Find out how VAT applies to education, research, vocational training, examination services and goods and services connected with these activites.
1.1 What this notice is about
This notice explains the VAT treatment of:
- vocational training
- goods and services provided in connection with these activities
- examination services
There’s also a section that deals with the VAT treatment of school photographs.
The notice also tells how to decide whether someone is in business for VAT purposes and why this is important.
This notice does not cover:
- supplies by youth clubs - see Youth clubs’ exemptions (VAT Notice 701/35)
- supplies by day nurseries, crèches, playgroups and similar establishments for children under 5 years of age - see Welfare services and goods (VAT Notice 701/2)
- special reliefs for student accommodation - see Notice 708: buildings and construction
- special reliefs for charities, including charity advertising - see How VAT affects charities (VAT Notice 701/1)
- the exemption of certain sporting and physical activities - see Sport supplies that are VAT exempt (VAT Notice 701/45)
1.2 Basic VAT principles to be aware of when reading this notice
This information helps anyone involved in the provision of education, vocational training or research, to have a broad understanding of the main VAT principles. This should be read before looking in more detail at the sections of this notice that are relevant to your particular circumstances.
Education provided for no charge
If the education is being provided for no charge (for example, local authority (LA) maintained schools, city technology colleges, sixth form colleges, academies and free schools, see paragraph 3.2), the VAT consequences are that this is not ‘in business’ for VAT purposes (see section 3) and:
- the education provided is outside the scope of VAT
- any closely-related goods or services provided, at or below cost, are outside the scope of VAT
- the sales of other goods or services are taxed in the normal way
School, higher or further education provided for a charge
- the education provided is exempt
- any ‘closely-related’ goods or services provided are exempt
- the sales of other goods or services are taxed in the normal way
For a non-eligible body (see section 4) the education, and other goods and services provided, is taxed in the normal way.
Private tuition provided by a sole proprietor or partner
If private tuition is provided by a sole proprietor or partner (see section 6), the VAT consequences are that the tuition:
- carried out is exempt
- that employees or other helpers carry out is standard-rated
Tuition in English as a foreign language supplied by a commercial provider
If tuition in English as a foreign language (EFL) (see section 9) is supplied by a commercial provider, the VAT consequences are that:
- the EFL provided is exempt
- any other education provided is standard-rated
Vocational training provided for a charge
If vocational training is provided for a charge (see paragraph 5.3), the VAT consequences are either for:
- an eligible body, other than a commercial provider of tuition in EFL (see section 4), the vocational training is exempt
- a non-eligible body (see section 4), the vocational training is exempt to the extent that it’s funded under an approved government funding scheme (see section 13)
Research provided for a charge
If research is provided for a charge (see paragraph 5.6), the VAT consequences are that with effect from 1 August 2013 supplies of business research are standard-rated but see paragraph 5.7 regarding certain transitional arrangements.
1.3 Other notices
This notice assumes that the reader has a knowledge of the principles of VAT explained in VAT guide (VAT Notice 700). Local authorities and similar bodies (VAT Notice 749) may also be beneficial.
If both taxable and exempt supplies are being made see Partial exemption (VAT Notice 706).
1.4 The law covering this notice
The VAT Act 1994, Schedule 9, Group 6 provides exemption for the provision of education, vocational training and closely-related goods and services.
The Value Added Tax (Education) Order 2013 concerns supplies of research.
2. Business activities for VAT purposes
2.1 Business activities
It’s important to establish whether a business supply of goods or services is being made as this will determine how it should be treated for the purpose of VAT. If the activities are not business they will be outside the scope of VAT.
2.2 The meaning of ‘business’
An activity is business if it:
- is mainly concerned with making supplies to other persons for any form of payment or consideration, in money or otherwise
- continues over a period of time with some degree of frequency and scale
Do not assume that the activity will be non-business simply because no profit is being made from it.
There’s more information about the meaning of business in VAT guide (VAT Notice 700).
2.3 Making a supply
If education is provided for any form of payment then that will be a supply for VAT purposes. If no payment is received it will be outside the scope of VAT.
2.4 When education is a business activity
There are 2 normal sources of funding for education. These are:
- non-business, government grants (usually from a funding agency)
- business, when a charge is being made for the education provided
2.5 VAT treatment of charges for education
The VAT treatment is unaffected by who pays the charge whether the student, employer or a LA.
Education is still a business activity even if the charge is not enough to meet the full cost of providing it and it’s subsidised from some other source, such as a grant from central government or a bursary or scholarship.
Where education is wholly funded by grants, in general, direct funding by local or central government is not consideration for a supply of education, or a business activity, and is outside the scope of VAT.
