University of Cambridge v Revenue and Customs, Court of Appeal - Chancery Division, March 10, 2009, [2009] EWHC 434 (Ch)

Resolution Date:March 10, 2009
Issuing Organization:Chancery Division
Actores:University of Cambridge v Revenue and Customs


Neutral Citation Number: [2009] EWHC 434 (Ch)

Case No: CH/2008/APP/0304



Royal Courts of Justice

Strand, London, WC2A 2LL

Date: 10/03/2009

Before :


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Between :

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Mr Andrew Hitchmough & Mr James Rivett (instructed by Ernst & Young) for the Claimant

Mr Raymond Hill (instructed by the Solicitors Office) for the Defendant

Hearing dates: 26 / 27 February 2009

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The Chancellor:


1. In November 2004 the University of Cambridge (``the University'') went into occupation of a building it had newly constructed for the purposes of its faculty of education. The building is used by the University both for the provision of education at undergraduate and graduate level and for purposes of research. The University applied to Her Majesty's Revenue & Customs [``HMRC''] for the necessary consent to entitle it to issue a certificate to the supplier of electricity to the building requiring the supplier to charge VAT in respect of those supplies at the reduced rate of 5% allowed by s.29A of and Note 3 of Group 1 to Schedule 7A to the VAT Act 1994. Those provisions allow payment of the reduced rate of 5% in respect of supplies of electricity for:

``use by a charity otherwise than in the course or furtherance of a business''.

The University is a charity but, as it admits, its provision of higher education is a business activity.

2. The University seeks to avoid the likely consequence of that admission by relying on Article 13 EU Principal VAT Directive (2006/112/EC). That article is in the same terms as article 4(5) of the Sixth VAT Directive and provides:

``Article 13

1. States, regional and local government authorities and other bodies governed by public law shall not be regarded as taxable persons in respect of the activities or transactions in which they engage as public authorities, even where they collect dues, fees, contributions or payments in connection with those activities or transactions.

However, when they engage in such activities or transactions, they shall be regarded as taxable persons in respect of those activities or transactions where their treatment as non-taxable persons would lead to significant distortions of competition.

In any event, bodies governed by public law shall be regarded as taxable persons in respect of the activities listed in Annex I, provided that those activities are not carried out on such a small scale as to be negligible.

2. Member States may regard activities, exempt under Articles 132, 135, 136, 371, 374 to 377, and Article 378(2), Article 379(2), or Articles 380 to 390, engaged in by bodies governed by public law as activities in which those bodies engage as public authorities.''

3. The case for the University involves three propositions, namely:

(1) the University is an ``other bod[y] governed by public law'';

(2) the University engages in its activities or transactions ``as [a] public authorit[y]'';

(3) the proper application of Article 13 requires that the engagement of the University in those activities and transactions is to be treated for VAT purposes as not carrying on an economic activity.

It is common ground that if Article 13 does apply in the manner for which the University contends then the use of electricity by the University in its new building is not ``in the course or furtherance of a business'' for the purposes of Note 3 of Group 1 to Schedule 7A to the VAT Act 1994.

4. These contentions were rejected by HMRC on 1st September 2005 and by the VAT and Duties Tribunal (Mr Edward Sadler and Miss Sheila Wong Chong) on the appeal of the University in a decision released on 12th March 2008. It is from that decision of the VAT and Duties Tribunal that the University now appeals pursuant to s.11 Tribunals and Enquiries Act 1992 on the ground that it is dissatisfied with it ``in point of law''.

The Facts

5. The Tribunal heard extensive evidence from Mr Kerry Sykes, the deputy director of finance of the University, and Mr Ian Lewis, the head of finance of Higher Education Funding Council for England (``HEFCE'') as to the constitution and funding of the University. So far as material to the first two propositions set out in paragraph 3 above, the Tribunal summarised that evidence in paragraphs 49 to 63 of its decision. For immediate purposes the following broad summary will suffice.

