Education and vocational training

HMRC Reference:Notice 701/30 (February 2014) View Change History
 

Contents

Foreword

1.Introduction

1.1 What is this notice about?

1.2 Basic VAT principles to be aware of when reading this notice

1.3 Other notices that may be useful

1.4 What law does this notice cover?

2.Is someone in business for VAT purposes?

2.1 In business

2.2 The meaning of the term 'business'

2.3 Is a supply being made?

2.4 When is education a business activity?

2.5 VAT treatment of charges for education

3.Education providers

3.1 Educational institutions that are in business

3.2 Educational institutions that are not in business

4. Eligible body status

4.1 What is an eligible body?

4.2 Commercial providers of education (other than tuition in English as a foreign language: EFL)

4.3 Is a non-profit making organisation an eligible body?

4.4 How to establish the VAT liability of the business supplies

4.5 The meaning of the term 'does not distribute any profit'

4.6 What are 'universities'?

5. Education, vocational training and research

5.1 What does the term 'education' cover?

5.2 Sports coaching

5.3 What is meant by the term 'vocational training'?

5.4 Training supplied by eligible bodies

5.5 Training supplied by non-eligible bodies

5.6 The meaning of the term 'research'

5.7 Supplies of research by an eligible body

5.8 European Commission’s Framework 6 and 7 programmes

6. Private tuition

6.1 The treatment of private tuition

6.2 Treatment of goods or services sold in connection with private tuition

7. Examination services

7.1 The meaning of the term 'examination services'

7.2 Exempt supplies of examination services

7.3 Payments by pupils or parents to schools passed on to examination boards

7.4 School inspections

8. Supplies provided with education

8.1 How to treat income from other goods and services

8.2 The meaning of the term 'closely related'

8.3 Goods and services that are not closely related to supplies of education

8.4 Closely related goods and services that qualify for zero-rating elsewhere?

8.5 Closely related goods and services sold to pupils by an eligible body

8.6 Closely related goods and services sold to the pupils of other eligible bodies

8.7 Further information on supplies that are not closely related

9. English as a Foreign Language (EFL)

9.1 Providers of EFL

9.2 Tuition in EFL as part of another course

9.3 Tour operators’ margin scheme

10. VAT treatment of local authority (LA) schools

10.1 LA schools

10.2 Goods and services bought by the governors for the school?

10.3 VAT treatment when governors act as agents of the LA

10.4 Can the LA recover VAT on goods and services bought for the school using non-LA funds?

10.5 Income kept by the school which it has received from letting its premises

10.6 When only part of the VAT a school is charged meets the conditions for recovery by the LA

10.7 Whose responsibility is it to account for VAT?

10.8 Responsibility for registering in these circumstances

10.9 Can governors, head teacher or another body recover VAT charged on purchases?

11. Education Action Zones

11.1 Can an Education Action Zone (EAZ) recover the VAT charged on purchases?

11.2 Supplies of staff from an LA to an EAZ

11.3 Non-statutory EAZs

12. School photographs

12.1 Supplies of photographs

12.2 VAT treatment of the commission or discount (for the use of school premises)

12.3 Photographs supplied to an LA or school to sell to parents or pupils

13. Government approved vocational training schemes

13.1 The schemes

13.2 When exemption applies

13.3 VAT on vocational training under a government approved scheme

13.4 Subcontractors to training providers

13.5 Work placement providers

13.6 Is VAT recoverable by a body that is making exempt services under a vocational training scheme?

13.7 Careers services or counselling paid for by the Young Persons Learning Agency (YPLA) or the Skills Funding Agency (SFA)

13.8 The VAT liability of the services supplied under the New Deal and Flexible New Deal

14. Government business support and enterprise scheme

14.1 Providing business support and consultancy

14.2 Income received from Business Link

15. Construction, land and property

15.1 VAT liability of building work

15.2 Additional information on the VAT treatment of supplies of building work

15.3 Purchasing and leasing of buildings

15.4 Meaning of the term 'charity'

15.5 'Non-business' buildings used by charities

15.6 The recovery of VAT charged on building work

15.7 VAT incurred by voluntary schools on building work

16. Supplies of fuel and power

16.1 Supplies of fuel and power at the reduced rate

17. Supplies by overseas agents

Your rights and obligations

Do you have any comments or suggestions?

