Is output VAT due on Ceroc dancing classes?
Jan Garioch CA discusses a recent case, Anna Cook v HMRC, which saw the First Tier Tribunal try to avoid “murder on the dancefloor”.
Anna Cook operated as a sole trader and supplied Ceroc dancing classes to the general public between October 2010 and September 2012 under the terms of a franchise agreement with Ceroc Enterprises Limited. She did not register for VAT or account for any VAT. This brought her into dispute with HMRC and it fell to the Tribunal to determine whether her supplies were exempt from VAT.
The legislation at the centre of this battle is Article 132(1)(j) Principal VAT Directive (2006/112/EC) and s31 and Sch 9 Group 6 Item 2 of VATA 1994. This exempts the supply of private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer.
HMRC accepted that dance is a subject commonly taught at school, but disputed that teaching Ceroc was the equivalent. They placed Ceroc into the purely recreational box (or with such minimal educational content that it should be treated as recreational).
The Tribunal’s approach
Step one for the Tribunal was to find out what Ceroc was. They established the teaching of Ceroc uses a form of pairs dancing that incorporates moves from many other styles of dance (eg Ballroom, Salsa, Jive, Hip Hop and Tango), and involves a particular methodology for learning those moves. Ceroc teachers are only allowed to teach moves which are set out on the Ceroc intranet, which illustrates approximately 900 different moves.
Step two was to tackle the fact that most venues Ms Cook used provided a licensed bar and this was advertised on Ms Cook’s flyers. HMRC argued strongly that the advertising for Ceroc events concentrated on the social and fun aspects of the event, but that cut no ice with the Tribunal. They found nothing wrong with the idea that people will learn more if they are enjoying themselves. Merely advertising of the events as fun-night out and a way of meeting members of the opposite sex, thus maximising the number of people coming through the door, does not detract from the fact that the underlying purpose was to teach dance.
Step three, in time-honoured tradition, was to review existing case law to look for assistance. From that, the Tribunal pulled together a list of five principles on qualifying for exemption.
- The activity should be commonly taught in schools and universities.
- It does not have to lead to examinations for the purpose of obtaining qualifications.
- It should not be purely recreational.
- The supply must be tuition in the sense of transfer of knowledge or skills.
- The mere presence of an element of teaching cannot shift an activity from being purely recreational.
The Tribunal found as fact that Ceroc includes 900 moves which is far more than in a specific dance-like, for instance, waltz. Therefore, they found that in essence Ceroc is a methodology for teaching dance. They also found as a matter of fact that the transfer of knowledge from teacher to pupil was a very significant part of what happened at a Ceroc event. They found that the National Curriculum sets the purpose of high-quality physical education as “inspiring success in physically demanding activities… with the aim of participants leading healthy, active lives.” They saw equivalence to this in the Ceroc classes and concluded that Ms Cook’s appeal for exemption applied should be upheld.
Finally, a brief search online produces lots of Ceroc videos. Therefore, if the Tribunal members have any family weddings to attend in the near future, they will face high expectations to deliver something special on the dancefloor!