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HMRC internal manual

VAT Government and Public Bodies

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Local authority education services: related activities: sales to recipients other than own pupils and students

Local authority maintained schools may treat as non-business any closely related goods and services they supply direct to the pupils of other schools and to students or trainees of eligible bodies such as further education colleges and universities. For example, if the school shares a catering outlet with another educational institution it should not charge VAT on the meals it provides direct to the pupils or students of that institution.

Although local authorities are eligible bodies, they may not exempt any closely related goods and services (see VATGPB7815) they supply to other eligible bodies unless they also supply the education or training itself. In other words, the exemption available under item 4(b), Group 6 of Schedule 9 to the VAT Act 1994 for closely related supplies between eligible bodies, only applies when a local authority is making a supply, as principal, of education or training to the recipient organisation.

The reason for this is the broad range of activities local authorities undertake and the resulting potential for distortion of competition under section 33 (see VATGPB4000). That is due to the fact that, subject to the insignificance test, a local authority can recover the VAT it incurs on exempt business activities (see VATGPB4510). The position is that, where the provision of education forms only a part of the activities of an authority, it may be considered an ‘eligible body’ only in respect of its educational activities.

For example, in supplying meals to a further education college, a local authority is clearly in competition with private sector catering suppliers. This means that, in making the supply, it should be treated as a caterer rather than as an eligible body within the meaning of Group 6, schedule 9. The service is therefore liable to VAT at the appropriate rate. It is not a closely related supply under item 4 of the Group.

See VATGPB8746 for guidance on the treatment of supplies of staff between eligible bodies for the purpose of carrying out instruction.