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HMRC internal manual

VAT Education Manual

Group 6 Item 5 vocational training: learndirect, University for Industry (Ufi): operation from August 2004 to July 2006

In August 2004 the contractual arrangements between the Ufi/learndirect and all their operators changed. They implemented different models for England, Northern Ireland and Wales. This had an impact on the Hubs and the Learning centres. The Hubs and the Learning Centres may or may not be eligible bodies, and this will affect the liability of the supplies between them.

You should apply the following rules for all supplies by the Ufi/learndirect that took effect from 1 August 2004.

Tax liability of the grant funding

In England the Ufi/learndirect receives government funding through the Skills Funding Agency (SFA) (formerly part of the Learning and Skills Council (LSC)) to deliver its service. This is grant funding and as such is outside of the scope of VAT. In Wales the grant funding was provided by Education and Learning in Wales (ELW) and was delivered directly to the Welsh Partnerships (the equivalent of Hubs), this too was outside the scope of VAT. In Northern Ireland there are no Hub Operators: Department of Employment and Learning (DEL) delivered the funding to the Learning Centres direct. Again this was treated as being outside the scope of VAT

In England there was an onward transmission of the grant from the Ufi/learndirect to the Hubs and in Wales from the Welsh Partnerships to the Learning Centres. We have reviewed the issue of the onward grant funding, and found it to be outside the scope of VAT.

Tax liability on the supply of a non exclusive licence

Under an appropriate operating agreement the Ufi granted a non-exclusive licence to the Hubs, the Welsh Partnerships or, in the case of Northern Ireland, the Learning Centres. This agreement allowed the Hubs to licence Learning Centres in their area (in England) and use the ‘learndirect’ brand name, IT infrastructure, databases, support and learning materials (for funded courses) and so on. The licence fee also permitted the purchase of learning materials for unfunded courses - see below. The fee paid for this licence should be treated as a standard-rated supply of services.

Tax liability of the supply of learning materials (unfunded learners)

There was a separate supply by the Ufi/learndirect of learning materials to the Hub, the Welsh Partnership or, in the case of Northern Ireland, the Learning Centre. This supply is a single composite supply of learning materials and support services which was standard-rated. The main reasons for this are that the elements can’t be supplied separately, the elements are integral to each other, the customer is getting a learning package rather than separate supplies of books and support services. Exemption under Note 4 of Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000) does not apply because the supply is not made by another eligible body. Exemption under 5A also is not applicable because the supply is not by the person providing that education and training.

Tax liability of management services

There was a supply of management services by the Hubs to the Ufi/learndirect, comprising advertising services and the management of the Learning centres. This fee was paid by the Ufi/learndirect to the Hub, and was standard-rated.

Tax liability of the fees collected from the learner (funded courses)

Under the Ufi/learndirect England model, the Hub was contracted with the Learner to supply education. The Learning Centre, acting as a sub-contractor to the Hub, physically delivered the education. If the Hub was an eligible body, then the fees that were collected from the Learner (by the Learning Centre on behalf of the Hub) were treated as exempt under Item 1 of Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000).

If the Hubs were not eligible bodies then the fees collected from the Learner were treated as consideration for a standard- rated supply of education by the Hub (even though the education will have been physically delivered by the Learning Centre, acting as a sub-contractor to the Hub).

In Northern Ireland and Wales it was the Learning Centre that contracted with the Learner. Therefore if the Learning Centre was an eligible body, the fees that were collected from the Learner were treated as exempt under Item 1 of Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000). Otherwise they were standard-rated.  

Tax liability of the charges from the Learning Centre (funded courses)

The full value of the supply by the Learning Centre to the Hub (for the services of educating the Hub’s Learners) included any Learner fees that the Learning Centre was permitted to retain (in agreement with the Hub). The consideration payable by the Hub was made up of two component parts:-

  • Payment by the Hub from the Grant funding received from the Ufi/learndirect. Because the Learning Centre was being contracted to supply education and the consideration was a charge to funds which were ultimately provided by the LSC, the supply was exempt from VAT irrespective of the status of the Learning Centre under Item 5A Group 6 of Schedule 9 of the VAT Act 1994 (VATEDU15000).
  • A proportion (agreed between the Hub and the Learning Centre) of the Learner fee (collected by the Learning Centre from the Learners on behalf of the Hub). The liability of this element of the charge was determined by the status of the Learning Centre. If the Learning Centre was an eligible body for the purposes of the VAT Act 1994 Schedule 9 Group 6 the supply was exempt from VAT. Otherwise the supply was subject to VAT at the standard rate. 

Tax liability of the payment from the learner (unfunded courses)

With unfunded courses, in all regions, it was the Learning Centre that contracted directly with the Learners. Therefore if the Learning Centre was an eligible body, the fees that were collected from the Learner were treated as exempt under Item 1 of Group 6 of Schedule 9. Otherwise this was a standard-rated supply.