Are you an Exempt Education Provider or Not?

HMRC has decided not to proceed with proposals to extend the VAT education exemption to commercial providers of higher education and further education. This would have allowed commercial providers and other organisations such as charities, not for profit organisations and others that did not meet the currently strict criteria for exemption to be on all fours with those suppliers that already meet the criteria. This would have also overcome the current difficulties many organisations face in establishing if they are an exempt body or not as the current guidance and legislation is not always clear and sometime needs an experienced ‘interpreter’ to explain what it is intended to mean.

The reasons HMRC state for not taking this change forward are interesting in themselves. They state amongst other reasons that there would be an impact on commercial providers who would need to exempt their education supplies and not be able to recover input tax and that there would be a  cost to the Exchequer of extending the exemption. The second reason makes it clear that HMRC benefit from businesses in the sector who have to pay VAT on supplies of education services and also benefit from the fact that exempt providers of education effectively are the final consumer of many VATable supplies as they are unable to recover the majority of the VAT on the costs that they incur.

This highlights the need to exercise caution when advising organisations that make supplies of education services as we receive many calls on our free VAT helpline relating to businesses and others that assume their supplies are exempt from VAT on the basis that the supply is education, when in fact the organisation may not meet the criteria for exemption. In addition, in some cases we have been asked to advise organisations who have sought VAT exempt status without considering the full impact on their VAT recovery position.

If you or your client are involved with supplying education services it is worth giving our free VAT helpline a call to check that the VAT position for the supplies is correct. A brief free phone call to discuss this could result in considerable savings in terms of time and money for you or your clients.

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