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HMRC internal manual

VAT Education Manual

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Group 6 Item 5 vocational training: the Young People's Learning Agency (YPLA) and the Skills Funding Agency (SFA): examples of contracts: liability of supplies under Schedule 9 Group 6 Item 5A

Background

Item 5A of Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000) was added to the VAT law by Schedule 9 of the Learning and Skills Act 2000 and took effect from 1 April 2001. It says that all supplies of education and vocational training ultimately funded by the Learning and Skills Council (LSC) were exempt from VAT.

Item 5A was inserted to take account of the new funding mechanism for which the Learning and Skills Council was responsible when it partly funds a course run by private businesses for their staff.

The LSC was superseded by two new agencies which took over its responsibilities. These were the Young People’s Learning Agency (YPLA) and the Skills Funding Agency (SFA). This amendment to the legislation took effect from 1 April 2010.

Under Section 5A responsibility in Wales for the educational and vocational training rests with the National Assembly effective from 1 April 2006

The parts of the Learning and Skills Act mentioned in item 5A refer to the provision of tuition courses which would normally be standard rated because they are not provided by an eligible body. These are typically courses for firms who are training a young person as well as employing them. These courses are partly funded by the Learning and Skills Council who will give a sum of money to an employer to help train their staff.

The aims of the Learning and Skills Act 2000 are to:

  • encourage individuals to undergo post-16 education and training
  • encourage employers to participate in the provision of post-16 education and training
  • encourage employers to contribute to the costs of post-16 education and training

The type of funding this is for includes persons providing or proposing to provide post-16 education or training - this could either be young people in work going on educational courses, or those in sixth form receiving work experience. There is a full list of eligible courses in section 5 of the Learning and Skills Act and the conditions for receiving the funding are in section 6.

Although it is most common to give the money directly to the employer to spend, in some situations the money may be given directly to the student or to a college and you should check the circumstances of each transaction.

The VAT treatment

The phrase ultimately a charge to funds has sometimes been misinterpreted as meaning that everything which is ultimately funded by the YPLA or SFA, including through grants, must be exempt; but this is not the case. Item 5A says that money given by the Learning and Skills Council under this item can only be consideration for an exempt supply if it is given under the provisions for training in Parts 1 or 2 of the Learning and Skills Act 2000 (these two parts are basically the same - Part 1 relates to England and Part 2 relates to Wales).

A distinction needs to be made between the funding passed by the YPLA or SFA to an employer and the use of that funding by the employer. As previously explained, the provision of grant funding by the YPLA or SFA is not normally consideration for any supply to the YPLA or SFA. Consequently it is outside the scope of VAT.

However, when an employer uses YPLA or SFA funds to pay for a course for its staff, the supply by the training provider is - to the extent that it is paid for from YPLA or SFA funds - exempt from VAT under item 5A. Where the employer also pays for the course from its own resources, this is not covered by item 5A. If the training provider is an eligible body, this extent of the course will also be exempt, otherwise it will be standard rated.

The ultimately funded part of item 5A therefore only refers to the money given by the YPLA or SFA which is then passed to education providers as payment for their educational services under this specific item. This has the effect that when a course would normally be totally standard rated, that part of the course funded by the YPLA or SFA through grant money becomes exempt income for the training provider. If the course is totally exempt in the first place, then item 5A will not have any effect.

For example, the money given by the YPLA or SFA to an employer is a grant since there is no supply back to the YPLA or SFA. But when the employer uses this money to partly pay for a course for its staff, the training provider’s position is that if it charges £100 for a course that it is paid for half by the employer’s own funds and half through the YPLA or SFA grant, then the £50 originating from YPLA or SFA funds will be exempt under item 5A and the £50 paid from the employer’s own resources will either be standard rated or exempt depending on the provider’s eligible body status. This will mean the usual input tax and partial exemption calculations must be considered by the training provider.

It is the responsibility of the employer to inform the supplier that some of the funding is being provided through a grant from the YPLA or SFA.