Usually denoting exemption from the tax, the word ‘exempt’ is all too easily assumed to confer a choice as to whether to apply it, whereas it is (usually) a mandatory state of affairs and applies whatever one’s preference. I was reminded of this when reading the case of LIFE Services Ltd [2016] UKFTT 444 (TC). This was about whether services supplied were exempt from VAT, but, ironically, it was not the VAT meaning of ‘exempt’ that caused my interest. It was another case of exemption entirely.
Before commenting further, I should confirm that the supplies were held to be exempt from VAT, on the basis of ‘fiscal neutrality’, and the analysis of that reasoning is worth reading.
But I was more interested in another point which was not accepted by the tribunal. This was whether the supplier was ‘exempted’ from registration under a certain Act of Parliament. The context was that the services involved the provision of ‘care’ to adults with learning disabilities. The VAT legislation exempts supplies by bodies that are ‘state regulated’ private entities. However, being ‘state regulated’ includes being ‘exempted from registration’ under a given Act, as well as being registered under that Act. At first sight this appears ridiculous. How can a body be ‘state regulated’ if it need not be registered under the Act, and why would that be equivalent in the eyes of the law to where an entity is actually registered?
But that is what the law says, and the law has to be construed sensibly. It surely cannot mean that every entity is covered, because it can only be registered, or exempt from registration (leaving aside those who act illegally). There must be a concept whereby a body is specifically exempt despite appearing to fall within the ambit of registration under that Act. Only these are treated as ‘state regulated’ for these purposes. But how does one determine this?
To assist its consideration, the tribunal focused on the exact terminology of the VAT legislation. This reads: ‘“state regulated” means approved, licenced, registered, or exempted from registration by any minister or other authority’. From this, the tribunal inferred that ‘exempted’ is not the same as ‘exempt’. It deduced that there must be a provision in the Act that explicitly exempts the supplier from registration (hence ‘exempted’), rather than a passive interpretation that registration is not applicable (which is merely ‘exempt’). This means the supplier must, first, fall into a category, and then be excepted from that category in the legislation in order to be ‘exempted’. Not falling into the categories at all could make it ‘exempt’, but that would not be the same as ‘exempted’, and would thus fail to qualify for the VAT exemption.
I find that kind of grammatical analysis unconvincing. It seems to ignore the structure of the sentence in which the word is found. It is clear from the wording that the minister is deemed to have approved, licenced, registered, and exempted the body. ‘Exempt’ would simply not have fitted in the grammatical context (note the ‘-ed’ ending to all the conditions). There is no reason to assume that there is anything more than a contextual aspect to the word ‘exempted’. It is the active, as opposed to the passive, version of the word. It seems to me that its meaning cannot be distinguished from ‘exempt’ at all.
That still leaves the question as to what ‘exempt’ means, and whether there needs to be a specific category of exempt bodies, rather than an inferred exemption arising from the omission of a category of participant. It seems reasonable to say that unless a body’s activity is listed under clear exemptions, then it is not exempt from registration and thus is not ‘state regulated’. But this does not require drawing a strained distinction between ‘exempt’ and ‘exempted’.
Home >Articles > VAT: does ‘exempted’ mean I am ‘exempt’?
VAT: does ‘exempted’ mean I am ‘exempt’?
Usually denoting exemption from the tax, the word ‘exempt’ is all too easily assumed to confer a choice as to whether to apply it, whereas it is (usually) a mandatory state of affairs and applies whatever one’s preference. I was reminded of this when reading the case of LIFE Services Ltd [2016] UKFTT 444 (TC). This was about whether services supplied were exempt from VAT, but, ironically, it was not the VAT meaning of ‘exempt’ that caused my interest. It was another case of exemption entirely.
Before commenting further, I should confirm that the supplies were held to be exempt from VAT, on the basis of ‘fiscal neutrality’, and the analysis of that reasoning is worth reading.
But I was more interested in another point which was not accepted by the tribunal. This was whether the supplier was ‘exempted’ from registration under a certain Act of Parliament. The context was that the services involved the provision of ‘care’ to adults with learning disabilities. The VAT legislation exempts supplies by bodies that are ‘state regulated’ private entities. However, being ‘state regulated’ includes being ‘exempted from registration’ under a given Act, as well as being registered under that Act. At first sight this appears ridiculous. How can a body be ‘state regulated’ if it need not be registered under the Act, and why would that be equivalent in the eyes of the law to where an entity is actually registered?
But that is what the law says, and the law has to be construed sensibly. It surely cannot mean that every entity is covered, because it can only be registered, or exempt from registration (leaving aside those who act illegally). There must be a concept whereby a body is specifically exempt despite appearing to fall within the ambit of registration under that Act. Only these are treated as ‘state regulated’ for these purposes. But how does one determine this?
To assist its consideration, the tribunal focused on the exact terminology of the VAT legislation. This reads: ‘“state regulated” means approved, licenced, registered, or exempted from registration by any minister or other authority’. From this, the tribunal inferred that ‘exempted’ is not the same as ‘exempt’. It deduced that there must be a provision in the Act that explicitly exempts the supplier from registration (hence ‘exempted’), rather than a passive interpretation that registration is not applicable (which is merely ‘exempt’). This means the supplier must, first, fall into a category, and then be excepted from that category in the legislation in order to be ‘exempted’. Not falling into the categories at all could make it ‘exempt’, but that would not be the same as ‘exempted’, and would thus fail to qualify for the VAT exemption.
I find that kind of grammatical analysis unconvincing. It seems to ignore the structure of the sentence in which the word is found. It is clear from the wording that the minister is deemed to have approved, licenced, registered, and exempted the body. ‘Exempt’ would simply not have fitted in the grammatical context (note the ‘-ed’ ending to all the conditions). There is no reason to assume that there is anything more than a contextual aspect to the word ‘exempted’. It is the active, as opposed to the passive, version of the word. It seems to me that its meaning cannot be distinguished from ‘exempt’ at all.
That still leaves the question as to what ‘exempt’ means, and whether there needs to be a specific category of exempt bodies, rather than an inferred exemption arising from the omission of a category of participant. It seems reasonable to say that unless a body’s activity is listed under clear exemptions, then it is not exempt from registration and thus is not ‘state regulated’. But this does not require drawing a strained distinction between ‘exempt’ and ‘exempted’.
.tmb-editorspic.jpg?sfvrsn=df04ab27_1)