Putting things right

How we use your information

 

Foreword

This notice cancels and replaces Notice 701/30 Educational and Vocational Training (June 2011).It has been updated to reflect the withdrawal of the VAT exemption for supplies of research between eligible bodies.

1.Introduction

1.1 What is this notice about?

This notice explains the VAT treatment of:

  • education
  • research
  • vocational training
  • goods and services provided in connection with these activities; and
  • examination services

There is also a section that deals with the VAT treatment of school photographs.

The notice also tells how to decide whether someone is in business for VAT purposes and why this is important.

This notice does not cover:

  • supplies by youth clubs - see Notice 701/35 Youth clubs
  • supplies by day nurseries, crèches, playgroups and similar establishments for children under five years of age - see Notice 701/2 Welfare
  • special reliefs for student accommodation - see Notice 708 Buildings and construction; and
  • special reliefs for charities, including charity advertising - see Notice 701/1 Charities
  • the exemption of certain sporting and physical activities - see Notice 701/45 Sports

1.2 Basic VAT principles to be aware of when reading this notice

The following table helps anyone involved in the provision of education, vocational training or research, to have a broad understanding of the main VAT principles. This should be read before looking in more detail at the sections of this notice that are relevant to your particular circumstances.

If …


The VAT consequences are …


the education is being provided for no charge (for example, local authority maintained schools, city technology colleges, sixth form colleges, academies and free schools - see paragraph 3.2)


this is not 'in business' for VAT purposes (see section 3) and:


  • the education provided is outside the scope of VAT
  • any closely related goods or services provided, at or below cost, are outside the scope of VAT; and
  • the sales of other goods or services are taxed in the normal way

school, higher or further education is being provided for a charge (see paragraph 3.1)


for an eligible body (see section 4):


  • the education provided is exempt; and
  • any 'closely related' goods or services provided are exempt
  • the sales of other goods or services are taxed in the normal way

for a non-eligible body (see section 4) the education, and other goods and services provided, is taxed in the normal way.


private tuition is provided by a sole proprietor or partner (see section 6)


  • the tuition carried out is exempt; and
  • the tuition that employees or other helpers carry out is standard-rated

tuition in English as a foreign language (EFL) (see section 9) is supplied by a commercial provider


  • the EFL provided is exempt; and
  • any other education provided is standard-rated

vocational training is provided for a charge (see paragraph 5.3)


for an eligible body, other than a commercial provider of tuition in EFL (see section 4), the vocational training is exempt; or


for a non-eligible body (see section 4), the vocational training is exempt to the extent that it is funded under an approved Government funding scheme (see section 13)


research is provided for a charge (see paragraph 5.6)


that with effect from 1 August 2013 supplies of business research are standard-rated but see paragraph 5.7 regarding certain transitional arrangements.


1.3 Other notices that may be useful

This notice assumes that the reader has a knowledge of the principles of VAT explained in Notice 700 The VAT Guide and have read Notice 700/15 The Ins and Outs of VAT. Reference to Notice 749 VAT local authorities and similar bodies may also be beneficial.

If both taxable and exempt supplies are being made see Notice 706 VAT: Partial exemption.

You can find a full list of HMRC Notices in Notice 999 Catalogue of publications.

1.4 What law does this notice cover?

The VAT Act 1994, Schedule 9, Group 6 provides exemption for the provision of education, vocational training and closely related goods and services.

The Value Added Tax (Education) Order 2013 concerns supplies of research.

2.Is someone in business for VAT purposes?

2.1 In business

It is important to establish whether a business supply of goods or services is being made as this will determine how it should be treated for the purpose of VAT. If the activities are not business they will be outside the scope of VAT.