Where education is partly funded by grants, if the education provided to an individual is funded by a combination of government grants and by making a charge, it’s a supply for VAT purposes. The government funding is a contribution to the business activity and is outside the scope of VAT
3. Education providers
3.1 Educational institutions that are in business
These establishments require payment for the education they provide, so their education is a business activity:
- independent fee paying schools, including non-maintained special schools
- institutions teaching EFL
3.2 Educational institutions that are not in business
These establishments normally make no charge for the education they provide, so their education is not a business activity:
- community schools
- foundation schools
- voluntary aided schools, including former special agreement schools
- voluntary controlled schools
- community special schools
- foundation special schools
- grant maintained (integrated) schools (Northern Ireland)
- self governing schools (Scotland)
- city technology colleges
- free schools
There are also sixth form, tertiary and further education colleges, which do not charge for students who are 19 years or under (18 years or under in Scotland) at the start of their courses, but charge students over that age and foreign nationals. Here the age of the student is immaterial. When a charge is made, the education is a business supply.
These establishments may be in business for other activities they carry out (see paragraph 3.1).
4. Eligible body status
4.1 An eligible body
An eligible body is:
- a school, university, sixth form college, tertiary college or further education college or other centrally funded higher or further education institution (defined as such under the Education Acts)
- the governing body of one of these institutions:
- government department or executive agency
- non-profit making body that carries out duties of an essentially public nature similar to those carried out by a LA or government department
- health authority
- non-profit making organisation that meets certain conditions
- commercial provider of tuition in EFL, in which case special rules will apply (see section 9)
4.2 Commercial providers of education (other than tuition in EFL)
If the education is provided by one of these (with a view to making and distributing profits) it is unlikely to be an eligible body:
- tutorial college
- computer training organisation
- secretarial college
- correspondence college
4.3 A non-profit making organisation
An organisation is likely to be an eligible body, where it’s a charity, professional body or company:
- that cannot and does not distribute any profit it makes
- with any profit that might arise from its supplies of education, research or vocational training is used solely for the continuation or improvement of such supplies
4.4 How to establish the VAT liability of the business supplies
You must establish whether the supplies are:
- being made by an ‘eligible body’ (see paragraph 4.1)
- of education or vocational training (see section 5)
If you are an eligible body (see paragraph 4.1) the supplies of education and vocational training are exempt from VAT.
4.5 The meaning of the term ‘does not distribute any profit’
Distributing profits does not just include paying a dividend to shareholders. It also includes making a payment or donation to another body, even where the recipient is a charity. Management charges or other fees paid to an associated company or individual may also be viewed as a distribution of profits.
It will be necessary to provide reasonable evidence that the profits cannot be distributed and that if the organisation’s activities do generate a profit that they will be recycled back into its education or training activities. For example, the Memorandum and Articles of Association, or some other constitutional document, containing a suitable reference or clause, may be acceptable as evidence of how profits are to be treated, although it’s what takes place in practice which will determine whether the exemption applies.
This term covers UK universities, and any college, institution, school or hall of a UK university. But it does not include subsidiary companies that universities set up to pursue commercial business interests.
But in some cases where a university company provides education as its main business activity it may be acting as ‘a college, institution, school or hall of a university’ and could therefore be treated as an eligible body. This means that any education or training provided by the university trading company is an exempt supply of education.
The treatment of colleges of a university is a complex area of VAT, contact HMRC if you are unsure of your position.
5. Education, vocational training and research
5.1 What the term ‘education’ covers
Education means a course, class or lesson of instruction or study in any subject, regardless of when and where it takes place.
- educational seminars
- conferences and symposia
- recreational and sporting courses
- distance teaching and associated materials
If a separate charge is made for registration, this is part of the provision of education.
Education does not include admission to events such as:
- sports meetings
5.2 Sports coaching
In the sports sector, education includes classes that are led and directed, rather than merely supervised. For example:
|If the supplier is||and||then it’s a|
|running a gymnasium||supplying instruction in the use of equipment and warming-up techniques and assess a person when they first enrol
charging the person to use the gym in a separate session where no instruction takes place
|supply of education
charge for admission
|running a swimming pool||staff are on hand primarily to coach
staff are on hand primarily to satisfy health and safety and insurance requirements
|supply of education
charge for admission
For more information on the conditions under which sports may be exempted from VAT, see Sport supplies that are VAT exempt (VAT Notice 701/45).
5.3 The meaning of the term ‘vocational training’
Vocational training covers training or re-training and work experience for:
- paid employment
- voluntary employment in areas beneficial to the community as a whole, education, health, safety, welfare, and charity work in general
Vocational training occurs where trainees attend courses, conferences, lectures, workshops or seminars and the purpose is to:
- prepare for future employment
- add to their knowledge to improve their performance in their current work
Vocational training does not occur where (through counselling, business advice or consultancy) the purpose is to improve the working practices and efficiency of an organisation as a whole.
5.4 Training supplied by eligible bodies
The training is exempt from VAT even if the cost is specifically subsidised by the eligible body.
