20657

Value Added Tax - art courses by home study - standard or zero-rating - supply of printed material - support from artists - single supply, principal and ancillary supplies and College of Estate Management case considered - appeal dismissed

MANCHESTER TRIBUNAL CENTRE

LONDON ART COLLEGE			     Appellant

     - and -

THE COMMISSIONERS FOR 
                               HER MAJESTY’S REVENUE AND CUSTOMS      Respondents

Tribunal: Elsie Gilliland (Chairman)
    Carole A. Roberts (Member)

Sitting in public in Manchester on 11 February 2008

Peter Alwin Fisher, Partner, for the Appellant

Jonathan Cannan, counsel, instructed by the Solicitor and General Counsel for HM Revenue and Customs for the Respondents

DECISION

1. The appeal before the tribunal was that of London Art College (the Appellant) against a decision of the Respondents set out in a letter dated 7 November 2006 that courses supplied by the Appellant constituted a single supply of education and thus were standard- rated for Vat purposes and were not merely a supply of zero-rated books. This decision was upheld on a reconsideration by them in a letter of 3 January 2007. At the hearing it was confirmed by the parties that they agreed that the Appellant was not an eligible body under Schedule 9 Group 6 Item 1 to the Value Added Tax Act 1994 (the Act) and accordingly that issue has not been considered in this decision. 

2. In presenting the Appellant’s case Peter Alwin Fisher read out his witness statement and answered questions from counsel for the Respondents under oath.  He described the Appellant as a small family-owned business, a partnership since 1998. Its speciality was the provision of a range of written courses to aspiring artists and illustrators to teach good technique by home study. The partners themselves are not artists but undertake the administration and general management of the business on a part-time basis. Most new business was generated from the Appellant’s website and had built up rapidly in the past 2/3 years. Over the last few years various artists had been commissioned to write new courses. The partners’ involvement was to ensure that the study units were well structured and presented to an approved house style. Turnover had increased but an exemption had been granted by Customs on 1 June 2004 and this was subsequently revoked. Mr. Fisher said that there had been no material changes in the business since the exemption had been granted. He explained that there were at the moment 22 written courses on various art-related subjects. Each course was divided into a series of progressive study units which were to lead the student further into the subject and afford an opportunity to put into practice the technique described.

3. We had before us as examples two separate folders with one of the best-selling courses in each. The volume called D1 was the Painting and Drawing Diploma course and B1 was the Introductory Learn to Draw course. We noted from the Price List 2007 supplied that the standard fee for D1 was £ 295 and for B1 £ 150. Mr Fisher told us that the essence of every course to get the best out of the learners was for “practice practice practice”. He insisted that art could not be taught by a tutor from a distance and that a course must have written material for effective study.

4. He went on to explain the arrangements for third party input in the courses through artists supplied by Art Tutors Associates (ATA) an entirely separate business though owned and run by his son-in -law. The purchasers of the courses could submit several examples of their best work at certain set stages in the course for the critique of an artist. This was for an opinion only as the artists were not tutors rather “mentors”. The students did not have to send in their work and if they did they were to themselves bear return postage costs. There were charts on uptake provided by the Appellant indicating from sample figures how many who bought the courses submitted how many pieces of artwork though as was later pointed out by counsel for the Respondents, there was an inaccuracy in the calculation. 

5. With regard to the comments from the artists these we were told were sent back usually on an audio tape of about 10 minutes in length. The artists were paid on a piece work basis, but not by the Appellant, which made a payment to ATA from which the owner took his income paying the balance to the artist. Mr. Fisher said that these costs amounted to only some 10% of the total costs of the Appellant. This calculation was also queried later by counsel for the Respondents. In addition the Appellant issued a diploma to students completing longer courses; and a certificate for those finishing shorter ones. Mr. Fisher stated that for a diploma or certificate students on those courses had to have sent in the right number of pieces of work. The course artists were asked to recommend which grade the student should receive. For the award of a Pass: the student had to send in what was required; for a Pass/Merit: the student had to make a genuine effort to complete the course; for a Pass/ Distinction: the artist had to think that the student had consistently sent in good work. It was acknowledged that most artists did mark the work as it came in, but this was not against any set standards. For some short courses and children’s courses about five in number no diploma or certificate was given.

6. Mr. Fisher was at pains to dismiss any attribution of academic value to the courses. The courses were, he submitted, for personal development and the responses of the artists rather than assessments of quality were an encouragement to the student to keep going. The diplomas and certificates, he argued, were merely for peer group recognition and the Appellant took steps with any enquirer to make it clear that these were not academically accepted awards and earned no credit points.

7. Counsel for the Respondents at the commencement of presentation of the case for the Respondents indicated that there was no dispute over the facts in the case but rather as to the inferences from those facts. The role of the tribunal as we see it is to ascertain what as a matter of law is the true nature of the supply by the Appellant for VAT purposes.  

