Supplies of Subsidised Education – Business or Non-business?

Wakefield College, a charity, provided a wide range of both academic and vocational courses to 10,000 students and was financed in the main by grant funding. This income was supplemented by fees charged to students or their employers for the provision of education aswell as other public funding.

A further building was to be constructed on the college’s campus which was to be used to facilitate the provision of further and higher education. It was the college’s belief that the construction services incurred in relation to the new building should be zero-rated for VAT purposes on the basis that the intended use of the building on completion amounted to that of a relevant charitable purpose.

HMRC initially refused Wakefield College the right to zero-rate these construction supplies on the basis that the proposed usage of the building was undertaken, partly, in the course or furtherance of business therefore meaning that the building would not be utilised solely for a “relevant charitable purpose” as required for zero-rating to be applicable.

It was accepted that, as a large proportion of the college’s students paid no tuition fees (these were supported by grant funding) the supply of education to these students was not provided in the course or furtherance of business. However, as the remaining students were required to pay at least a part of the fees, the view of HMRC was that these courses fell within the VAT definition of “business”.

On considering these facts, The Upper Tribunal agreed with HMRC ruling that the supplies made by the College constituted a business activity even if the student only part paid for the cost of the course (with the balance funded by grant funding).  As a result Wakefield College were refused authorisation to zero-rate construction services supplied to them in relation to the building.

If you are a charity and are unsure of what reliefs are available to you when it comes to VAT, seek assistance on our free VAT helpline to avoid expensive errors on a host of complex areas that can affect charitable organisations.

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