For further information on a:
- LA, see Local authorities and similar bodies (VAT Notice 749)
- commercial provider of tuition in EFL, see section 9
5.5 Training supplied by non-eligible bodies
Supplies of training will be exempt if someone is contracted or subcontracted to provide education or vocational training under one of the government’s approved training schemes and the services are ultimately funded by:
- the Education and Skills Funding Agency (ESFA)
- the apprenticeship service account (funded through the levy) to pay external providers for apprenticeship training as announced in Apprenticeship funding: how it will work
- the National Council for Education and Training for Wales
- a Local Enterprise Company
- the European Social Fund (under a scheme approved by the Department for Education (DfE)
Education and vocational training may also be exempt if supplied by a:
- sole proprietor
5.6 The meaning of the term ‘research’
- original investigation undertaken in order to gain, advance or expand knowledge and understanding
- devising a specialised software programme as part of a research project before carrying out the main tasks
Research does not include:
- confirming existing knowledge or understanding
- business efficiency advice
- collecting and recording statistics without also collating, analysing, or interpreting them
- market research
- opinion polling
- writing computer programmes
- routine testing and analysis of materials, components and processes
The fact that a project may have a specific commercial application does not necessarily mean that it cannot be research. For example, much research funded by the Department for Business, Energy and Industrial Strategy and by Research Councils (for example, Particle Physics and Astronomy Research Council) is aimed at developing improved equipment or techniques for use in industry.
5.7 Supplies of research by an eligible body
Generally research is outside the scope of VAT when it’s funded by either the public sector or by the charitable sector for the wider public benefit. But each case needs to be considered on its own merits.
The VAT exemption for supplies of business research between eligible bodies was withdrawn on 1 August 2013. But there’s a transitional arrangement for supplies of business research where the written contract was entered into before 1 August 2013. This applies whether or not work has already commenced, which allows the exemption to continue to apply to services within the scope of the contract as at 31 July 2013.
Supplies under the contract will be a continuous supply of services. Each liability of each supply is individually determined. If a supply:
- is made wholly under the contract as it was on 31 July 2013, that supply will be exempt from VAT
- is wholly for an extended part of the contract, that supply will be standard-rated
- relates in part for the contract as it stood as at 1 August 2013 and in part from extended parts of the contract, then that whole supply is taxable at the standard rate
As this is a single supply, there can be no apportionment. Supplies can only be exempt if they fall wholly within the scope of the contract as at 1 August 2013, otherwise they’re taxable. Research providers that want to benefit from the exemption should ensure all supplies that are within the scope of the contract as at 31 July are invoiced or paid on their own and not with any work relating to the extended supplies.
Some minor variations that will not affect the liability of the original contract include:
- changing the supplier of a sub-contracted service
- changing the order the contract is performed in
- minor changes to the delivery time of the contract and milestones (less than 3 months) providing there is no additional consideration
But substantial variations may include one or more of these:
- increases in the length of the contract (over 3 months)
- payment of additional consideration
- requirement for new or additional tests to be performed
- changes to the product or topic on which research is being carried out
If a substantial variation is made to a written contract as it stood at 31 July 2013, supplies that relate to the changes will be subject to VAT at 20% and changes that remain within the scope of the contract as it stood at 31 July 2013 remain exempt.
Place of supply of services (VAT Notice 741A) covers the VAT treatment of research to overseas bodies.
5.8 European Commission’s Framework 6 and 7 and Horizon 2020 programmes
Research provided under the European Commission’s Framework 6 Programme is a supply, but because of its status as a recognised international organisation, VAT should not be charged to the Commission. But special rules allow for the recovery as input tax on the VAT that has been charged to the eligible body which directly relates to this supply (see VAT guide (VAT Notice 700)).
But funding under the Framework 7 and Horizon 2020 programmes is grant income. As such, where VAT is incurred on goods and services purchased purely to support non-business research activities, it is not input tax and cannot be recovered.
You can get further information about this from our helpline.
6. Private tuition
6.1 The treatment of private tuition
This table will help to decide whether the private tuition supplied by an individual teacher, working in a personal capacity, is exempt from VAT.
|If the teacher is||and||then|
|a sole proprietor or member of a partnership||the subject is one taught regularly in a number of schools or universities
takes on a teacher or teachers to help in carrying out the instruction
|it’s an exempt supply of private tuition
even though the tuition delivered by teacher (as sole proprietor or partner) may still qualify as exempt private tuition, the tuition that others deliver is standard-rated
If a teacher takes on another teacher (or several others) to assist, either:
- there should be an apportionment of supplies of tuition between exempt and taxable elements (using any fair and reasonable method)
- all supplies of tuition should be treated as taxable regardless of who actually delivers it
6.2 Treatment of goods or services sold in connection with private tuition
If the goods and services supplied with private tuition are not an integral part of the supply of tuition they must be treated as standard-rated unless relief is available elsewhere. This applies even if the goods and services are closely related to the private tuition itself (see section 8).
7. Examination services
7.1 The meaning of the term ‘examination services’
Examination services (see paragraph 7.2 for VAT treatment) include:
- setting and marking examinations
- setting educational or training standards
- making assessments
- other services provided with a view to ensuring that educational and training standards are maintained
- services connected with GCSE and GCE examinations and National Curriculum tests
- National Vocational Qualification (NVQ) assessments
- course accreditation services
- certification (including issuing duplicates)
- registering candidates
These are not examination services (unless they are provided as part of a broad package of predominantly examination services):
- secretarial services
- advertising services
- promotional services
7.2 Exempt supplies of examination services
Eligible body (see paragraph 4.2) - the supplies of examination services are exempt.
