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HMRC internal manual

VAT Education Manual

Group 6 Item 1 Education, research and vocational training provided by eligible bodies: eligible bodies: other organisations

Note (1)(e) of Group 6 of Schedule 9 of the VAT Act 1994 (see VATEDU15000) includes these organisations as eligible bodies:

(e) a body which -

(i) is precluded from distributing and does not distribute any profit it makes; and

(ii) applies any profit made from supplies of a description within this Group to the continuance or improvement of such supplies.

This covers, for example, many educational charities. There are two criteria, both of which have to be met in order for a body to qualify for exemption under the terms of the Note:

  • the constitution, articles or other terms under which the body was set up must preclude it from distributing any profits it makes; and
  • any profit it does make must be reinvested in the education it supplies. By this we mean that the profits are used to support the range of education supplied. Profit from, for example, art courses can be used to support courses other than art.

If either of these conditions is not met, then a body is not an eligible body under note 1(e). It may of course be an eligible body under one of the other notes; but if it is not, then the education it provides is standard rated.

We are aware of arrangements whereby bodies that would ordinarily make profit from educational courses argue that they meet the terms of Note 1(e) because such sums are passed to associated companies through charges such as rent or management charges, or alternatively, because such profits are covenanted to a parent company. We do not agree with either argument. If you should come across such an argument you should consult your Tax Avoidance Visiting Officer (TAVO).

Conversely, an organisation that is ostensibly an eligible body may seek to avoid exemption by arranging to make its supplies of education through a related company that doesn’t meet eligible criteria, for example because it is not precluded from distributing profits. This may be done because the recipient of the supplies of education is able to recover any VAT charged to it (such as a local authority eligible to reclaim VAT under Section 33 of the VAT Act 1994), and the supplier does not wish to suffer input tax restriction themselves by making exempt supplies. Such cases should also be referred to your TAVO, who may need to consult the Education Unit of Expertise or VAT Reliefs Policy Team.

University of Leicester Students Union (LSU) (V16792)

LSU operated a shop from which it made various supplies, including soft drinks, to students. It sought a repayment of VAT in respect of certain supplies which qualified for exemption. The tribunal found for LSU holding that it was an integral part of the University and was therefore an eligible body by virtue of Note 1(b) to VAT Act 1994, Schedule 9, Group 6, Item 1. HMCE’s appeal against the decision was allowed at the High Court [2001] - STC 550 on the grounds that it did not find that as ‘another’ organisation under Article 13(A)(1)(i) of the 6t h Directive it could be treated as an eligible body. Furthermore, Sch. 9, Group 6, item (4) provides that the exemption only extends to the supply of goods or services closely related to the principal supply by an eligible body making the principal supply. The union, even if an eligible body, does not make a supply of education, the principal supply. The Court of Appeal [2001] EWCA Civ 1972 held that, as the union was not an eligible body, it was unnecessary to establish whether it had to make the principal supply under the EC directive and was not prepared to give a ruling on this question. Thus, only an eligible body which provides principal services - that is, educational services - can claim exemption for goods or services closely related to those services.