The Open University (OU) is due a £21 million tax rebate, plus interest, after the First-Tier Tribunal accepted that payments it made to the British Broadcasting Corporation (BBC) over a 16-year period should have been treated as exempt from VAT on the basis that services provided by the broadcaster were closely related to the provision of education by a university.
The OU paid millions of pounds in VAT in respect of radio and television production and broadcasting services provided by the BBC between 1 January 1978 and 31 July 1994 when Her Majesty’s Revenue and Customs (HMRC) accepted that those services were exempt from VAT by operation of item four of group six of schedule nine of the Value Added Tax Act 1994 (the act).
In 2009, the BBC applied unsuccessfully under section 80 of the act for repayment of the VAT that it had charged and accounted for on supplies made prior to 1 August 1994. The appeal to the tribunal was brought by the OU as recipient of the supplies and the BBC had agreed to pay any rebate that it received from HMRC by way of repayment to the OU.
During the period covered by the claim, it was accepted that domestic legislation did not exempt the BBC’s services from VAT but that the exemption in respect of educational services enshrined within article 13A(1)(i) of the Sixth Council Directive of 17 May 1977 was directly effective within the United Kingdom. However, HMRC refused a rebate on the basis that an organisation ‘must have an educational aim as its sole object’ to meet the exemption criteria and that the BBC ‘never aimed to provide university education’.
The OU’s lawyers pointed out that BBC’s fundamental aim was to ‘educate, inform and entertain’ and that the government had ‘entrusted it with an educational function or remit’. It was submitted that the input of BBC staff into OU programming went well beyond the design and production of broadcasts and encompassed substantial educational elements.
In upholding the OU’s appeal, the tribunal found that, although the BBC’s primary aim was not directly educational, the services it provided to the OU through the ‘educational partnership’ between them were so ‘closely related to the provision of education by a university’ as to qualify for the exemption.