Non-eligible body (see paragraph 4.2) - the supplies are exempt if the person receiving the services is either an:
- eligible body
- individual receiving education or vocational training that itself is not liable to VAT such as:
- pupils of independent fee paying schools (as legally defined)
- pupils of community, foundation or voluntary schools
- students of further education colleges
- trainees on government approved training schemes
- employees receiving in-house training from their employers
The exemption also applies to the end-point assessment required under the apprenticeship standard to the extent that it is paid for from the apprenticeship service account (funded through the levy). The circumstances are that the individual receiving the apprenticeship training must undertake the assessment after that training activity has been completed. However, the assessment is undertaken by a different organisation from the training provider.
7.3 Payments by pupils or parents to schools passed on to examination boards
When schools receive payments from pupils or parents and pass them on to examination boards they can normally treat them as disbursements. For more information on disbursements see VAT guide (VAT Notice 700).
7.4 School inspections
The services of school inspections are exempt if they’re either:
- made by an eligible body
- supplied direct to another eligible body (including a school or LA)
8. Supplies provided with education
8.1 How to treat income from other goods and services
Where goods and services are supplied by an education provider who is:
- an eligible body, then they’re exempt if they qualify as closely related (see paragraphs 8.2, 8.3 and 8.6)
- a non-eligible body, then they’re standard-rated unless relief is available elsewhere
8.2 The meaning of the term ‘closely related’
In general terms, closely related refers only to goods and services that are:
- for the direct use of the pupil, student or trainee
- necessary for delivering the education to that person
An eligible body should treat any of the following provided to it (subject to the conditions of paragraphs 8.4 and 8.5) as closely related:
- school trips
- field trips
8.3 Goods and services that are not closely related to supplies of education
The following are examples of goods and services that are taxable in principle unless relief is available elsewhere:
- supplies to staff (including tutors on summer schools) and to other non-students
- sales of goods from school shops, campus shops and student bars
- sales from most vending machines (for further information see Catering, takeaway food (VAT Notice 709/1))
- sales of goods not needed for regular use in class
- separately charged laundry and other personal services
- sales of school uniforms and sports clothing
- admission charges (other than for taking part in sports activities) - for example, admission to plays, concerts, dances, sporting venues, exhibitions, museums and zoos
- administration and management services
- commission for allowing sales by outside organisations at an educational establishment
- sales by a sole proprietor or partnership in connection with private tuition
Except for closely-related supplies between eligible bodies, there is no general exemption for goods and services supplied to providers of education, research and vocational training for use in their educational activities.
8.4 Closely-related goods and services that qualify for zero rating elsewhere
When closely-related goods and services qualify for zero rating they may be treated as either zero-rated or exempt.
8.5 Closely-related goods and services sold to pupils by an eligible body
This table explains the position:
|If an eligible body||then|
|supplies education, research or vocational training in the course or furtherance of business (see sections 2 and 3)||the closely-related goods and services it sells to its pupils, students and trainees are exempt|
|does not supply education, research or vocational training in the course or furtherance of business, but provides it for no charge (see sections 2 and 3)||the closely-related goods and services it sells to its pupils, students and trainees are non-business and outside the scope of VAT, providing they’re sold at or below cost|
If the goods and services sold are not closely related to the education provided, they’re standard-rated unless relief is available elsewhere.
8.6 Closely-related goods and services sold to the pupils of other eligible bodies
The following table, which should be read together with paragraph 1.2, and section 2, explains when VAT should be charged on closely-related goods and services sold to the pupils, students and trainees of other eligible bodies when an eligible body is not supplying education to them.
|If the eligible body is||then it|
|an educational institution such as a school, college or university||should not charge VAT on the closely-related goods and services it provides direct to the pupils, students and trainees of other schools, colleges or universities that are also eligible bodies (see paragraph 4.2)|
|not a school, college or university (see paragraph 4.2)||should charge VAT on the closely-related goods and services it provides unless relief is available elsewhere|
This table gives examples that will also help:
|If a body is||and it||then it|
|a school||shares a catering outlet with another educational institution which is also an eligible body||should not charge VAT on the meals provided direct to the pupils or students of that institution|
|a university||contracts to provide conference facilities to another eligible body (rather than direct to its students)||should charge VAT unless the recipient body is going to use the facilities in connection with an exempt supply of education, for example|
|an eligible body (see paragraph 4.2)||supplies closely-related goods and services to a LA-maintained school||should charge VAT because the school does not supply education but provides it for no charge|
|an eligible body||supplies catering and accommodation to a charity which uses them in connection with free training for its employees||should charge VAT because the charity is not supplying the training|
8.7 Further information on supplies that are not closely related
|If information is required on||it will be found in|
|a school arranging a contract with a school photographer||section 12|
|catering supplies (or arrangements made for a contractor to supply catering either on their own behalf or as an agent)||Catering, takeaway food (VAT Notice 709/1)|
|the supply of living accommodation||Hotels and holiday accommodation (VAT Notice 709/3)|
|the purchase and resale of travel, hotel, holiday and certain other services as part of a course of tuition||Tour Operators Margin Scheme (VAT Notice 709/5) and Travel agents (VAT Notice 709/6)|
9. English as a foreign language
9.1 Providers of EFL
If a commercial body makes supplies of EFL as well as supplies of other education it should only treat as exempt:
- supplies of EFL
- any closely-related supplies that meet the conditions outlined in section 8 - this includes any closely-related supplies made to commercial providers of EFL
Tuition includes all elements that are integral to the course, held out for sale as such, and are the means by which it’s intended to promote fluency in the use of the English language. These can include:
- sports and games
- recreational activities
- social activities
Any separate supplies of closely-related goods and services are also exempt, providing they meet the conditions set out in section 8.
