Supplies of Education - VAT Exempt or Not

VAT is a complex area for many organisations, not least those that provide supplies of education services. In order to meet the criteria for exemption certain conditions must be met such as being the correct ‘type’ of body to be able to make exempt education supplies, and supplying the correct ‘type’ of services. In addition it is possible for goods and services that are not in fact a supply of education in their own right but are supplied in connection  with education services to also qualify for exemption.

The recent Upper Tier Tribunal case for Brockenhurst College demonstrates that education providers can make VAT errors to their own cost. The case is also interesting as it demonstrates an increasing trend for the UK VAT tribunal system to find against HMRC where it is clear that the UK VAT law has been more narrowly constructed or interpreted than the European VAT law that it is based on. It is likely that HMRC will lose appeals at both UK Tribunal and European Court of Justice level where this can be demonstrated to occur.

The college had accounted for VAT on its supplies of catering services to visitors to its restaurant. It lodged a claim for VAT over declared on the basis that the catering was in fact VAT exempt. The catering facility was manned by students of the college and meals were supplied for around 80% of the cost price of producing the meal.

The first tier tribunal (“ftt”) found that the catering and entertainment services were integral and essential to the main supply of education and therefore qualified for VAT exemption.  HMRC sought to argue that the FTT were mistaken on the basis of HMRC’s view that the supplies were not “closely related” to the principal supplies of education made by the College as they were not “for the direct use” of those students but instead consumed by third party customers . The College however argued that there was no restriction in EU law on the identity of the recipient of the supplies in question. The students directly benefited from the supplies (as it allowed them to put into practice the skills that they had been taught) and thus the UK VAT law should not impose such a restriction.

 

The tribunal decided that  an exemption is an exception to the ordinary rule and as such that an exemption should be construed strictly, but not restrictively. The exemption must, accordingly, be construed so as to be consistent with its objective and so as to ensure it retains its intended effect. To be closely related to a principal exempt supply, the service in question must be an ancillary supply, that is one that does not constitute an end in itself, but is a means for better enjoying the principal service supplied.

 

There was no requirement for the supply to be made to the students receiving the supply of education services in order for the supply to be classed as closely associated to the supply of education services made to the students. HMRC’s appeal was therefore dismissed.

 

If you have clients involved in the supply of education services it would be worth giving our free VAT helpline a call to see if there are any VAT savings opportunities for your clients.

 

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