From School Fees to Sandwich Fillings: When VAT Policy Meets the Courts

Value Added Tax ('VAT') is rarely an area of law which captures public attention. For most, it operates quietly in the background and is embedded in everyday transactions. Yet, from time to time, disputes arise which brings VAT squarely into both the legal and public spotlights; those disputes reveal how questions of classification, policy, and fairness sit beneath what might otherwise appear to be dry fiscal rules. The recent decision of the Court of Appeal of England and Wales in The King (on the application of BYL (by their litigation friend BAU)) v Chancellor of the Exchequer & Ors [2026] EWCA Civ 170 ('BYL') is one of real constitutional and practical importance. In this recent judgment, the Court of Appeal was asked to grapple with the boundaries the Executive's power, the Court's role in supervising high-level fiscal decision-making, and the procedural realities of bringing judicial review where vulnerable Claimants are involved.

This article will explore the recent Court of Appeal decision of BYL. It will unpack the judgment in practical terms by going through the general background to the dispute, the key legal arguments raised, how the Court of Appeal approached them, and, most importantly, what the decision means for future public law challenges in England and Wales. Reference will also be made to last year's events surrounding Marks & Spencer's "Strawberries & Cream Sandwiches". It will conclude by considering what both instances demonstrate in terms of the legal landscape in this field.

This post should not be intended to be legal advice and should not be construed as such; it is for information and educational purposes only and therefore readers are always strongly encouraged to seek professional legal advice for their own matters.

Background

BYL related to VAT exemptions and private schools. As will be remembered, the VAT exemption for private school fees was removed under section 47 of the Finance Act 2025 ('the 2025 Act'). As a result of that legislative change, there was a significant increase to private school fees; an additional 20% was tacked on top of the amounts due. The implications have already been seen whereby a number of schools are struggling with these increases, compounded by the loss of charitable business rate relief. The end result is that of a chilling effect: a lower number of students enrolling at said institutions. Whilst this has been justified on the basis of raising revenue to support public finances and help deliver the Government’s commitments relating to education and young people (see the Government's policy paper, here), it does risk making these types of schools even more exclusive than they previously were.

The appeal in BYL was brought by two groups: families of children attending religious schools and several schools themselves. Between the two groups of Claimants, it was argued that the 2025 Act was unlawful under the European Convention on Human Rights ('the ECHR'). It was said that there were three rights under the ECHR which were engaged. The relevant provisions of the ECHR raised were:

• Article 14, which prohibits discrimination in the enjoyment of the other Convention rights. It states that: "the enjoyment of the rights and freedoms set forth in this Convention shall be secured without discrimination on any ground such as sex, race, colour, language, religion, political or other opinion, national or social origin, association with a national minority, property, birth or other status."

• Article 1 of Protocol 1, which provides for the right to property. It states that: "every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties."

  
  

• Article 2 of Protocol 1, which enshrines the right to education. The terms of that provision are as follows: "no person shall be denied the right to education. In the exercise of any functions which it assumes in relation to education and to teaching, the State shall respect the right of parents to ensure such education and teaching in conformity with their own religious and philosophical convictions."

The Divisional Court (the Court of first instance) had dismissed the claims, deeming the Government's justification for the VAT measure proportionate.

The Appellants went to the Court of Appeal and argued that the failure to create exemptions for low-cost religious schools amounted to discriminatory treatment (which was contrary to Article 14) when it was read in conjunction with the right to education found in Article 2 of Protocol 1. Some Claimants also argued that the measure interfered with property rights under Article 1 of Protocol 1.

The questions for the Court of Appeal could therefore be summarised as follows:

1. Did the Divisional Court err in its proportionality analysis regarding the imposition of VAT on private school fees, particularly concerning the claims of discrimination under Article 14 of the ECHR?

   
   

2. Was the Government's justification for not exempting low-cost private schools from VAT sufficiently objective and reasonable, given the unique circumstances of the religious communities involved?

   
   

3. Did the Divisional Court correctly determine that the rights under Article 1 of Protocol 1 and Article 2 of Protocol 1 were not engaged by the VAT charge on private school fees?

The Court of Appeal's Decision

The Court did find that this appeal involved the first consideration at appellate level of a new legislative regime of general application and that the dispute had a considerable significance for society. As a result of this, applying the Supreme Court decision of Shvidler v Secretary of State for Foreign, Commonwealth and Development Affairs [2025] UKSC 30 (which highlights that in certain cases it was appropriate for an appellate court to give its own opinion about the proportionality of a measure and its compatibility with the ECHR), the Court of Appeal was satisfied that it was necessary for it to assess the proportionality of the measure in this case for itself. This was also because the Court of Appeal took the view that the Divisional Court did not apply the four stage test found in Bank Mellat v HM Treasury [2013] UKSC 39 at first instance. That test is used to determine if a restriction on fundamental rights is proportionate and justified. The limbs of the test are as follows:

1. Objective: Is the aim of the measure sufficiently important to justify limiting a protected right?

   
   

2. Rational Connection: Is the measure rationally connected to that objective (i.e., is it suitable)?

3. Less Intrusive Measure: Could a less intrusive measure have been used without unacceptably compromising the achievement of the objective (i.e., is it necessary)?