The exemption does not extend to any other educational or training courses supplied, such as tuition in a language other than English or training people to teach EFL.
9.2 Tuition in EFL as part of another course
A commercial provider who supplies courses in modular form, comprising some tuition in EFL plus broader coverage of other curricular subjects, should use any fair and reasonable method to apportion the supply to reflect the exempt element.
If it is inconvenient or impractical to do this, the whole supply may be standard-rated.
9.3 Tour Operators’ Margin Scheme
The scheme must be used to account for VAT on these supplies, if any of the following are purchased and resold:
- certain other services
10. VAT treatment of LA schools
10.1 LA schools
These are schools maintained by an LA and receive recurrent funding from the LA under arrangements set out in sections 45-53 of the School Standards and Framework Act (SSFA) 1998. They fall into the following 3 categories:
- community (including community special schools)
- foundation (including foundation special schools)
- voluntary (comprising both voluntary aided and voluntary controlled schools)
They do not include:
- nursery schools
- pupil referral units
10.2 Goods and services bought by the governors for the school
Under section 49(5) of the SSFA, governors act as an agent of the LA when they pay for these goods and services using money from either:
- the school’s delegated budget
- amounts that the school receives from LA central funds for specific purposes
The delegated budget covers items such as equipment or salaries, and the governors are free to spend it for the purposes of the school as they see fit.
LA central funds cover items such as:
- capital expenditure
- special needs provision
- home-to-school transport
The governors do not act as an agent of the LA in respect of loans that they take out and repay using funds obtained from the LA.
10.3 VAT treatment when governors act as agents of the LA
The LA can recover the VAT incurred under section 33 of the VAT Act 1994. You can find out more about this in Local authorities and similar bodies (VAT Notice 749).
10.4 Can the LA recover VAT on goods and services bought for the school using non-LA funds
The LA can recover the VAT only if the school opts to donate the money to the LA and the latter buys the goods and services itself. The LA must meet the conditions set out in Local authorities and similar bodies (VAT Notice 749). In other words, the LA must:
|1||Place the order|
|2||Make the purchase itself|
|3||Receive the supply|
|4||Receive a tax invoice addressed to it|
|6||Use the goods and services for the educational purposes of the school|
|7||Retain ownership and adequate records|
This route is not available to:
- foundation schools, with regard to certain direct grants they receive from the DfE for construction services
- voluntary aided schools, with regard to income, including direct grants from the DfE, used to fund works that are the responsibility of the governors (see paragraph 15.7)
10.5 Income kept by the school which it has received from letting its premises
10.6 When only part of the VAT a school is charged meets the conditions for recovery by the LA
The school or LA should make a fair and reasonable apportionment between the VAT it can recover and the VAT it cannot.
10.7 Who is responsible for accounting for VAT
If the entity is not a governing body and is not acting as an agent of the LA, then it is its responsibility to account for VAT, not the LA’s. If it makes taxable supplies, then, subject to the normal registration threshold, it must register separately for VAT.
10.8 Responsibility for registering in these circumstances
It depends on the particular facts of the case as to who should register for VAT. The registrable entity might be:
- the governing body
- the head teacher acting as agent of the governors
- a Parent Teacher Association
- some other body
10.9 Can governors, headteacher or another body recover VAT charged on purchases
If the governors, headteacher or other body has to register for VAT they can recover VAT according to the normal rules (see VAT guide (VAT Notice 700)). They cannot make use of the special provisions available to local authorities (see paragraph 10.3).
11. Education Action Zones
11.1 Can an Education Action Zone (EAZ) recover the VAT charged on purchases
A statutory EAZ (one established under the SSFA 1998) is not part of a LA. Neither is it in business for VAT purposes (see sections 2 and 3). This means that the EAZ cannot recover any VAT it incurs on purchases except where it acts as an agent of the LA.
This table will help an EAZ to decide when VAT can be recovered.
|If an EAZ buys goods and services||then||because|
|using funds delegated to it by a LA via the governors of participating schools||the LA can recover any VAT incurred||the EAZ is acting as agent to the local education authority in the purchase|
|using funds that it has obtained from other sources||the LA cannot recover any VAT incurred||the EAZ is not acting as its agent|
|via the governors of participating schools using funds it has obtained from non-LA sources||the LA cannot recover any VAT incurred||the governors are not acting as its agent|
|and incurs VAT that the LA cannot recover||the VAT sticks with the EAZ as a real cost||the EAZ makes no taxable supplies of its own and so is not registrable for VAT|
|from a LA using funding channelled to it by the LA via the governors of participating schools||the transaction is outside the scope of VAT||the EAZ is acting as agent of the LA and no supply takes place|
11.2 Supplies of staff from a LA to an EAZ
If a LA supplies teaching staff to an EAZ for purposes of instruction, the LA should not charge VAT. This is because both the LA and the EAZ are eligible bodies (see paragraph 4.2) and the supply is exempt.