2.2 The meaning of the term 'business'

An activity is business if it:

  • is mainly concerned with making supplies to other persons for any form of payment or consideration, in money or otherwise; and
  • continues over a period of time with some degree of frequency and scale

Do not assume that the activity will be non-business simply because no profit is being made from it.

There is more information about the meaning of business in Notice 700 The VAT Guide and in Notice 700/1 VAT: Should I be registered for VAT?

2.3 Is a supply being made?

If education is provided for any form of payment then that will be a supply for VAT purposes. If no payment is received it will be outside the scope of VAT.

2.4 When is education a business activity?

There are two normal sources of funding for education. These are:

  • non-business: government grants (usually from a funding agency)
  • business: when a charge is being made for the education provided

2.5 VAT treatment of charges for education

The VAT treatment is unaffected by who pays the charge whether that is the student, employer or a local authority.

Education is still a business activity even if the charge is not enough to meet the full cost of providing it and it is subsidised from some other source, such as a grant from central government or a bursary or scholarship.

Where education is:

  • Wholly funded by grants: In general, direct funding by local or central government is not consideration for a supply of education, or a business activity, and is outside the scope of VAT.
  • Partly funded by grants: If the education provided to an individual is funded by a combination of government grants and by making a charge, it is a supply for VAT purposes. The government funding is a contribution to the business activity and is outside the scope of VAT.

3.Education providers

3.1 Educational institutions that are in business

These establishments require payment for the education they provide, so their education is a business activity:

  • independent fee paying schools, including non-maintained special schools
  • universities; and
  • institutions teaching English as a foreign language

3.2 Educational institutions that are not in business

These establishments normally make no charge for the education they provide, so their education is not a business activity:

  • community schools
  • foundation schools
  • voluntary aided schools, including former special agreement schools
  • voluntary controlled schools
  • community special schools
  • foundation special schools
  • grant maintained (integrated) schools (Northern Ireland)
  • self governing schools (Scotland)
  • city technology colleges
  • free schools; and
  • academies

There are also:

  • sixth form, tertiary and further education colleges; which
    - do not charge for students who are 19 years or under (18 years or under in Scotland) at the start of their courses; but
    - charge students over that age and foreign nationals.

Here the age of the student is immaterial. When a charge is made, the education is a business supply.

The establishments listed above may, however, be in business for other activities they carry out. See paragraph 3.1.

4. Eligible body status

4.1 What is an eligible body?

An eligible body is one of the following:

  • school, university, sixth form college, tertiary college or further education college or other centrally funded higher or further education institution (defined as such under the Education Acts); or
  • the governing body of one of these institutions:
    - local authority;
    - government department or executive agency;
    - non-profit making body that carries out duties of an essentially public nature similar to those carried out by a local authority or government department;
    - health authority;
    - non-profit making organisation that meets certain conditions; or
    - commercial provider of tuition in English as a foreign language (EFL) - in which case special rules will apply (see section 9).

4.2 Commercial providers of education (other than tuition in English as a foreign language: EFL)

If the education is provided by one of the following (with a view to making and distributing profits) it is unlikely to be an eligible body:

  • tutorial college
  • computer training organisation
  • secretarial college
  • correspondence college; or
  • partnership

4.3 Is a non-profit making organisation an eligible body?

Where an organisation is:

  • a charity, professional body or company that
  • cannot and does not distribute any profit it makes and
  • any profit that might arise from its supplies of education, research or vocational training is used solely for the continuation or improvement of such supplies

it is likely to be an eligible body.

4.4 How to establish the VAT liability of the business supplies

It must be established whether the supplies are being made:

  • by an 'eligible body' (see paragraph 4.1); and
  • whether the supplies are of education, or vocational training (see section 5)

If …


Then …


an eligible body (see paragraph 4.1)


the supplies of education and vocational training are exempt from VAT


   

not an eligible body (see paragraph 4.2)


consider whether the services provided are either:


  • private tuition (see section 6); or
  • examination services (see section 7)

4.5 The meaning of the term 'does not distribute any profit'

Distributing profits does not just include paying a dividend to shareholders. It also includes making a payment or donation to another body, even where the recipient is a charity. Management charges or other fees paid to an associated company or individual may also be viewed as a distribution of profits.