6. The University was incorporated by Statute in 1571. It is currently regulated by the Universities of Oxford and Cambridge Act 1923 and the secondary and tertiary legislation made thereunder. That legislation provides a complete code for the powers, governance and administration of the University. In addition, as the Tribunal recorded in paragraph 54 of its decision:

``...over the centuries an abundance of statutory and prescriptive rights have accreted to the [University], conferring special privileges or regulating aspects of its historic activities or assets and property rights.''

7. The funding of the University is derived from a number of sources, including the Cambridge University Press, public examination and assessment services, research grants and contracts, endowment and investment income, student fees and government funding almost entirely through HEFCE. The latter represents 20% of the University's income from all sources (30% of the University Press and public examination fees are excluded). With regard to HEFCE funding the Tribunal recorded in paragraph 61:

``...the greater part of the funding is a block grant for teaching based simply on the number of students, and under current policy no conditions are attached to such per capita funding beyond standard conditions such as accounting for the spending of the funds and submitting to quality assurance supervision if requested. The [University] has full liberty to allocate the block grant funding as it sees fit. The [University] may be funded for a specific purpose beyond the block grant in which case, of course, the funding must be applied for that purpose and the University must comply with any special conditions imposed by HEFCE relating to the relevant project or funding.''

8. Whilst HEFCE funding is available to other universities on a similar basis their constitutions vary widely. The Tribunal recorded the evidence of Mr Lewis on that topic in paragraph 56 in these terms:

``...universities other than Oxford and Cambridge may be established in a number of ways: those created before 1992 were established by Royal Charter granted through the Privy Council or, in the case of some universities, incorporated under the Companies Act as companies limited by guarantee. In the case of those created since 1992, which changed status from polytechnics under local authority control to universities, they derive their university status and degree-awarding powers under the Further and Higher Education Act 1992. The University of Buckingham is a private university (that is, not funded by the State), and is incorporated as a non-profit-making company with degree-awarding powers granted by the Privy Council.''

9. As recorded by the Tribunal in paragraph 58 of its decision Mr Lewis described all English Universities as:

``...legally independent bodies responsible for the governance, management and direction of their own affairs which are funded from a range of public and private sources. They are not regarded as part of the public sector in the way that, say, a maintained school or NHS hospital is so regarded - thus, for example, their accounts are not classified to the public sector for National Accounts purposes, and they are not subject to direction from the government except to the extent that they receive public funding and thereby render themselves subject to any conditions attaching to such funding.''

The decision of the Tribunal

10. The Tribunal noted in paragraph 4 of its decision that if the University failed on the third proposition, to which I have referred in paragraph 3 above, its appeal would be dismissed but that for its appeal to succeed it must establish all the three propositions on which it relied. The Tribunal dealt with the third proposition first in paragraphs 34 to 46. It noted in paragraph 35 the University's concession that it was in fact carrying on an economic activity or business. It concluded in paragraph 45 that for the reasons expressed in the intervening paragraphs the University had not made out the convincing case required if it was to establish that Article 13 deemed it not to be carrying on a business when in fact it is.

11. The Tribunal recognised that this conclusion necessitated the dismissal of the University's appeal but, in case it was wrong, went on to consider whether the University was within the ambit of Article 13. The Tribunal noted that this required the University to satisfy the two conditions reflected in the first and second of the propositions set out in paragraph 3 above. It considered the first of those propositions in paragraphs 76 to 91. For reasons I will consider in detail later the Tribunal concluded that the University is not ``a body governed by public law''.

12. The Tribunal noted in paragraph 92 that if it was wrong in its conclusion on the first proposition then in order to succeed the University must show that in carrying out its activities it is acting as a public authority. It considered that issue in paragraphs 106 to 122. It concluded that even if the University is a body governed by public law it does not engage in its activities of providing higher education as a public authority.

13. Accordingly the University failed to establish any of the three propositions on which the success of its appeal depended. I propose to deal with them in the order in which I have set them out. That...

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