11.3 Non-statutory EAZs
If an EAZ is non-statutory (that is, one not established under the SSFA 1998), then the LA can recover VAT on goods and services supplied to the EAZ. This is because the EAZ is acting as an agent of the LA in the purchase.
12. School photographs
12.1 Supplies of photographs
A photographer may sell photographs either:
- direct to the pupils or their parents
- to the school or LA
The school or LA may make a separate supply of the use of premises, facilities and other services to the photographer. In that event the position is that where the photographer sells the photographs to the:
- pupils or their parents, the photographer will pay the school a commission
- school (for onward sale to the pupils or parents) they will be sold at a discount
12.2 VAT treatment of the commission or discount (for the use of school premises)
The VAT treatment of the commission that the photographer pays to the school (for the photographs that it sells direct to pupils or parents) or the discount (for the photographs that it sells to the school) depends on whether the school is independent or LA-maintained.
If it’s LA-maintained, the VAT treatment will depend on:
- what type of school it is
- whether it’s registered for VAT
- whether it acts for the LA or the governing body in supplying the photographer with the use of its premises and facilities
So, in order to decide the correct VAT treatment of the commission or discount, each time a contract is entered into, the photographer must first establish whether the headteacher is acting for the LA or the governors.
In the following examples, the headteacher is employed by the governors of the school and acts as such on their behalf:
- foundation and voluntary aided schools in England
- self-governing schools in Scotland
- voluntary maintained, voluntary grammar and grant maintained integrated schools in Northern Ireland
In these cases the school will have to charge VAT on the supply of the premises and use of facilities to the photographer, if either the:
- taxable turnover from the school, including the income that the school receives from the photographer, exceeds the VAT registration threshold
- school has registered voluntarily for VAT
The consideration for this supply is the commission or the discount that the photographer pays to the school.
12.3 Photographs supplied to a LA or school to sell to parents or pupils
VAT will be due on the price that the photographer actually charges.
Where the customer is:
- registered for VAT (for example, the LA, school, governing body or Parent Teacher Association) it may recover the VAT it has been charged (subject to the normal rules) and must charge VAT on the full value of the photographs supplied to pupils
- not registered for VAT further information may be obtained from our helpline, although VAT should be charged initially until advice has been receive - in this event a Notice of Direction may be issued requiring the photographer to account for VAT on the price charged by the unregistered body to the pupil (see paragraph 12.2)
13. Government approved vocational training schemes
This section explains what the main schemes are and how they work. It also gives guidance about when VAT should be charged and the arrangements for issuing VAT invoices.
13.1 The schemes
These are vocational training schemes that provide vocational training to young or unemployed people. They are approved by:
- the DfE
- the Department for Work and Pensions (through Job Centre Plus)
- devolved administrations in Wales, Scotland and Northern Ireland
They’re administered and funded by:
- the ESFA
- local authorities in England (working together with the EFSA)
- the Welsh Assembly
- Skills Development Scotland
- the Training and Employment Agency in Northern Ireland
They also include:
- apprenticeships funded from the apprenticeship service account (through the levy) with effect from 1 May 2017 as announced in Apprenticeship funding: how it will work
- approved schemes that are paid for using funds derived from the European Social Fund
- training administered by further education colleges and funded by any of the bodies listed
- the training of workplace assessors in connection with National Vocational Qualifications
- training aimed at providing additional skills for use in the workplace (for example, to Health and Safety and First Aid Officers)
13.2 When exemption applies
Exemption from VAT applies to supplies of:
- vocational training, including work experience (see paragraph 5.3, under one of the schemes listed in paragraph 13.1)
- any goods and services supplied directly to trainees that are essential to the training
But only to the extent that they’re ultimately funded by the government as detailed in paragraph 13.1.
An eligible body’s (see paragraph 4.1) supplies of vocational training are exempt regardless of how they’re funded.
The exemption does not cover:
- counselling and careers guidance services (unless they’re a compulsory part of a vocational training package)
- accreditation or assessment services - although these may qualify for exemption as examination services (see section 7)
13.3 VAT on vocational training under a government approved scheme
VAT should not be charged as the supply is exempt, but:
|the trainee or an employer pays part of the cost of the training from their own resources||that part of the supply is not covered by the exemption||the exempt and standard-rated elements are to be established for the purposes of apportionment unless the training provider is an eligible body (see paragraph 4.1)|
|with the provider of the training contracts with a further education college||the proportion of the payment by the college derives from funds listed in paragraph 13.1 must be established||apportioned between exempt and standard-rated elements unless the training provider is an eligible body (see paragraph 4.1)|
|the contract allows for a separate supply of management services||the management services are not covered by the exemption||VAT must charged|
Supplies which are partly funded by an employer or an employee and partly funded by the apprenticeship levy that was introduced on 6 April 2017, will only be exempt to the extent of the funding from the apprenticeship service account. This includes any monthly top up from the government to that account.