It will be necessary to provide reasonable evidence that the profits cannot be distributed and that if the organisation's activities do generate a profit that they will be recycled back into its education or training activities. For example, the Memorandum and Articles of Association, or some other constitutional document, containing a suitable reference or clause, may be acceptable as evidence of how profits are to be treated, although it is what takes place in practice which will determine whether the exemption applies.

4.6 What are 'universities'?

This term covers UK universities, and any college, institution, school or hall of a UK university. But it does not include subsidiary companies that universities set up to pursue commercial business interests.

However, in some cases where a university company provides education as its main business activity it may be acting as 'a college, institution, school or hall of a university’ and could therefore be treated as an eligible body. This means that any education or training provided by the university trading company is an exempt supply of education.

The treatment of colleges of a university is a complex area of VAT and it is suggested that HMRC is contacted (details at the front of this Notice) if you are unsure of your position.

5. Education, vocational training and research

5.1 What does the term 'education' cover?

Education means a course, class or lesson of instruction or study in any subject, regardless of when and where it takes place.

Education includes:

  • lectures
  • educational seminars
  • conferences and symposia
  • recreational and sporting courses; and
  • distance teaching and associated materials

If a separate charge is made for registration, this is part of the provision of education.

Education does not include admission to events such as:

  • plays
  • concerts
  • sports meetings; and
  • exhibitions

5.2 Sports coaching

In the sports sector, education includes classes that are led and directed, rather than merely supervised. For example:

If the supplier is …


And …


Then it is a …


running a gymnasium


supplying instruction in the use of equipment and warming-up techniques and assess a person when he or she first enrols


Supply of education


charging the person to use the gym in a separate session where no instruction takes place


Charge for admission


running a swimming pool


staff are on hand primarily to coach


supply education


staff are on hand primarily to satisfy health and safety and insurance requirements


charge for admission


For more information on the conditions under which sports may be exempted from VAT see Notice 701/45 Sports.

5.3 What is meant by the term 'vocational training'?

Vocational training covers:

  • training or re-training; and
  • work experience

for

  • paid employment; or
  • voluntary employment in areas beneficial to the community as a whole - education, health, safety, welfare, and charity work in general

Vocational training occurs where trainees attend courses, conferences, lectures, workshops or seminars and the purpose is to:

  • prepare for future employment; or
  • add to their knowledge to improve their performance in their current work

Vocational training does not occur where, through counselling, business advice or consultancy the purpose is to:

  • improve the working practices and efficiency of an organisation as a whole.

5.4 Training supplied by eligible bodies

The training is exempt from VAT even if the cost is specifically subsidised by the eligible body.

However for further information on:

  • a local authority, see Notice 749 VAT: Local authorities and similar bodies; or
  • a commercial provider of tuition in English as a foreign language (EFL) see section 9

5.5 Training supplied by non-eligible bodies

Supplies of training will be exempt if someone is contracted or subcontracted to provide education or vocational training under one of the government’s approved training schemes and the services are ultimately funded by:

  • the Young People's Learning Agency or the Skills Funding Agency
  • the National Council for Education and Training for Wales
  • a Local Enterprise Company; or
  • the European Social Fund (under a scheme approved by the Department for Education

(See section 13.)

Education and vocational training may also be exempt if supplied by:

  • a sole proprietor; or
  • a partnership

(See section 6.)

5.6 The meaning of the term 'research'

Research includes:

  • original investigation undertaken in order to gain, advance or expand knowledge and understanding
  • devising a specialised software programme as part of a research project before carrying out the main tasks

Research does not include:

  • merely confirming existing knowledge or understanding
  • consultancy
  • business efficiency advice
  • collecting and recording statistics without also collating, analysing, or interpreting them
  • market research
  • opinion polling
  • writing computer programmes
  • routine testing and analysis of materials, components and processes

The fact that a project may have a specific commercial application does not necessarily mean that it cannot be research. For example, much research funded by the Department for Business, Innovation & Skills (BIS) and by Research Councils (eg Particle Physics and Astronomy Research Council) is aimed at developing improved equipment or techniques for use in industry.

