual part of his evidence as correct, much of it strayed into advocacy. We do not accept his evidence that academic contact between tutors and students was minimal. It is quite clear from the testimonials that students could obtain substantial help if they sought it. Mr Achilles accepted that there was no complaint as to the lack of feedback and that if there had been more demand for tutorial support the Appellant would have had to provide it.  Having sold the courses on the representation that the assignments would be marked and personal tutor support was available, the Appellant was clearly contractually obliged to provide it.

47.	The time of supply for tax purposes was at the latest when the consideration was received.  On paying for the course students were entitled to the tuition specified at paragraph 13 above.  The fact that a substantial proportion of students having paid for courses did not submit any assignments cannot in our judgment affect the characterisation of the supplies to which they were entitled.

48.	We do not accept that the printed material constituted an aim in itself for the Appellant’s customers.  It was the primary means by which they obtained the education which they sought.  Nor do we accept that the tutorial services were no more than a means of better enjoying the printed material.

49.	The Appellant has not established that the supplies fell within Group 3, item 1. The appeal is dismissed.

THEODORE WALLACE
CHAIRMAN

RELEASED: 13 October 2006

LON/03/1016