13.4 Subcontractors to training providers
Government approved vocational training programme
VAT should not be charged on services provided by the subcontractor to the extent that the training provider pays for the services (and any goods and services supplied by the subcontractor directly to trainees that are essential to the training) using funding obtained from any of the sources listed in paragraph 13.1.
Any funding that the subcontractor receives but must pass on to trainees or students as statutory living allowances, travel costs or lodging expenses is outside the scope of VAT. It does not form part of the consideration for the supply of vocational training (see paragraph 13.5).
Training provided to businesses for their employees and to individuals
It’s the responsibility of the subcontractor to account for VAT where it’s due, but also to exempt supplies when they qualify for exemption.
|If a body is||then||and|
|an eligible body (see paragraph 4.1)||supplies to it are exempt||should not be charged VAT|
|not an eligible body (see paragraph 4.1)||it will be necessary to establish with the customer whether the supplies made by the contractor are ultimately funded by any of the bodies listed in paragraph 13.1||1) evidence should be requested,
2) retained, and
3) the supplies are to be treated as exempt to the extent that they relate to that funding
13.5 Work placement providers
Where work experience is provided to a trainee or an employee of another business or a college student under one of the government’s approved vocational training schemes, the business or college must charge the placement provider VAT because they benefit from the services of the trainee, employee or student. This is separate from the supply of exempt vocational training to the trainee.
Unemployed trainees qualify for a statutory living allowance and, possibly, expenses. If a placement provider has to fund any part of these allowances or expenses from their own resources, the amount they pay is consideration for the standard-rated supply to the placement provider of the trainee’s services by the training provider or further education college.
This is the case even though the placement provider may make no actual payment to the training provider or college itself.
If a trainee is also the placement provider’s own employee, any payments made to them as wages or allowances are outside the scope of VAT.
13.6 Is VAT recoverable by a body that is making exempt services under a vocational training scheme
VAT will probably not be recoverable. VAT that relates to exempt activities cannot be recovered unless it’s below certain limits. Further information is provided in Partial exemption (VAT Notice 706).
13.7 Careers services or counselling paid for by the ESFA
If a supply is to the third party who actually benefits from the services rather than to the ESFA, any VAT invoices should be issued to the third party and not to the ESFA.
If the contract is set up in such a way that the supply is to the ESFA, any VAT invoice should be issued to them (see paragraph 14.1).
There’s more information about issuing VAT invoices in VAT guide (VAT Notice 700).
13.8 The VAT liability of the services supplied under the New Deal and Flexible New Deal
The New Deal and Flexible New Deal are subject to the same VAT principles as other government approved vocational training schemes. But, because it’s designed to respond flexibly to the conditions and requirements of individual districts and regions, it uses a broad variety of contractual arrangements and methods of delivery. The VAT treatment of the services depends on the contractual arrangements between supplier and customer and precisely which services are being provided.
The following tables will assist in deciding the liability of the services supplied.
|Job Centre Plus funding is used to buy in vocational training or work experience||the supply by the provider is exempt to the extent that this money is used to pay for the service||an apportionment should be made between exempt and standard-rated elements (unless the recipient of the supply is an eligible body - see paragraph 4.2)|
|a single supply comprises both vocational training and careers advice||the vocational training element can be exempted if it’s separately identifiable||the element of careers advice is to be standard-rated|
|the single supply comprises mostly vocational training||any taxable elements of the package may be disregarded if it’s not practical to identify them separately||the whole supply is to be exempted|
|in a New Deal and Flexible New Deal partnership work is subcontracted by one partner to another partner or to an unrelated third party in return for payment||that payment is consideration for the supply of services||the liability depends on what services are actually supplied|
|in a New Deal and Flexible New Deal consortium or joint venture and the lead partner or administrator passes on Jobcentre Plus funding to another member of the consortium||there is no supply of services to the other member of the consortium||the supply is to the Jobcentre Plus|
|in a New Deal and Flexible New Deal consortium or joint venture the lead partner or administrator charges another member of the consortium for passing on Jobcentre Plus funding||the payments by that member are consideration for the supply of a management service||the lead partner or administrator must charge VAT|
|New Deal and Flexible New Deal services are not provided but arrangements are made for others to carry them out but merely arrange for others to carry them out||(depending on what the contract says) the supply is one of a taxable management service to the Jobcentre Plus||the consideration for the supply is the amount supplier is allowed to retain to cover its administrative costs|
In general, consideration for the supply that is made to the Jobcentre Plus, is the total amount received from them, less any amount passed on to individuals by way of statutory living allowances and travel expenses.
This is subject to the proviso that all payments received from the Jobcentre Plus for trainees that are being employed are subsidies towards wage costs and therefore outside the scope of VAT.
