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HMRC internal manual

VAT Education Manual

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HM Revenue & Customs
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Supplies of accommodation by trading companies of eligible bodies

Determining whether the supply is by the trading company

Universities, colleges and schools frequently contract with other organisations (such as providers of tuition in English as a foreign language (VATEDU39600) and suppliers of activity breaks) to provide accommodation and other facilities. It can sometimes be difficult to establish whether the supply is by the eligible body itself or a trading company set up specifically to deal with the provision of such supplies.

The Memorandum and Articles of Association of the trading company, agreements, the way the consideration for the lettings is recorded in the annual accounts and the way the property in question is shown in the Balance Sheets will all be indicators of the true position.

If a lease or licence to occupy has been granted by the eligible body to the trading company, then the supply will be by the trading company (however, please see b. below). If no such lease or licence has been granted, but merely a management agreement has been entered into, then the supply will be by the eligible body to the occupier of the facilities. The trading company will then be making a supply of management services in return for the consideration it retains.

However, some property arrangements are complex and officers may need to consult the Land and Property Unit of Expertise for advice.

Interest held by the trading company

Situations to consider:

1. The trading company grants licences to others to occupy the accommodation, together with the provision of catering, and retains the consideration received This is a single supply, by the trading company, of accommodation in a similar establishment to a hotel. The supply is standard-rated under VAT Act 1994 Schedule 9 Group 1, item 1(d).
   
1. The trading company grants licences to others to occupy the accommodation, together with the provision of catering, and passes the benefit of the consideration received to an eligible body, or is required to do so under a covenant with an eligible body. Under Schedule 10 Paragraph 40 of the VAT Act 1994, the eligible body is deemed to be making the supply and will need to account for output tax accordingly. Any VAT incurred in making the supply by the trading company is for the eligible body to claim.
Where the supply is to another eligible body, and it is closely related to a supply of education, as detailed in VATEDU50000, it is exempt under Schedule 9, Group 6, Item 4 of the VAT Act 1994. Otherwise it is standard-rated as accommodation in an establishment that is similar to a hotel.    
  1. The trading company grants to others, licences to occupy accommodation, together with the provision of catering, and passes the consideration received across to the eligible body by means of a voluntary donation or Gift Aid. The supply is by the trading company and a. above applies.

Further guidance on this area is available in Notice 742, Land and Property, and VATLP VAT Land and Property.