VAT exempt education and training – an overview
This is one set of VAT rules that causes confusion and there are reliefs that get overlooked. There are three main ways that education and training can be exempt. The first two – private tuition and training by an eligible body – depend on WHO does it. The third – government funded education and vocational training – depends on WHO ULTIMATELY PAYS for it.
Only private tuition provided by a sole trader or by a partner can be VAT exempt. There is no scope for incorporating and remaining VAT exempt. If employees do the teaching it becomes standard-rated, even if a partner remains responsible (see JA & SL Charles).
Exempt private tuition must be in a subject “ordinarily” taught in a school or university.
This includes education or vocational training provided by regulated UK schools, universities, colleges, public bodies and non-profit-distributing bodies. A non-profit-distributing body is one which is precluded by its constitution from distributing profits and which does not in practice distribute those profits. Distribution by the back door does not work (see Hangleton Farm Education Limited). Profits made from education and training must be ploughed back into those activities.
Government approved and funded education and vocational training
HMRC’s guidance on this exemption is not the easiest to follow and includes references to bodies that no longer exist.
To fall within this exemption the supplies must be approved by the Department of Education or the Department for Work & Pensions, or their devolved equivalents. Such education and training is administered and funded either directly by the Secretary of State (since 1 April 2012 following the Education Act 2011) or by the Education Funding Agency or by the Skills Funding Agency. The exemption also extends to approved schemes funded by the European Social Fund and to the training of workplace assessors in relation to NVQs.
This exemption covers the following to the extent they are government-funded:
- Vocational training.
- Work experience.
- Goods and services directly supplied to trainees that are essential to the training.
- Training supplied by subcontractors.
Exempt supplies by subcontractors
The exemption for government-funded training by subcontractors is the one perhaps most often overlooked. HMRC’s Notice points out that it is up to the subcontractor to establish the liability of their supplies, which is clearly correct. However, if a subcontractor is VAT-registered, they may not wish some of their supplies to become VAT exempt and may fail to take the initiative in establishing the correct position. But the exemption is good news for their customers, as they are not in a position to reclaim VAT charged to them that relates to their own exempt supplies of government-funded vocational training.
So any person engaged in the provision of government funded vocational education needs to make sure that their subcontractors are getting their VAT right!