14. Government business support and enterprise scheme
14.1 Providing business support and consultancy
Business support and consultancy services are standard-rated unless supplied as part of a broad package of government approved vocational training (see section 13).
|If a person supplying these services||then|
|contracts with a local business||the supply is to the business and if the supplier of the services is registered for VAT, that person should issue a VAT invoice, charge VAT on the full amount, show that the payment has in part been received from the ESFA|
|contracts with the ESFA||the supply is to the ESFA, and that person should issue the ESFA with the VAT invoice, and the ESFA might then make an onward supply of the services to the business|
There’s further information about issuing VAT invoices in VAT guide (VAT Notice 700).
14.2 Income received from Business Link
VAT should not be charged on income received from the local Business Link under the government’s Business Start-up scheme because this is not consideration for any supplies that have been made. But, it’s still possible to recover the VAT that has been incurred, subject to the normal rules, so long as it relates to taxable business activities.
There’s further information in VAT guide (VAT Notice 700).
15. Construction, land and property
15.1 VAT liability of building work
Most building work is standard-rated. This table provides a broad overview of works for educational establishments that can be zero-rated or reduced-rated:
|Where the work is the||and after the work the building will be used solely||then the work is|
|construction of a new building, or carrying out of an approved alteration to a listed building||as residential accommodation for students or school pupils, or by a charity for non-business purposes||zero-rated|
|construction of an annexe to an existing building||by a charity for non-business purposes||zero-rated|
|conversion of a dwelling||as residential accommodation for students or school pupils||reduced-rated|
15.2 Additional information on the VAT treatment of supplies of building work
Further information on zero-rated and reduced-rated supplies, including the detailed conditions that need to be met, can be found in VAT Notice 708: buildings and construction.
The notice also explains:
- the need for a certificate to be issued to the builder confirming that the building will be used solely for a qualifying use
- when a penalty may be imposed for issuing an incorrect certificate
- VAT liabilities that arise if the use of the building is changed
15.3 Purchasing and leasing of buildings
The sale or lease of a building may be standard-rated, zero-rated or exempt from VAT depending on the circumstances.
Broadly, zero rating applies to the first sale or long lease by the developer of a building intended for use either solely:
- as residential accommodation for students or school pupils
- by a charity for non-business purposes.
If the supply is not zero-rated then the sale of a building:
- less than 3 years old is standard-rated
- over 3 years old or the lease of a building is exempt from VAT
But the supplier may opt to tax an exempt supply and charge VAT unless the building is intended for use solely for one of the above zero-rated uses.
Further information on exemption and option to tax, including the detailed conditions that need to be met, can be found in Land and property (VAT Notice 742) and Opting to tax land and buildings (VAT Notice 742A).
15.4 Meaning of the term ‘charity’
With the exception of community schools and community special schools, all of the institutions listed in paragraph 3.2 have charitable status, together with universities and many independent schools. Other individual education providers may also be charities. How VAT affects charities (VAT Notice 701/1) contains further details.
15.5 ‘Non-business’ buildings used by charities
These are examples of business use buildings:
- any building, for example an assembly hall, at a fee-paying independent school
- any building at a further education college used for teaching fee-paying and non-fee paying students
- a sports hall at a foundation school that is regularly made available to the wider community for a charge, even if not for profit
15.6 The recovery of VAT charged on building work
VAT can be recovered according to the normal rules (see VAT guide (VAT Notice 700)).
15.7 VAT incurred by voluntary schools on building work
There are no special rules for voluntary controlled schools. But at a voluntary aided school the governors are responsible for:
- external repairs to buildings
- certain fixed items of furniture and equipment
The DfE normally funds these expenses by a direct grant covering 90% of the costs. When that occurs the governors cannot recover the VAT they incur when they contract for the work.
Occasionally the LA may agree to make contributions to works for which the governors are responsible. Previously when this occurred HMRC allowed the LA to recover the VAT incurred on such contributions but in the light of a policy review it was established that this goes beyond what the law permits. With effect from 1 September 2009 VAT may no longer be recovered by LAs in such circumstances as the supplies have not been made to them. You will find more information on this in HMRC guidance (V1-14).
A LA may continue to recover VAT on expenditure at a voluntary aided school for which the LA is statutorily responsible, or where the LA, rather than the governing body, procures a supply of works and pays for that supply from its own funds. In such cases HMRC accepts the LA receives the supply in connection with its non-business activities (see paragraph 10.4).
16. Supplies of fuel and power
16.1 Supplies of fuel and power at the reduced rate
Fuel and power may be supplied at the reduced rate of VAT (currently 5%) if a certificate is issued to the supplier confirming that it’s for a qualifying use. ‘Qualifying use’ means either:
- domestic use (including certain residential accommodation)
- use by a charity (see paragraph 15.2) for its non-business activities
If the fuel and power is partly for qualifying use and:
- at least 60% of the use is for that purpose, then all the supplies can be received at the reduced rate
- less than 60% of the use is for that purpose, there must be an apportionment between qualifying and non-qualifying use
There’s more about this relief in Fuel and power (VAT Notice 701/19).
17. Supplies by overseas agents
Where services are received from agents belonging in other EU member states and outside the EU for obtaining pupils or students, the organisation needs to be aware that with effect from January 2010 it may be required to register and account for any VAT that may be due on the services that it has been charged.
For further information see Place of supply of services (VAT Notice 741A).
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