An exemption from UK value added tax (VAT) applies to the supply by an eligible body of education and vocational training. The exemption also applies to research if supplied to another eligible body. An eligible body is a school, college, university, local authority, health authority, government department, or a body (for example a charity) that is precluded from distributing profits. In the latter case, to receive the exemption the body must plough back the profits from the educational services into the business, so the trading subsidiary of a charity for example would not be covered by the VAT exemption for its educational supplies.
The UK VAT law does not define education or specify where it should be supplied. The view of HM Revenue and Customs is that the exemption applies to a course, class or lesson in any subject whether or not that subject is normally taught in schools, colleges or universities, and wherever it takes place.
For the purposes of the VAT exemption, a supply of education includes lectures, educational seminars, conferences and recreational courses. The VAT exemption also applies to distance learning provided that the student is assessed by the educational institution.
Research is only VAT exempt where it is supplied to another eligible body. When such services are supplied by one eligible body to another, it is important to distinguish between research (which is exempt) and consultancy (which is subject to VAT at the standard rate). Research might be supplied to another eligible body, for example, in connection with a joint project.
Vocational training for the purposes of the VAT exemption is defined as training or retraining for a trade, profession or vocation, or voluntary work in connection with education, health, safety, welfare, or carrying out charitable activities. The exemption would apply to providing work experience through training schemes for the unemployed.
Courses that teach English as a foreign language are VAT exempt regardless of who provides them, so the provider does not need to be an eligible body to obtain the exemption in this case. The VAT exemption applies to the actual teaching of English as a foreign language, to items forming an integral part of the course and to closely related supplies if they are directly for use by the student and are necessary for delivering the service of education.
Fees for private tuition are exempt from VAT if the tuition is in a subject normally taught in a school or university, by an individual teacher who is working independently of an employer.
Examination services are exempt, including the setting and marking of exams, maintaining educational training standards, course accreditation and certification. The VAT exemption applies where the examination services are provided to an eligible body or to a person receiving exempt educational training.
Goods and services that are closely related to exempt supplies of education are also exempt. This would include supplies provided for the direct use of the students by the eligible body educating them, or by a second eligible body. This does not however include the sale of goods from campus shops.
Vocational training, and the supply of goods and services essential to the training if supplied by the same person who is giving the training, are exempt from VAT if funded under the Education and Training Act 1973 and similar laws applicable elsewhere in the UK. Provision of vocational training that is funded by certain specific UK government or EU bodies is also exempt.
The provision of facilities by a youth club or its members is also VAT exempt. A youth club is defined as a non-profit body promoting the social, physical, educational or spiritual development of its members, who are mainly under twenty-one years of age.
HM Revenue and Customs www.hmrc.gov.uk
“Value added tax” by Andrew Needham and Steve Allen, Bloomsbury Professional, 2009