Policy paper

Revenue and Customs Brief 11 (2018): VAT rule changes for higher education

Published 30 November 2018

1. Purpose of this brief

At Budget 2018, the government announced it will amend the VAT law from 1 August 2019 to ensure continuity of VAT treatment for English higher education (HE) providers under the Higher Education and Research Act 2017.

The change in legislation applies to English HE providers who register with the Office for Students (OfS) in the Approved (fee cap) category.

There are no changes to the VAT law affecting education in Scotland, Wales and Northern Ireland.

The relevant change remains subject to parliamentary approval.

2. Readership

HE providers in England and their advisers.

3. Background

VAT exemption currently applies to UK universities and their colleges, institutions conducted by higher education corporations (HECs) and other institutions that are designated as eligible to receive support from central funding.

There are changes to the way that HE providers are funded by the OfS from the start of the 2019 to 2020 academic year. These changes require an amendment to be made to the statutory definition of an eligible body in Note 1(c) of Group 6 of Schedule 9 to the VAT Act 1994.

Paragraph 4.1 of VAT Notice 701/30 (Education and Vocational training explains that an eligible body includes ‘a school, university, sixth form college, tertiary college or further education (FE) college or other centrally funded higher or FE institution’ (defined as such under the Education Acts).

4. Revised VAT treatment

Note 1(c) to Group 6 of Schedule 9 to the VAT Act 1994 is being amended in respect of HE institutions in England. Welsh HE providers are not affected by the change.

The exemptions that relate to FE will be unaffected, although some providers of FE that also provide HE may register with the OfS in the Approved (fee cap) category.

Note 1(c) currently refers to bodies that fall within subsections 91(5)(b) and (c) of the Further and Higher Education Act (FHEA) 1992, but subsection 91(5)(c) of FHEA 1992 will no longer apply to England once the Higher Education and Research Act 2017 fully commences.

Sub-section 91(5)(b) of FHEA 1992 will be amended so that this only applies to institutions in Wales.

In order to be bodies entitled to exempt their supplies, those English HE providers who are currently exempt by virtue of being HECs or designated institutions will in future need to be registered by the OfS in the Approved (fee cap) category.

All English HE providers who will become registered in the Approved (fee cap) category will also become entitled to exempt their supplies in future.

Note 1(c) and eligible status will not apply to other HE providers such as bodies that are registered by the OfS in the Approved category, or bodies that are not registered with them. However, such bodies may of course still qualify for eligible body status if, or to the extent that, they are covered by the other notes to Group 6.

The legislation will be laid in draft before Parliament and subject to parliamentary scrutiny and debate.

The overall impact of the change is to ensure that those HE providers that are currently eligible to receive central funding can continue to exempt their supplies of education.

5. Further information

You can find a more information in the guidance VAT rules for higher education providers (VAT information sheet 08/18).