8. The obligation of the Appellant to persons enrolling with the Appellant is set out in the Appellant’s Learning Agreement which provides that the Appellant “ will supply the learner with written study materials, critiques of work submitted and artistic support for either the duration of the course or up to two years which ever is the shortest”.  The agreement also provides that:“ Whilst London Art College will make every effort to ensure that you have the same course artist for the duration of the course we reserve the right to make a change if necessary”. It is also stated that the written course materials provided are “ complete within themselves and it is possible for the learner to complete the course in their own time without submissions to the College. However to qualify for “the college’s diploma/certificate associated with any course it will be necessary to submit all required assignments within two years of enrolment”. The Learning Agreement also states that: “ Critiques are intended as a way of giving students confirmation that they have understood the techniques described and help to understand how well they have put these techniques into practice. Critiques are usually prepared personally for the student by the course artist in response to the assignments submitted”. In general students may submit several pieces of work and the written courses indicate when it would be appropriate to submit a piece of work.  We note that for the Painting and Diploma course in the five units a total of 18 to 22 pieces of work may be submitted. There is however no obligation to submit any work and it is up to the student to decide when to submit any work.

9. Having considered the evidence of Mr. Fisher, we are satisfied and find that although a significant number of the purchasers of the Appellant’s courses do not submit any work to the course artists for a critique of their work, nevertheless it is clear from the Learning Agreement that the availability of the provision of critiques by practicing artists is a significant element in what has been agreed to be provided by the Appellant. Mr. Fisher had said that out of a sample of 100 persons purchasing the courses during the period from 27 June 2005 to 25 August 2005 31 submitted no work. However the total number of students in the sample (p77A) was 83 not 100 and this number (83) was the base figure used in the percentages chart on p 79. The total number of pieces of work shown as submitted was 115 not 105. However as listed by Mr. Fisher 23 students submitted one piece of work, 11 submitted two pieces of work, 7 submitted three pieces of work, 6 submitted four pieces of work and 5 submitted five pieces of work. Twelve diplomas or certificates were issued (14.5% of the 83 analysed). Mr. Cannan showed that the figures indicated that 63% had had an intention to and did submit work.

10.The submission of work is in the Learn to Draw course (B1) stated at p.36 to be “ for assessment” and to be designed to “test your progress and to develop your understanding”. It is stated “if you tackle [the exercises] with determination you will find it pays off”. The course also states that “your course artist prepares an audio tape giving you their personal advice and criticism. They will also tell you where you have succeeded and where you need to make improvements.” There are two examples in the bundle of actual critiques written by course artists (pp 86,87) and these do provide both advice and constructive criticism of the student work submitted.

11.The issue in this appeal is how what the Appellant provides to the purchasers of the courses is to be categorised. First is it to be regarded as 2 separate supplies, namely a supply of written materials or books and a supply of a critique; or secondly is it to be regarded essentially as the provision of books or booklets within Group 3 of Schedule 8 to the Act with an incidental or ancillary element of critique by the course artist if the purchaser chooses to submit work; or thirdly is what the Appellant provides properly to be categorised as a single supply of the provision of educational services.

12.Since the Appellant is not an eligible body within Group 6 of Schedule 9 to the Act the Appellant cannot claim that its supplies are exempt supplies. Mr. Cannan for Customs submitted that in the present case the Appellant was making a single supply of education by means of the provision of self-study courses. He submitted further that it was relevant to ask why objectively students are likely to want to purchase home study courses from the Appellant and the answer he gave was that that it was not simply because of the written or printed materials but because of the added value of the Appellant’s tutoring and support. The Appellant was supplying more than books. He pointed out that (1) each course had a dedicated course artist of whom many on Mr. Fisher’s evidence had teaching expertise as confirmed in the Appellant’s Art Course Brochure at p 107 of the Brochure; (2) the courses offer access to the course artists who offer support by post, email and by audio tape; (3) the courses provide for exercises and assignments to be undertaken with critiques provided by course artists; (4) most courses offer a diploma or certificate based on assignments submitted; (5) the costs of supplying course artists were a substantial proportion of overall costs (using direct costs he said some 43%) ; (6) the adult courses range in price from £150 for a beginner’s short course to £325 for a graphic design diploma course; (7) the Appellant describes itself as a college and as providing courses and refers to diplomas assignments and students.

13. Mr. Fisher on the other hand said that art could not be taught and emphasised the need for practice. He said that the students must have the material in front of them to study effectively. It was for the student to decide when or if to submit work for comment.  There was no timetable for the submission of work and the work was not marked or graded against a set of or indeed any academic criteria.  The diploma or certificate could be obtained merely by the submission of the required number of pieces of work and was not recognised as possessing any academic status. It was not in any sense a recognised qualification. The Appellant did not set any examinations. Essentially the Appellant’s courses were, Mr. Fisher said, intended for the personal development of the persons purchasing them. He also pointed out that the purchasers of the courses could return the written material within 14 days and obtain a full refund and that 5% to 7% of purchasers did so.

