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HMRC internal manual

VAT Education Manual

Group 6 Item 5 Vocational training: Employment Zones: treatment for VAT

Employment Zone (EZ) services can be treated in a broadly similar way to services supplied under New Deal (VATEDU57000). In other words, in return for the funding channelled to it by Jobcentre Plus, the provider supplies Employment Zone services to the Government Department. The liability of these is determined according to the normal rules.

Separately identifiable supplies of vocational training

Where Employment Zone services are separately identifiable as vocational training, the supply to Jobcentre Plus is exempt under item 5 of Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000).

If, in order to make that supply to Jobcentre Plus, the provider has to buy in the vocational training, then the supply to it is also exempt under item 5. This is because the consideration payable is ultimately a charge to funds provided pursuant to arrangements made under Section 2 of the Employment and Training Act 1973 etc.

Where supplies of vocational training are not separately identifiable

In practice, because of the particular payment structure adopted and the many elements of the service that do not qualify for exemption under Group 6, most Employment Zone providers will in actual fact be supplying a service to Jobcentre Plus that is best characterised as a standard-rated placement service. Within this, elements of potentially exempt vocational training undoubtedly appear, but Jobcentre Plus cannot separately identify them in any incidence of payment.

Statutory living allowances

A substantial proportion of the payments made by Jobcentre Plus comprises amounts that would otherwise be payable to participants as statutory living allowances. However, these payments do not simply flow down the line from the Government Department through the Employment Zone service provider and into the hands of the unemployed claimant. Instead, they are calculated on the basis of the average Jobseeker’s Allowance entitlement for the Zone and an average length of stay on benefit for this client group of 21 weeks. As such, the provider must include these payments in the value for VAT, and account for VAT on them in accordance with the principles set out above.