The First Tier Tribunal’s (FTT’s) judgement in Airline Placement Limited v HMRC [2025] UKFTT 894 (TC) comprised several decisions which make the case interesting from a procedural VAT point of view. The case concerned Airline Placement Limited’s (APL’s) activities procuring airline pilot training for trainee pilots (cadets) and placing qualified pilots with commercial airlines.
Facts of the case
Under the terms of the training, the cadets paid a security bond of £69,000 to APL (Transfer 1).
Upon satisfactory completion of their course and securing a job at a participating airline (such as Virgin, BA and easyJet), APL would transfer this bond (£69,000) to the airline.
The airline would pay a ‘placement fee’ to APL of £69,000 VAT (Transfer 2). The cadet would make a loan to the airline of £69,000, which the airline would pay back to the cadet over seven years at £11,223 per year. The airline also paid such cadets £11,223 less than it would pay similar pilots who had not participated in the course.
The transfer of the bond to the airline and receipt of the net part of the placement fee netted out to zero. The loan repayments to the cadets by the airline, as well as the reduction in salary paid to the cadets by the airline, likewise netted to zero. The only actual transfers of money were therefore Transfer 1 (payment of the bond by the cadet to APL) and Transfer 2 (payment of the VAT on the placement fee by the airline to APL).
The training took place partly in the UK and partly in New Zealand.
The issues
Five issues were presented to the FTT:
1. Was the security bond of £69,000 paid by cadets to APL consideration for a supply of training provided by APL to the cadets?
2. If not, was the arrangement ‘abusive’?
3. If either 1. the bond was consideration or 2. the arrangement was abusive, should credit be given for the VAT paid on the placement fee?
4. Did APL and HMRC make an agreement under Section 85 of the Value Added Tax Act?
5. If the bond was consideration for training, was the place of supply of training the UK or New Zealand?
The decisions
1. Was the security bond of £69,000 paid by cadets to APL consideration for a supply of training provided by APL to the cadets?
APL made a supply of training to the cadets, and the security bond of £69,000 received from the cadets represented consideration for that supply on which VAT should have been charged.
2. If not, was the arrangement ‘abusive’?
The arrangement was abusive under Halifax principles (the principles set out in Halifax Plc v Customs and Excise Commissioners (C-255/02)): APL made a supply of training to the cadets, and the principal aim of the arrangement was to avoid such a VAT charge on the cadets (who could not recover VAT) and instead charge VAT to the airlines (who presumably could).
3. If either 1. the bond was consideration or 2. the arrangement was abusive, should credit be given for the VAT paid on the placement fee?
Credit could not be given in respect of the VAT charged on the placement fee as that was a separate supply of placement services. There was therefore no ‘double taxation’.
When asked why the airlines would pay such an exorbitant sum for placement (considering that the taxable amount related to the entire training), the FTT responded that when a court or tribunal was required to redefine arrangements so as to remove the abusive structure, there was no obligation for the redefinition to be economically realistic.
4. Did APL and HMRC make an agreement under Section 85 of the Value Added Tax Act?
After appealing HMRC’s original decision (that the bond reflected consideration for a supply of services subject to UK VAT at 20%), APL entered into negotiations with HMRC on a separate matter, namely: if there was a supply of training services by APL to the cadet, it was partly performed in New Zealand and would fall to be apportioned.
HMRC had agreed on 13 October 2023 that there was a B2C supply of educational services and that the place of supply of those services was New Zealand for the part performed in New Zealand. Although HMRC attempted to ‘withdraw’ from its agreement one week later, the FTT held that this was too late. HMRC had agreed on 13 October 2023 to the representations (a variation of HMRC’s original decision) made by APL on 2 May 2023. HMRC was unable to withdraw from its agreement as that agreement had to be treated as if ‘a tribunal had determined the appeal.’
5. If the bond was consideration for training, was the place of supply of training the UK or New Zealand?
Ignoring the agreement, the court considered whether, as a matter of UK VAT place of supply rules, APL’s supplies were partly performed in New Zealand and outside the scope of UK VAT to such extent.
The FTT applied the decisions of the CJEU in Staatssecretaris van Financiën v L W Geelen (Case C-568/17) and the FTT in St Georges University Ltd v HMRC [2021] SFTD 675.
The FTT held that, although APL was supplying services consisting of education and such education was partly performed (by L3 New Zealand, not by APL) in New Zealand, APL did not itself perform the education. What APL performed was (i) the provision of an opportunity to take part in training, (ii) the organisation of training and (iii) the provision of training. This organisation took place in the UK and should therefore (had there not been a S.85 agreement detailed above) be subject to UK VAT in its entirety.
This part of the judgement feels overly complex. VATA 1994 Sch.4A, Para. 14A provides that a B2C ‘supply’ of ‘services relating to educational activities’ is made where those activities ‘actually take place.’ The FTT accepted that APL supplied services to the cadets. All parties agreed that the services amounted to ‘training’ and that ‘training’ is synonymous with ‘education’ for VAT purposes.
One would think that this meant that APL supplied educational services and that these were supplied where performed for VAT purposes. It would seem, however, from the FTT’s decision that this will only apply where the supplier is actually performing the education itself.
If a subcontractor is performing the education, it may be necessary to look at where the supplier’s organisation activities take place (which will generally be where the supplier belongs i.e. in effect, the general B2C rule).
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