Group 6 Item 5 vocational training: the Young People's Learning Agency (YPLA) and the Skills Funding Agency (SFA): examples of contracts: YPLA and SFA grant-funded education
Education that is funded entirely through grants from the YPLA and SFA
If the entire funding of the education to third parties is made through grants, then the funding is outside the scope of VAT. Therefore the education is not a business activity since there is no consideration for a supply and no VAT can be recovered as input tax.
Education that is funded partly by grants from the YPLA and SFA
If the provision of education to an individual is funded partly by a grant from the YPLA or SFA direct to the provider and partly from a charge made to the student, then it is a business activity. The government contribution through the YPLA or SFA grant is outside the scope of VAT and the charge to the student is exempt under item 1 of Group 6 of Schedule 9 if provided by an eligible body; otherwise it is taxable. A course provided to a class of students could therefore include a mixture of business and non-business activities. Some of those business activities may be supported partly by outside the scope income and also be supplied in return for either exempt or taxable consideration.
This means that colleges etc will have to perform a business/non-business apportionment as well as the usual partial exemption consideration.