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HMRC internal manual

VAT Government and Public Bodies

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Local authority education services: related activities: sales to students

Most of the education a local authority provides is not charged for and so is a non-business activity that is outside the scope of VAT. This includes the education it provides through its maintained schools (community, foundation and voluntary) (see VATGPB7200) to pupils of compulsory school age and those on A level courses in the sixth forms of these schools.

A local authority maintained school can treat the closely related goods and services it sells to its pupils as non-business. This applies to all items closely related and essential to education, so long as the supply complies with the following rules that have been agreed with CIPFA:

  • the goods and services must be closely related to the education provided, they must also be for the direct use of the student and necessary for delivering the education to that student
  • the pupil must receive education from the local authority in either a maintained school or in connection with some other local authority run educational activity, such as an orchestra
  • the goods and services must be purchased from the local authority who must hold title to the goods and transfer ownership to the parent, guardian or pupil purchasing them (although the delivery address and point of distribution is a matter for individual local authorities to determine)
  • payment for the goods must be made either to the local authority or to the school so long as it is paid into the school’s official funds
  • some evidence must be kept, such as an order form (the style of which can be tailored to the needs of the local authority) to show that the recipient of the goods and services has been receiving education and that what has been supplied was essential to that education, and
  • the price of the goods and services must be at or below cost, there being no intention to make a profit (for this purpose ‘cost’ means the full overhead inclusive price of supplying the goods and services to the pupil which, in the absence of any clear and compelling evidence to suggest an intention to make a profit, can generally be accepted as having been met).

In some circumstances goods may be leased, in which case the same rules apply.

In practice, regardless of the precise nature of the activity, school trips that a school organises for the benefit of its pupils are for a broadly educational reason and further the aims of the wider curriculum of the school. A local authority can therefore treat them as part of its non-business provision of education. A local authority may treat as closely related any accommodation, catering, transport and field trips it provides in connection with its supplies of education.

Local authorities are ‘eligible bodies’ within the meaning of Note (1)(d), Group 6 of Schedule 9 to the VAT Act 1994. The education and vocational training they supply for a charge (for example adult education classes) is therefore an exempt business activity under item 1 of the Group. This means that any closely related goods and services they supply in connection with this education are also exempt under item 4(a).

For the meaning of ‘closely related’ see the Education Liability manual (VATEDU) (external users can find the guidance at http://www.hmrc.gov.uk/manuals/vatedumanual/index.htm).

Supplies made to pupils from private funds such as by governing bodies or parent teacher associations. do not qualify as closely related and are subject to normal VAT rules unless relief is available elsewhere. This is because these bodies do not themselves provide the education (see VATGPB7700).