5.7 Supplies of research by an eligible body

Generally research is outside the scope of VAT when it is funded, either by the public sector or by the charitable sector for the wider public benefit. However, each case needs to be considered on its’ own merits.

The VAT exemption for supplies of business research between eligible bodies was withdrawn on 1 August 2013. However, there is a transitional arrangement for supplies of business research where the written contract was entered into before 1 August 2013, whether or not work has already commenced, which will allow the exemption to continue to apply to services within the scope of the contract as at 31 July 2013.

Supplies under the contract will be a continuous supply of services. Each liability of each supply is individually determined.

  • If the supply made is for a supply wholly under the contract as it was on 31 July 2013, that supply will be exempt from VAT.
  • If a supply is wholly for an extended part of the contract, that supply will be standard-rated.
  • If a supply relates in part for the contract as it stood as at 1 August 2013 and in part from extended parts of the contract, then that whole supply is taxable at the standard rate.

As this is a single supply, there can be no apportionment. Supplies can only be exempt if they fall wholly within the scope of the contract as at 1 August 2013, otherwise they are table. Research providers that want to benefit from the exemption should ensure all supplies that are within the scope of the contract as at 31 July are invoiced or paid on their own and not with any work relating to the extended supplies.

Some minor variations that will not affect the liability of the original contract include:

  • Changing the supplier of a sub-contracted service,
  • Changing the order the contract is performed in,
  • Minor changes to the delivery time of the contract and milestones (less than three months) providing there is no additional consideration.

However, substantial variations may include one or more of the following:-

  • Increases in the length of the contract (over three months),
  • Payment of additional consideration,
  • Requirement for new or additional tests to be performed,
  • Changes to the product or topic on which research is being carried out.

If a substantial variation is made to a written contract as it stood at 31 July 2013, supplies that relate to the changes will be subject to VAT at 20% and changes that remain within the scope of the contract as it stood at 31 July 2013 remain exempt.

Notice 741 VAT: Place of supply of services covers the VAT treatment of research to overseas bodies.

5.8 European Commission’s Framework 6 and 7 programmes

Research provided under the European Commission's Framework 6 Programme is a supply, but because of its status as a recognised international organisation, VAT should not be charged to the Commission. However, special rules allow for the recovery as input tax on the VAT that has been charged to the eligible body which directly relates to this supply (see Notice 700 The VAT Guide).

However, funding under the Framework 7 programme is grant income. As such, where VAT is incurred on goods and services purchased purely to support non-business research activities, it is not input tax and cannot be recovered.

You can get further information about this from the Helpline on 0300 200 3700.

6. Private tuition

6.1 The treatment of private tuition

The following table will help to decide whether the private tuition supplied by an individual teacher, working in a personal capacity, is exempt from VAT.

If the teacher is …


And …


Then …


a sole proprietor or member of a partnership


the subject is one taught regularly in a number of schools or universities


it is an exempt supply of private tuition


takes on a teacher or teachers to help in carrying out the instruction


even though the tuition delivered by teacher (as sole proprietor or partner) may still qualify as exempt private tuition, the tuition that others deliver is standard-rated


If a teacher takes on another teacher (or several others) to assist, either:

  • there should be an apportionment of supplies of tuition between exempt and taxable elements (using any fair and reasonable method); or
  • all supplies of tuition should be treated as taxable regardless of who actually delivers it.

6.2 Treatment of goods or services sold in connection with private tuition

If the goods and services supplied with private tuition are not an integral part of the supply of tuition they must be treated as standard-rated unless relief is available elsewhere. This applies even if the goods and services are closely related to the private tuition itself (see section 8).

