In a good example of the restrictive interpretation placed upon tax rules, a company that provides after-school sports coaching to state school pupils has been refused an £83,000 VAT rebate after failing to convince a tribunal that its business is ‘state regulated’.
The company ran its after-school clubs in close co-operation with schools and its qualified coaches also performed caring and protective roles in respect of children until their parents arrived to collect them. Members of staff were subject to Criminal Record Bureau checks and had to have appropriate training and insurance.
Although most of the company’s income came from parents, it was also remunerated directly by schools when its staff took PE lessons during classroom hours. Schools took an active interest in how the after-school clubs were run and their benefits were taken into account by Ofsted inspectors when grading schools’ performance.
The company claimed that it had paid £83,489 in VAT in error on outputs which should have been treated as exempt under Schedule 9 of the VAT Act 1994 on the basis that the company was ‘a state-regulated private welfare institution or agency’. HM Revenue and Customs, however, refused to accept the rebate claim.
In dismissing the company’s appeal, the First-tier Tribunal noted that, although it regarded itself as subject in practice to Ofsted requirements and oversight, it was not in fact required to register with the regulator. The company’s primary function was not to provide care and protection for pupils but to coach them in sports.
Finding that the company was not in fact regulated by Ofsted, or any other authority, the Tribunal observed that any other conclusion would involve a departure from the clear wording of the statute. It was necessary to draw a line between what was part and parcel of a school’s core functions and what was supplemental to the performance of them. The words ‘state-regulated’ had an obvious meaning and the company’s broad interpretation of them would lead to ‘unworkable results’.