HMRC has issued revised guidance on education providers’ eligibility for VAT exemption as a ‘college of a university’. This follows the recent Supreme Court decision in SAE Education and may mean that more providers are eligible for VAT exemption. Educational bodies who supply courses under a contract with a university should review their VAT position.
The SAE Education case
The VAT legislation allows supplies of education to be treated as VAT exempt when provided by ‘eligible bodies’, including universities. The VAT relief enjoyed by universities also extends to bodies that are ‘colleges of a university’ and an appeal was brought to the courts to consider how that definition should apply in practice.
SAE Education, a corporate provider of education and training in audio and digital media technologies and production, held various agreements to teach undergraduate degree courses in collaboration with Middlesex University.
HMRC formed the opinion that SAE Education did not qualify for the education exemption because it was not sufficiently integrated with Middlesex University to be a college of that university for the purposes of the VAT legislation.
However, after a lengthy litigation, the Supreme Court found in favour of SAE Education, deciding that it did qualify to be treated as a college of Middlesex University and was therefore entitled to VAT exemption on its supplies of education.
The Supreme Court’s decision
In the Supreme Court’s view, the correct approach to determine whether a body is a ‘college of a university’ is to ascertain the nature and purpose of its educational activities and the context in which they are delivered rather than the precise nature of the legal and constitutional relationship between the body that provides them and its university.
The Supreme Court said it was incorrect to limit this aspect of the VAT exemption to colleges that are a constituent part of a university in a constitutional or structural sense. The Court thought it was entirely possible that an independent, private body providing education for profit could also be sufficiently integrated with a university to be regarded as its college for VAT purposes.
The Court thought that that the following five questions are likely to be highly relevant in assessing whether a body is a college of a university:
- Whether they have a common understanding that the body is a college of the university
- Whether the body can enrol or matriculate students as students of the university
- Whether those students are generally treated as students of the university during the course of their period of study
- Whether the body provides courses of study which are approved by the university, and
- Whether the body can in due course present its students for examination for a degree from the university.
HMRC’s updated guidance
HMRC’s updated manual VATEDU39000 now incorporates commentary on the SAE Education judgment and its previous guidance in Information Sheet 03/10. This includes a number of practical examples to indicate where HMRC will consider that the VAT exemption applies.
In HMRC’s view, there are three broad tests that must be met for the exemption to apply.
- There must be a close relationship between the university and the company
- The company must provide university level education leading to a qualification awarded by the parent university or a nationally recognised body
- Students on the course are registered/enrolled with the parent university, are subject to its rules and regulations, and are awarded qualifications by it.
The new guidance also states that a company that provides only ‘closed courses’ (i.e. those which are not offered to the public at large and are restricted to a specific class of persons rather than being dependent on academic ability) will not qualify as a ‘college of a university’. However, exemption may still be available for closed course providers that are wholly owned by the university or those who provide a mixture of closed and open courses.
What does this mean for other education providers?
While eligibility for VAT exemption will still depend on the precise nature of individual contracts between a provider and a university, it is possible that more educational bodies may qualify for the exemption as a result of the SAE decision and the new HMRC guidance.
In the meantime, external providers should re-examine their trading relationships with universities that involve the delivery of education or vocational courses to students and consider whether there may be an opportunity to make VAT savings.
For help and advice on any VAT issue for not-for-profit organisations, please contact Wayne Neale or Glyn Woodhouse.