In a dispute referred to it by the German courts, the Court of Justice of the European Union (CJEU) has decided that swimming tuition provided by a privately run swimming school is not a VAT exempt supply of education.
In reaching this decision, the CJEU has placed swimming lessons on a similar footing to driving lessons, which were found in an earlier CJEU judgment not to be education for VAT purposes. While the CJEU accepted that learning to swim is important and in the general public interest, it has found that, like driving lessons, swimming tuition was “specialised tuition provided occasionally”, which does not amount to “the transfer of knowledge and skills covering a wide and diversified set of subjects”, that the court regards as a characteristic of school or university education.
Here in the UK, HMRC’s current policy is to treat private swimming lessons as VAT exempt supplies of education, provided the lessons are led and directed by an instructor rather than merely supervised for safety reasons.
The UK left the EU’s VAT system and the jurisdiction of the CJEU on 31 December 2020 and the UK is under no obligation to apply CJEU judgments issued after that date (although the UK courts and HMRC may find post Brexit judgments to be persuasive where they closely match the circumstances of VAT disputes in the UK). Therefore, the recent swimming lessons case is not binding on the UK. However, the UK was bound by the judgment on driving lessons, which was issued in 2019 and, HMRC has specifically adopted the CJEU’s rationale to confirm in its internal guidance that driving lessons are not VAT exempt supplies of education (perhaps because that finding conveniently matched HMRC’s existing policy on driving lessons).
The swimming lessons issue could be an important test for the UK’s post-Brexit VAT system. Having readily adopted the CJEU’s logic for driving lessons, will HMRC ignore it for swimming lessons, or follow it and remove them from the education exemption? Will the government use the ruling as an opportunity to collect some extra VAT, or hold up its rejection of the EU’s approach as another ‘Brexit dividend’ for an independent UK?
This time the answer may be determined by the financial benefits. The CJEU’s decision is unlikely to increase the tax revenues by much as, in practice, it wouldn’t necessarily apply VAT to all swimming lessons. Many individual self-employed coaches will be under the VAT threshold and some not for profit providers may qualify for the sporting exemption instead. But there will be more cases like this in the future and, in the long term, a ‘pick and choose’ approach by the government when considering CJEU decisions, could make it much harder for businesses to apply an increasing messy and incongruent VAT system to their trading activities.