7. Examination services

7.1 The meaning of the term 'examination services'

Examination services (see paragraph 7.2 for VAT treatment) include:

  • setting and marking examinations
  • setting educational or training standards
  • making assessments; and
  • other services provided with a view to ensuring that educational and training standards are maintained

The following are also examination services:

  • services connected with GCSE and GCE examinations and National Curriculum tests
  • National Vocational Qualification (NVQ) assessments
  • course accreditation services
  • validation
  • certification (including issuing duplicates)
  • registering candidates

The following are not examination services:

  • secretarial services
  • advertising services
  • promotional services

(Unless they are provided as part of a broad package of predominantly examination services.)

7.2 Exempt supplies of examination services

Eligible body (see paragraph 4.2): the supplies of examination services are exempt.

Non-eligible body (see paragraph 4.2): the supplies are exempt if the person receiving the services is either:

  • an eligible body; or
  • an individual receiving education or vocational training that itself is not liable to VAT such as:
    - pupils of independent fee paying schools (as legally defined);
    - pupils of community, foundation or voluntary schools;
    - students of further education colleges;
    - trainees on government approved training schemes; and
    - employees receiving in-house training from their employers.

7.3 Payments by pupils or parents to schools passed on to examination boards

When schools receive payments from pupils or parents and pass them on to examination boards they can normally treat them as disbursements. For more information on disbursements see Notice 700 The VAT Guide.

7.4 School inspections

The services of school inspections are exempt if they are:

  • made by an eligible body; or
  • supplied direct to another eligible body (including a school or local authority)

8. Supplies provided with education

8.1 How to treat income from other goods and services

Where goods and services are supplied by an education provider who is an:

  • eligible body

They are exempt if they qualify as closely related (see paragraphs 8.2, 8.3 and 8.6)

  • non-eligible body

they are standard-rated unless relief is available elsewhere.

8.2 The meaning of the term 'closely related'

In general terms, closely related refers only to goods and services that are:

  • for the direct use of the pupil, student or trainee; and
  • necessary for delivering the education to that person

However, an eligible body should treat as closely related any:

  • accommodation
  • catering
  • transport
  • school trips
  • field trips

provided to it, subject to the conditions of paragraphs 8.4 and 8.5.

8.3 Goods and services that are not closely related to supplies of education

The following are examples of goods and services that are taxable in principle unless relief is available elsewhere:

  • supplies to staff (including tutors on summer schools) and to other non-students
  • sales of goods from school shops, campus shops and student bars
  • sales from most vending machines (for further information go to Notice 709/1 VAT: Catering and take-away food
  • sales of goods not needed for regular use in class
  • separately charged laundry and other personal services
  • sales of school uniforms and sports clothing
  • admission charges (other than for taking part in sports activities) for example, admission to plays, concerts, dances, sporting venues, exhibitions, museums and zoos
  • administration and management services
  • commission for allowing sales by outside organisations at an educational establishment; and
  • sales by a sole proprietor or partnership in connection with private tuition

Except for closely related supplies between eligible bodies, there is no general exemption for goods and services supplied to providers of education, research and vocational training for use in their educational activities.

8.4 Closely related goods and services that qualify for zero-rating elsewhere?

When closely-related goods and services qualify for zero-rating they may be treated as either zero-rated or exempt.

8.5 Closely related goods and services sold to pupils by an eligible body

The table below explains the position:

If an eligible body …


Then …


supplies education, research or vocational training in the course or furtherance of business (see sections 2 and 3)


the closely related goods and services it sells to its pupils, students and trainees are exempt


does not supply education, research or vocational training in the course or furtherance of business, but provides it for no charge (see sections 2 and 3)


the closely related goods and services it sells to its pupils, students and trainees are non-business and outside the scope of VAT, providing they are sold at or below cost


If the goods and services sold are not closely related to the education provided, they are standard-rated unless relief is available elsewhere.

8.6 Closely related goods and services sold to the pupils of other eligible bodies

The following table, which should be read together with paragraph 1.2, and Section 2, explains when VAT should be charged on closely related goods and services sold to the pupils, students and trainees of other eligible bodies when an eligible body is not supplying education to them.