   
   

4. Proportionality (Balancing): Does the measure strike a fair balance between the rights of the individual and the interests of the community, or do the benefits outweigh the severity of the effects?

As to the substance of the appeal, the Court of Appeal dismissed the appeal and upheld the Divisional Court’s earlier ruling. It found that Parliament was entitled to introduce the measure as part of fiscal policy and that the decision not to provide carve-outs for particular categories of schools was objectively justified. The Court of Appeal also concluded that the measure did not engage property rights at all, and that any differential impact on religious communities fell within the state’s wide margin of appreciation in taxation matters.

In sum, the legislation survived the challenge: the VAT charge on private school fees was held compatible with the ECHR.

Why BYL Matters

There are a number of important points which can be distilled from this decision:

• BYL reinforces judicial restraint in economic policy. The case is a strong reminder that the Court is generally reluctant to intervene in macro-economic and fiscal decisions; taxation policy sits squarely within Parliament’s institutional competence, and the Court will afford a wide margin of judgment.

  
  

• It clarifies the limits of discrimination challenges in tax law. The Appellants relied heavily on “Thlimmenos discrimination"; arguing that the law failed to treat materially different groups differently. The Court of Appeal’s rejection of this argument signals that differential impact alone will rarely suffice to invalidate tax legislation. Therefore, more will be required and it appears to impose a high evidential burden on Claimants to overcome.

  
  

• BYL also seems to further illuminate the practical limits of human rights arguments in public finance disputes. The judgment underscores a recurring theme in UK public law: rights under the ECHR do not readily operate as tools to challenge broad economic reforms. The following is worth noting:

  
  

  • Both domestic courts and the European Court of Human Rights jurisprudence recognise that taxation is an area where states enjoy exceptionally broad discretion. Indeed, the European Court of Human Rights has repeatedly emphasised that fiscal policy lies at the core of national sovereignty. The case of Gasus Dosier- und Fördertechnik GmbH v Netherlands (1995) 20 EHRR 403 is an example whereby the Court has held that states enjoy a wide margin of appreciation in taxation matters.

  
  

  • Human rights challenges to tax laws usually fail because differential impact alone is insufficient. Claimants must show that: they are in a materially analogous situation to others and the state lacks objective and reasonable justification. The Courts are reluctant to second-guess fiscal classifications. For example, in R (Carson) v Secretary of State for Work and Pensions [2005] UKHL 37, the House of Lords upheld differential pension uprating rules, stressing that economic policy inevitably involves broad categorisation.

    
    

  • Article 1 of Protocol 1 challenges to taxation almost never succeed; the ECHR expressly recognises a state’s right to levy taxes. The European Court of Human Rights made this clear in James v United Kingdom (1986) 8 EHRR 123, stating that interference with property through taxation is generally justified if lawful and pursuing a legitimate aim. Domestic courts consistently apply the same reasoning. In AXA General Insurance Ltd v Lord Advocate [2011] UKSC 46, the Supreme Court confirmed that courts should exercise particular restraint when reviewing legislation concerning economic or social policy.

    
    

  • When these points are taken together, the authorities reflect a consistent judicial philosophy at both national and international levels: Courts protect rights against arbitrary state action but will not act as economic policymakers.

BYL and the M&S VAT Dispute

This is not the only recent high profile VAT dispute. In 2025, a viral strawberries and cream sandwich was launched by Marks & Spencer. On a cursory inspection, a constitutional challenge to education tax policy appears to be a completely different type of dispute to the debates over whether a supermarket dessert sandwich counts as confectionery. However, both disputes ultimately turn on the same underlying legal theme: the breadth of the state’s power to define and apply taxation categories.

The viral strawberries and cream sandwich launched by Marks & Spencer sparked scrutiny from VAT specialists. This is due to the uncertainty over whether it should be zero-rated as a sandwich or standard-rated as confectionery. The classification question arose because sweetened, hand-held foods can fall within statutory definitions of confectionery and attract VAT at 20%. That, in turn, is income for the Government which can be utilised elsewhere. Although it is a far more light-hearted dispute, it highlights the same core point which was illustrated by BYL: tax law often turns not on abstract fairness but on legislative categorisation and policy choices. As commentators noted, the sandwich debate reflects how seemingly technical statutory distinctions can have real financial consequences and generate legal controversy. The Marks & Spencer saga highlighted just how how finely drawn those tax classifications can be in a general sense, and this can include something seemingly as trivial as whether something is legally a “sandwich” or a “dessert.” In BYL, we see a step further being taken: the Court confirming Parliament’s power to decide who must bear a tax burden in order to maintain the public interest.

Both instances illustrate a broader lesson for public law and tax practitioners alike: in taxation, classification is a power. The Courts are, often, reluctant to second-guess how Parliament exercises it.

This post should not be intended to be legal advice and should not be construed as such; it is for information and educational purposes only and therefore readers are always strongly encouraged to seek professional legal advice for their own matters.