In R (oao Anglia Ruskin Students’ Union) v HMRC, the High Court ruled that the Anglia Ruskin Students’ Union could not seek judicial review of HMRC's decision to apply VAT to catering supplies from their establishment, classifying it as a bar based on ordinary usage of the word.
In short, at [42] the Court held: "Student unions are not eligible bodies, and their supplies of catering would not be exempt under the strict terms of VAT legislation."
As to the Students Union's invocation of the principle of “fiscal neutrality”, at [38] the Court held that comparing the Café to what the Students Union said was a like establishment run by a university. The Court held that “fiscal neutrality” is not a free-standing principle of construction which means that in the tax context words lose their ordinary meaning. In any event, the comparison did not work. The supplies of catering by universities are exempt as a matter of law because they are “closely related” to the supply of education by an “eligible body”. It was common ground in the case that student unions are not eligible bodies. Their supplies of catering are treated as exempt by the concession and are analogous to supplies of catering made by other non-eligible bodies.
Catering supplies are generally subject to standard VAT unless closely related to educational services by eligible institutions. The Students' Union did not meet eligibility criteria.
The case focused on the extra-statutory concession found in HMRC Notice 709/1, allowing student unions to apply the same VAT exemption as their parent institutions, if the supplies are made on behalf of, and with the agreement of, the parent institution.
The issue being considered was whether the Café is a “bar” within the meaning of the concession. However, this concession excludes food and drink sold from campus shops, bars, and tuck shops. The Court emphasised the ordinary use of words over dictionary definitions, citing HMRC v Dolphin Drilling Ltd, and rejected the argument that a bar does not provide catering. The Court adopted the definition provided in Dolphin Drilling where the Court held at [41]: "the meanings of words are to be found not so much in dictionary definitions but rather in how those words are ordinarily used which is illustrated through examples".
The Court did not accept the the Students' Union's contention that the word “bar” in the concession means a place that does not supply catering.
The Court clarified that fiscal neutrality is not a standalone principle and ruled that catering supplies from a student union bar are taxable, similar to those from nearby bars.
For more information on VAT exemptions, see the Practice Note: Exemptions from VAT.
The Statutory Framework
VAT treatment of catering
When food and drink is sold outside the context of catering, such as in a supermarket, the items sold are either subject to VAT (the default position under s 4 of the Value Added Tax Act (“VATA”) or zero-rated (s 30 VATA), and Group 1, Schedule 8). Group 1(b) provides that anything in the “general items” list (Items 1-4) will be zero-rated, unless they fall under the list of “excepted items” (Items 1-7), and do not fall under the list of “items overriding the exceptions” (Items 1-6).
For example, Item 1 of “general items” is “food of a kind for human consumption”. (The word “food” includes “drink”: note (1)). Excepted item number 3 is “beverages chargeable with alcohol duty under Part 2 of Finance (No 2) Act 2023 and preparations thereof”. It follows that alcoholic drinks are taken out of zero-rating and are chargeable to VAT.
Another carve-out from zero-rating is Group 1(a), which excludes “a supply in the course of catering.” Accordingly, any food served to a customer in the course of catering is subject to VAT. There is invariably full VAT on restaurant purchases. Note (3) defines “catering” as follows:
“(3) A supply of anything in the course of catering includes—(a) any supply of it for consumption on the premises on which it is supplied; and (b) any supply of hot food for consumption off those premises.”
This is supplemented by Notes (3A) to (3D). The statutory definition of catering is detailed and prescriptive. VAT treatment of education. The supply of education is exempt from VAT if made by an “eligible body” (s 31 VATA; Items 1(a), Group 6, Pt II, Schedule 9 VATA). The supply of goods and services “closely related to” such supplies are also exempt (Item 4, Group 6, Part II, Schedule 9 VATA).
In the instant case, the following matters were common ground:
(1) The definition of an “eligible body” includes universities but does not include student unions.
(2) As a matter of law, the supply of catering to students by an eligible body is “closely related” to the supply of education by that eligible body, and is therefore exempt from VAT.
(3) Supplies by universities of alcohol to students do not benefit from the exemption as a matter of law, because such supplies are not closely connected to the supply of education.
The Concession
Student unions often provide catering alongside universities. Since March 2002, HMRC has operated a published concession extending the exemption granted to supplies of catering made by universities to student unions.
Notice 709/1 explains the context:
"2.6 Schools, universities, colleges, etc
Certain supplies of education, training and research are exempt from VAT. Where an educational institution provides exempt education to its own pupils and students, then the supply of catering they make is also exempt. If the supply of education is non-business, as in the case of a local authority school, free school or academy school, the supply of catering will also be non-business, provided it is made at, or below, cost…Whichever treatment is appropriate it applies to anything provided by way of catering. This includes food supplied at mealtimes and break times from the refectory, canteen or other similar outlet but not items purchased from a university campus shop, as they are not provided by way of catering. Food and drink supplied at or below cost from a tuck shop run by the school itself takes on the same liability as the education. You cannot normally Judgment Approved by the court for handing down. R (Anglia Ruskin SU) v HMRC deduct input tax incurred on costs that relate to exempt supplies. Further information can be found in Notice 706 Partial Exemption. You must account for VAT on supplies of catering to staff and visitors (except visiting students). If you are a student union, supplying catering both on behalf, and with the agreement, of the parent institution, you will need to read section 5.5”.
Section 5.5 is the part of Notice 709/1 in which the section of the Concession in issue in the instant claim appears.
It provides:
“5.5 Catering provided by student unions in universities and other higher education establishments
If you’re a student union and you’re supplying catering (including hot takeaway food) to students both on behalf, and with the agreement, of the parent institution, as a concession you can treat your supplies in the same way as the parent institution itself. This means that you can treat your supplies as exempt when made by unions at universities, and other institutions supplying exempt education, and outside the scope of VAT when supplied at further education and sixth form colleges.
This means that most supplies of food and drink made by the union, where the food is sold for consumption in the course of catering will be exempt (read sections 2 and 3 of this guidance). For example, food and drink sold from canteens, refectories and other catering outlets (excluding bars), plus food and drink sold from vending machines situated in canteens and similar areas.
But it does not cover food and drink sold from campus shops, bars, tuck shops, other similar outlets and certain vending machines (read paragraph 2.4 of this guidance). The concession does not cover any other goods or services supplied by the student unions.”
The ruling holds particular significance for students' unions regarding the extent of the concession outlined in paragraph 5.5 of HMRC Notice 709/1. More broadly, it is noteworthy in the context of VAT litigation as it affirms that the ordinary usage of a word takes precedence over its dictionary definition. Additionally, it clarifies that the principle of fiscal neutrality does not stand alone as a principle of interpretation.
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