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HMRC internal manual

VAT Education Manual

Group 6 Item 5 vocational training: the Young People's Learning Agency (YPLA) and the Skills Funding Agency (SFA): YPLA or SFA funding of education providers

YPLA and SFA ‘contracts’

The YPLA and SFA have many funding agreements, often labelled as contracts, with different educational establishments and training providers. In deciding the VAT treatment each agreement must be considered on its own merits. The money given by the YPLA and SFA to training providers, Further Education (FE) colleges, local authorities etc follows the same guidance as for any other payment in deciding whether it is consideration for a supply. This general policy is discussed in more detail inVATSC30000.

It is important not to be misled by the existence or terms of a contract, especially if it is labelled ‘Contract for Services’. All payments made by the YPLA or SFA will be subject to some sort of a contract with the training provider and these often specify what is to be provided and have conditions that must be fulfilled when the money is transferred. However, this is common to all grant funding and does not mean that the YPLA or SFA is receiving a supply.

There is no definition of consideration in law, but for VAT purposes a payment can only be consideration where it is made and something is supplied in return. There must also be a direct link between what is being supplied and the payment - so that it would not be supplied unless the payment was made.

In the majority of cases, the role of the YPLA or SFA is simply to allocate grants from central government. Therefore, most payments made are not in return for a supply made to a YPLA or SFA and so the amount given to training providers is a grant. This means the amount is outside the scope of VAT. In a few cases the financial support will constitute consideration for a supply of services and this is discussed below.

The existence of binding terms in contracts such as the monitoring of the services does not in itself mean the YPLA or SFA is receiving anything. There will always be conditions attached to a grant which are there to make sure that the money is being used for its intended purpose. This is usually achieved by the provision of a report to the YPLA or SFA; but established Tribunal precedents such as Wolverhampton Citizens’ Advice Bureau mean that simply submitting progress or annual reports to the funders is not a supply for VAT purposes. This is expanded upon in VATSC51600.

There may also be clawback provisions within the contract where a provider undertakes to perform services for a fee, but must repay the YPLA or SFA part of the money if not all the agreed services are performed. This is just a condition of the agreement and is common to most grant funding. It does not indicate a supply to the YPLA or SFA: it merely represents one of the guarantees that the provider will conform to the requirements imposed by the YPLA or SFA.

Students who make a financial contribution

The supplies of education made to students who contribute their own funding in addition to the YPLA or SFA funding continue to follow the normal VAT rules and will be exempt or taxable depending on whether the provider is an eligible body or not. Therefore:

  • the proportion of a service delivered in return for YPLA or SFA funding is outside the scope of VAT because the money received is a grant
  • the service provided to the student in return for their contribution may be exempt or taxable depending on whether or not the provider is an eligible body within Note (1) to Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000).

See also VATEDU58850 regarding business/non-business treatment.

Supplies to the YPLA or SFA

In general, a supply of education will be made from the provider to the student rather than back to the YPLA or SFA. The YPLA or SFA would be receiving a supply of education if the YPLA or SFA itself were charged with providing education and subcontracted it out to another provider. In this case, the YPLA or SFA would be receiving a supply from the third party contractor helping the YPLA or SFA to fulfil its remit.

The YPLA or SFA may also employ third parties to train YPLA or SFA staff. This is also an exempt supply to the YPLA or SFA falling within item 5A of Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000).