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HMRC internal manual

VAT Education Manual

Group 6 Item 1 Education, research and vocational training provided by eligible bodies: what is education?: distance learning: how to determine the VAT treatment of distance learning courses

Establish precisely what is being supplied
Single or multiple supply?
Place of supply rules
What is the liability of the single supply?

Establish precisely what is being supplied

This means establishing the exact nature of the goods and/or services that are made available to the customer, for example

  • written material (whether in printed or electronic form);
  • access to tutorial support;
  • student assignments (including whether these are marked and the extent to which feedback is given to students);
  • classroom training; and
  • any examination or accreditation services.

In Creating Careers (CC) (V19509) a company supplied software packages to students at further education colleges and accounted for VAT on the supplies. When its accountants advised that these should be exempt for VAT purposes under VATA 1994, Schedule 9, Group 6, Item 5A CC submitted a repayment claim. HMRC rejected the claim but the tribunal allowed CC’s appeal, as it stated that evidence clearly shows that students learn from CC’s courses: they are educated by them. A CC course does not merely consist of a supply of goods or services relating to education: it constitutes the provision of education. They were far more than the mere provision of electronic textbooks. The provision of distance learning was a part of education which qualifies for exemption from VAT.

Single or multiple supply?

Having established the full extent and nature of what is being supplied, the next step is to determine whether this constitutes a single or multiple supply. To do this you will need to examine guidance at VATSC80000, which is essentially derived from the principles laid down in the Card Protection Plan Limited STC case (C-349/96). It is also particularly important to look at how the package is advertised.

Since the ECJ ruling on CPP, tribunals have tended to view supplies of distance learning as single supplies, a view shared by the House of Lords judgement in College of Estate Management (CEM) ([2005] UKHL 62). This decision is particularly helpful in underlining the fact that a single supply can be made up of more than one element and it is not necessary for there to be a principal or dominant element to which another is ancillary.

In the EC judgement in Faaborg Gelting Linien (Case C-231/94), food is seen as a component part of restaurant services and not ancillary. The House of Lords judgement in College of Estate Management found that the same sort of relationship existed between the educational services which the College provided to a student taking one of its distance-learning courses and the written materials which it provided to the student. Further, the fact that

  1. the largest single item of expenditure was on the production of study materials and
  2. the expected percentage of time spent on face to face tuition was 4.5%

did not preclude the decision reached by the House of Lords that the supply of a distance learning course by the college was a single supply of education.

Place of supply rules

If the trader is making supplies to customers belonging outside the UK, or is delivering classroom training outside the UK, you will need to consider the place of supply rules before considering UK liability law. Clearly, if it is established that the place of supply is outside the UK, then there will be no need to consider UK liability law.

The term educational services, which is used in place of supply law under services supplied where performed (SI 1992/3121, Article 15), refers only to supplies consisting of classroom or other face-to-face tuition, where physical performance is a determining factor. Thus a supply that consists purely of distance learning elements will not be covered by this rule. For these supplies you will need to consider whether there is a supply of services falling under Schedule 5 of the VAT Act 1994, or a supply of goods, in which case the normal place of supply rules for goods will apply.

For guidance on the place of supply rules please see VATPOSS.

What is the liability of the single supply?

Where it is established that there is a single supply you will almost certainly be trying to determine whether the supply is a supply of education or a supply of printed matter (or digitised equivalent). Where there is no element of tuition or tutorial support (including advice, feedback, marking etc) there is unlikely to be a supply of education. Where a supply does not include any tuition or tutorial support it could nonetheless include a number of elements, for example books, CDs and access to on-line facilities, which individually have different VAT treatments.

To determine the correct VAT treatment you will need to examine guidance at VATSC80000, which is essentially derived from the principles laid down in the Card Protection Plan Limited STC case (C-349/96).

In most cases there is likely to be a tuition or tutorial element in a supply of distance learning. The level of uptake of these services is unlikely to influence the VAT treatment of the supply, and in such cases, it is likely to be a single supply of education. Liability will therefore be dependent on whether or not the supplier qualifies as an eligible body: see VATEDU39000.

In characterising the single supply you should consider the House of Lords judgement in College of Estate Management. In reaching his conclusion Lord Walker underlined the need to take an overall view and to look for the essential purpose of a transaction. In doing this, account should be taken of the purpose of the students in undertaking the course and the benefits of successful completion. It may be helpful to review the advertising material for the course to determine these points. Where the course leads to a qualification there will almost certainly be a supply of education.

The liability of each supply will have to be determined on its own merits, although the following indicators should help you in this matter.

Indicators towards a supply of education:

  • successful completion of course leads to a recognised qualification;
  • course based on a recognised syllabus, such as GCSE, A-level, or a professional qualification;
  • the tutor/support services element is an essential (but not necessarily principal) component part of the course (whether or not taken up by the student);
  • assignments contribute to the successful completion of the course; or
  • the supplier is recognised as an education provider, such as a body listed in the Education Order 2000. (Please read the tribunal decision in the College of Estate Management case, which comments on this issue).

Indicators towards a supply of learning materials and or non-education services:

  • tutor involvement is not an element of the supply;
  • course does not lead to any qualification (this in itself is not conclusive).

Note: The extent to which students avail themselves of the tutorial support offered is unlikely to be determinative when considering whether a course comprises education, printed matter (or electronic equivalent), or both.


The Upper Tribunal’s decision in Metropolitan International Schools Ltd (“MIS”)

  • MIS provided distance learning courses.  The courses were designed to prepare customers for third party examinations such as those provided by the City & Guilds and potential students were interviewed to ensure that they were ready for the course. The School did not provide its own qualifications.  The courses included a comprehensive set of manuals, each of which included an assessment comprising a series questions designed to test the student’s progress.  The questions would then be marked by computer and the customer notified of the results and provided with some help and guidance in the form of a progress report.
  • As part of the distance learning, MIS provided other services to its customers, such as tutor support, payment of examination fees, DVDs reproducing some of the information in the manuals, a ‘virtual room’ enabling the wiring of various appliances to be studied, related computer software and a web forum to enable designs to be demonstrated and discussed.  In some cases practical sessions were also requested.
  • The Upper Tribunal decided that the transaction must be assessed objectively and viewed through the eyes of the typical consumer.  If one did that, MIS made a single supply consisting of the provision of education.   Although it could be argued that the manuals were the predominant element, that was not the test, and the First Tier Tribunal had been wrong to conclude otherwise.  If one looked objectively at what was provided, it was a blended course, in which MIS was contractually obliged to provide all of the different elements and none of the other elements were zero-rated manuals.  Typical students, viewing the course as presented in the marketing and contractual material, would consider that they were buying courses in which the manuals were important, but were not predominant and the supply was one of educational services.  The supply was therefore standard-rated.