If the eligible body is …


Then it …


an educational institution such as a school, college or university


should not charge VAT on the closely related goods and services it provides direct to the pupils, students and trainees of other schools, colleges or universities that are also eligible bodies (see paragraph 4.2)


not a school, college or university (see paragraph 4.2)


should charge VAT on the closely related goods and services it provides unless relief is available elsewhere


The following table gives examples that will also help.

If a body is…


And it …


Then it …


a school


shares a catering outlet with another educational institution which is also an eligible body


should not charge VAT on the meals provided direct to the pupils or students of that institution


a university


contracts to provide conference facilities to another eligible body (rather than direct to its students)


should charge VAT unless the recipient body is going to use the facilities in connection with an exempt supply of education etc


an eligible body (see paragraph 4.2)


supplies closely related goods and services to a local authority-maintained school


should charge VAT because the school does not supply education but provides it for no charge


an eligible body


supplies catering and accommodation to a charity which uses them in connection with free training for its employees


should charge VAT because the charity is not supplying the training


8.7 Further information on supplies that are not closely related

If information is required on …


It will be found in …


a school arranging a contract with a school photographer


Section 12 of this Notice


catering supplies (or arrangements made for a contractor to supply catering either on his own behalf or as an agent)


Notice 709/1 VAT: Catering and take-away food


the supply of living accommodation


Notice 709/3 VAT: Hotels and holiday accommodation


the purchase and resale of travel, hotel, holiday and certain other services as part of a course of tuition


Notice 709/5 VAT: Tour operators’ margin scheme and Notice 709/6 VAT: Travel agents


9. English as a Foreign Language (EFL)

9.1 Providers of EFL

For information on non-commercial providers of tuition in EFL see sections 4 and 5.

If a commercial body makes supplies of EFL as well as supplies of other education it should only treat as exempt:

  • Supplies of EFL.
  • Any closely related supplies that meet the conditions outlined in section 8. This includes any closely-related supplies made to commercial providers of EFL.

Tuition includes all elements that are integral to the course, held out for sale as such, and are the means by which it is intended to promote fluency in the use of the English language. These can include:

  • sports and games
  • recreational activities
  • sightseeing; and
  • social activities

Any separate supplies of closely related goods and services are also exempt, providing they meet the conditions set out in section 8.

However, the exemption does not extend to any other educational or training courses supplied, such as tuition in a language other than English or training people to teach EFL.

9.2 Tuition in EFL as part of another course

A commercial provider who supplies courses in modular form, comprising some tuition in EFL plus broader coverage of other curricular subjects, should use any fair and reasonable method to apportion the supply to reflect the exempt element.

If it is inconvenient or impractical to do this, the whole supply may be standard-rated.

9.3 Tour operators’ margin scheme

If any if the following are purchased and resold:

  • travel
  • hotel
  • holiday; and
  • certain other services

the scheme must be used to account for VAT on these supplies.

There is further information in Notice 709/5 VAT: Tour operators’ margin scheme and Notice 709/6 VAT: Travel agents.

10. VAT treatment of local authority (LA) schools

10.1 LA schools

These are schools maintained by an LA and receive recurrent funding from the LA under arrangements set out in sections 45-53 of the School Standards and Framework Act (SSFA) 1998. They fall into the following three categories:

  • community (including community special schools)
  • foundation (including foundation special schools); and
  • voluntary (comprising both voluntary aided and voluntary controlled schools)

They do not include:

  • nursery schools; and
  • pupil referral units

10.2 Goods and services bought by the governors for the school?

Under section 49(5) of the SSFA, governors act as agent of the LA when they pay for these goods and services using money from:

  • the school’s delegated budget; or
  • amounts that the school receives from LA central funds for specific purposes

The delegated budget covers items such as:

  • equipment; and
  • salaries

and the governors are free to spend it for the purposes of the school as they see fit.

LA central funds cover items such as:

  • capital expenditure
  • special needs provision; and
  • home-to-school transport

The governors do not act as an agent of the LA in respect of loans that they take out and repay using funds obtained from the LA.

10.3 VAT treatment when governors act as agents of the LA

The local authority can recover the VAT incurred under section 33 of the VAT Act 1994. You can find out more about this in Notice 749 VAT: Local authorities and similar bodies.

