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HMRC internal manual

VAT Education Manual

VAT EDU 39360: Group 6 Item 1: Education and vocational training provided by eligible bodies: Examples of university subsidiary training companies

Example one

A university establishes a wholly owned training company primarily to deliver nurses training to the National Health Service (NHS). The company, funded by a loan from the university, builds a new training centre on the university campus. The courses are of university standard and lead to the award of qualifications by the university. The university controls and monitors the services provided by the training company. The contract with the NHS stipulates the number of student places required and students on these courses are registered as students of the university with the same rights and obligations as any other student. The training company relies on the university to supply the staff to deliver the courses and its operations are integrated into the university administration system.

Conclusion

The company is wholly owned by the university and will be treated as ‘legally linked’. It is financially dependent on the university. The company receives public funding either directly from the university or indirectly through the university. It has limited resources of its own, operates from buildings located on the university campus and is generally dependent on the university’s infrastructure.

The company is providing education for the public benefit and therefore shares the aims of the university. These courses are designed to be university level education and are monitored and quality assured by the university. The students receive degrees at university award ceremonies.

The students are registered as students of the university and have the same rights as any other students of the university. They are also subject to the university’s code of behaviour and disciplinary regulations.

The overwhelming impression is that it is acting as a college or institution of the university. It therefore falls into that classification for the purposes of Note (1)(b).

Example two

The university sets up a company to deliver executive training to businesses. All the courses are ‘closed courses’. Its purpose is to generate income for the company, and any profits are gift aided to the university. The courses are delivered by university staff and are regarded as ‘university level’ although they are not subject to the university’s quality assurance process or validated by it. No award is given at the end of the course. The attendees are not treated as students of the university or subject to the university’s rules and regulations. The training company sets its own charges although it does rely on the university in the form of loans and guarantees. It ‘trades’ on the university’s name, operating from university buildings and its administration and academic staff are provided by the university.

Conclusion

The university has a major shareholding in the company and can be seen as ‘legally linked’. It lacks independence and relies on the university to provide loans and other financial help. Although the company has the right to distribute profits, the control exercised by the university means that these will either pass to the university or be spent improving the delivery of education by the company or the university. Therefore in substance the company has no control over its profits. It has limited resources of its own, operates from buildings located on the university campus and is generally dependent on the university’s infrastructure.

Although the courses are at university level, they do not lead to any kind of qualification. The students do not receive degrees at university award ceremonies. The courses are not monitored or quality assured by the university.

The students are not registered as students of the university and do not have the same rights as any other student of the university. They are not subject to the university’s disciplinary regulations. 

The overall impression is that the links between the training company and the university are not strong enough to make it a de facto college or institution of the university. Therefore it does not fall within that classification for the purposes of Note (1) (b), it is not an eligible body and its supplies are standard rated.

Example three

A university identifies a commercial market for some of its business courses. It transfers some courses to a company in which it holds 100 per cent of the shares. The courses are open to anyone who meets the required academic standard and is able to pay the fees. The university also provides substantial resources to that company to enable it to deliver the training including premises, staff and administration. The university validates the courses and awards qualifications to those completing them (or allows successful completion to be recognised as a step towards a qualification or admission to a university run course leading to a qualification). The students are registered students of the university. They are accorded all the benefits and are subject to the rules and regulations of the university. This company would meet the SAE factors that defines an ‘eligible body’ and so its supplies of education would be exempt.

If the university extends the company’s training activities to include excluded courses, its supply of education through those courses will also be exempt because of the existing eligible body status.

The university then decides to supply consultancy services through the company. Although it is an eligible body, consultancy is not a supply exempted by the VAT legislation and so would be taxable. The company, making both taxable and exempt supplies, would be partly exempt.

Example four

A university sets up a company in which it holds 100 per cent of the shares to undertake ‘closed courses’. Although the courses are delivered to a restricted group of students selected by the company’s customer, they are still university level courses which lead to a qualification, or are a stepping stone to a university qualification. Attendees are recognised as, and are indistinguishable from, students of the university. Its supplies of education will be exempt.

Example five

A university decides that whenever the tuition fees are to be paid for by a VAT registered employer or sponsor, it will deliver the education that ordinarily it undertakes itself through a company in which it holds 100 per cent of the shares. The three themes are present and, even though the courses are paid for by a third party, it would still be an eligible body. Its supplies of education would be exempt.

Example six

A university wants to deliver both university education leading to a degree and excluded courses through a company. It wants the former to be exempt and the latter taxable. It therefore sets up two companies. The company delivering university education meets the test for eligible body status and so its supplies are exempt: the company delivering excluded courses does not meet the criteria for eligible body status and so its supplies are taxable.