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 and supplying the right kind of education supplies to qualify. In addition, it is possible for goods and services that are not classified as a supply of education in their own right to qualify for exemption if they are supplied in connection with education services.

A recent Upper Tribunal case involving Brockenhurst College has highlighted the potential costs and complications that can arise when education providers make VAT errors, as well as underlining some of the more complex areas of current UK and EU VAT rules.

How disputes over VAT exemptions for education services can arise

Brockenhurst College was challenged by HM Revenue & Customs (HMRC) over the way it had accounted for VAT on its supplies of catering services to visitors to its restaurant. A claim for VAT had been lodged, on the basis that the catering - provided by students of the college, with meals supplied for around 80% of the cost price - should be VAT exempt.

The First-tier Tribunal found that these catering and entertainment services were integral and essential to the main supply of education and therefore qualified for VAT exemption, but HMRC argued against this, on the basis that these supplies were not “closely related” to the principal supplies of education made by the College, as they were not “for the direct use” of students, but instead consumed by third-party customers.

However, the College argued that there was no restriction in EU law on the identity of the recipient of the supplies in question, as well as noting that the students directly benefited from the supplies, as it allowed them to put into practice the skills they had been taught.

Ultimately, the tribunal favoured a less restrictive approach to applying the exemption, so as to be consistent with its objective and ensure it retains its intended effect. It was determined that the catering service could be considered an ancillary supply that was closely related to the principal exempt supply, meaning it did not constitute an end in itself, but represented a means for better enjoying the principal service.

The lesson for businesses

The complexity of this case demonstrates the challenges associated with determining whether or not an education-related service can be considered exempt from VAT or not, and underlines the need to seek out professional advice when attempting to resolve such a question.

The case also illustrates a precedent for the UK VAT tribunal system to find against HMRC in instances when UK VAT laws are more narrowly constructed or interpreted than the European VAT rules they are based on. This may change now that the UK has exited the EU, and those responsible for VAT accounting will need to keep track of these changes as they happen.

If you are involved in the supply of education services and are looking for expert advice on how best to realise VAT savings opportunities, speak to one of our consultants by calling our free VAT helpline on 0333 3638 012.

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