14. In the College of Estate Management v Customs & Excise Commissioners [2005] UKHL 62 the House of Lords considered a similar question, namely whether the provision of distance learning materials together with the submission of assignments and some face-to-face teaching sessions was to be regarded as an exempt educational supply or as the provision of zero-rated written materials. In that case an average student was expected to spend 94% of his or her time using the written materials supplied, 4.5% in face-to-face teaching and 1.5% in sitting examinations leading to a professionally accepted qualification or B.Sc. Degree awarded by the University of Reading. The tribunal which first heard the case had dismissed the appeal and found that a single supply of education had been made. It also said that the supply of the printed materials was an ancillary element and a means of better enjoying the provision of education. The House of Lords upheld the decision of the tribunal that a single supply of education had been provided but rejected the view that the written materials to which the student was expected to devote time were ancillary to the face-to-face teaching and examinations. In paragraph 30 of his judgment Lord Walker of Gestingthorpe said “Ancillary means (as Ward LJ rightly observed  [2004] STC 1471 at [39]) subservient, subordinate and ministering to something else”. In the Card Protection Plan case [1999] STC 270 the European Court said at paragraph 30 of its judgment: “ A service must be regarded as ancillary to a principal service if it does not constitute for customers an aim in itself but a means of better enjoying the principal service supplied.”

15.It is clear from the decision of the House of Lords in the College of Estate Management case that a supply may consist of more than one element but yet may still constitute a single overall supply. It also does not follow that because one element of the supply cannot be regarded as ancillary to another element that the separate elements are to be regarded as separate supplies.  Thus, for example, a restaurant does not make a separate supply of food and a separate supply of restaurant services, but a single overall supply. Food is not ancillary to the supply of restaurant services but is of central and indispensable importance to them. The College of Estate Management case was of this character as what was supplied was a single overall educational service consisting of a number of different and separate elements. It is necessary to look at the over-arching supply and not to artificially divide.

16.If the question is asked in the instant case, what is it that the Appellant is providing, it seems to us that the answer is clear. In return for enrolling on a course and paying the appropriate fee the purchaser acquires not only the supply of the relevant written materials but also the right to submit several pieces of work for criticism by the course artist who has been allocated to him or her and also with most courses if he or she completes the course a diploma or certificate. The circumstance that one third or so of the purchasers do not avail themselves of the opportunity to submit work for criticism does not affect the fact that that they have the right to submit their work for criticism. The purchaser also has access to the Appellant’s Administration Centre if clarification or technical assistance is required. The diploma or certificate does not have any actual academic or professional status but it is not in our view correct to regard a diploma or certificate as merely a recognition that the purchaser has completed the course. There is it seems to us an element of evaluation involved in the provision of the diploma or certificate because the course artist considers the work submitted by the individual student and is clearly intended to provide criticism of the work submitted. A pass with merit or a pass with distinction involves an evaluation of the progress made by the student but if only an ordinary pass is given, nevertheless the course artist will have to apply his or her judgment in deciding that the student is not worthy of a pass with merit or distinction. As Mr. Fisher said it is the course artist who makes the recommendation.

17.In our view what the Appellant is providing is a single course package consisting of the written materials with the opportunity to have the work submitted for constructive criticism and with regard to certain courses if the course is completed a diploma or certificate. The overall supply is in our opinion a supply of artistic education. It cannot fairly be said that all that the Appellant is supplying is certain written materials for home study. The Appellant provides also assistance and support through its course artists to enable persons purchasing its course to develop their artistic talents or abilities. We have considered whether the provision of the assistance and support of the course artists should be regarded as ancillary to the provision of the written materials and thus treated as incidental to the supply of the written material, but in our view the provision of the support and advice from course artists is an important element in what has been purchased. It is not something which is “subservient or subordinate or ministering to” the written material but is an independent element and not merely a means of better enjoying a principal service of the supply of written material.

18. It is in our opinion unrealistic to regard the Appellant as supplying in substance written materials.  A purchaser does not merely purchase a set of written materials.  He or she also enrols in a College, receives support if he or she wishes and the opportunity if he or she pursues it of obtaining a diploma or certificate on completing certain courses.  The analogy is clearly with that of an educational establishment - the Appellant calls itself a College, it refers to those who enrol as students and it provides guidance by providing constructive criticism for aspiring artists and illustrators.

19. We dismiss the appeal.

20. The Respondents have not sought costs and we make no direction on costs.

MAN/07/0104

Elsie Gilliland
CHAIRMAN

Release date: 24 April 2008