10.4 Can the LA recover VAT on goods and services bought for the school using non-LA funds?

The LA can recover the VAT only if the school opts to donate the money to the local authority and the latter buys the goods and services itself. The LA must meet the conditions set out in Notice 749 VAT: Local authorities and similar bodies . In other words, the LA must:

Step


Action


1


Place the order


2


Make the purchase itself


3


Receive the supply


4


Receive a tax invoice addressed to it


5


Make payment


6


Use the goods and services for the educational purposes of the school


7


Retain ownership and adequate records


This route is not available to:

  • foundation schools - with regard to certain direct grants they receive from the Department for Education (DfE) for construction services; or
  • voluntary aided schools - with regard to income, including direct grants from the DfE, used to fund works that are the responsibility of the governors (see paragraph 15.7)

10.5 Income kept by the school which it has received from letting its premises

The school can treat this income in the same way as funds from its delegated budget when using the money to buy goods and services (see paragraphs 10.2 and 10.3).

10.6 When only part of the VAT a school is charged meets the conditions for recovery by the LA

The school or LA should make a fair and reasonable apportionment between the VAT it can recover and the VAT it cannot.

10.7 Whose responsibility is it to account for VAT?

If the entity is not a governing body and is not acting as an agent of the LA, then it is its responsibility to account for VAT, not the LA's. If it makes taxable supplies, then, subject to the normal registration threshold, it must register separately for VAT. (See Notice 700/1 VAT: Should I be registered for VAT?)

10.8 Responsibility for registering in these circumstances

It depends on the particular facts of the case as to who should register for VAT. The registrable entity might be:

  • the governing body
  • the head teacher acting as agent of the governors
  • a Parent Teacher Association; or
  • some other body

10.9 Can governors, head teacher or another body recover VAT charged on purchases?

If the governors, head teacher or other body has to register for VAT they can recover VAT according to the normal rules. (See Notice 700 The VAT Guide.) They cannot make use of the special provisions available to local authorities (LAs) (see paragraph 10.3).

11. Education Action Zones

11.1 Can an Education Action Zone (EAZ) recover the VAT charged on purchases?

A statutory EAZ (one established under the SSFA 1998) is not part of a local authority. Neither is it in business for VAT purposes (see sections 2 and 3). This means that the EAZ cannot recover any VAT it incurs on purchases except where it acts as an agent of the LA.

The following table will help an EAZ to decide when VAT can be recovered.

If an EAZ buys goods and services …


Then …


Because …


using funds delegated to it by an LA via the governors of participating schools


the LA can recover any VAT incurred


the EAZ is acting as agent to the LEA in the purchase


using funds that it has obtained from other sources


the LA cannot recover any VAT incurred


the EAZ is not acting as its agent


via the governors of participating schools using funds it has obtained from non-LA sources


the LA cannot recover any VAT incurred


the governors are not acting as its agent


and incurs VAT that the LA cannot recover


the VAT sticks with the EAZ as a real cost


the EAZ makes no taxable supplies of its own and so is not registrable for VAT


from an LA using funding channelled to it by the LA via the governors of participating schools


the transaction is outside the scope of VAT


the EAZ is acting as agent of the LA and no supply takes place


11.2 Supplies of staff from an LA to an EAZ

If an LA supplies teaching staff to an EAZ for purposes of instruction, the LA should not charge VAT. This is because both the LA and the EAZ are eligible bodies (see paragraph 4.2) and the supply is exempt.

11.3 Non-statutory EAZs

If an EAZ is non-statutory (that is, one not established under the SSFA 1998), then the LA can recover VAT on goods and services supplied to the EAZ. This is because the EAZ is acting as an agent of the LA in the purchase.

12. School photographs

12.1 Supplies of photographs

A photographer may sell photographs either:

  • direct to the pupils or their parents; or
  • to the school or local authority (LA)

The school or LA may make a separate supply of the use of premises, facilities and other services to the photographer. In that event the position is as follows:

  • where the photographer sells the photographs to the pupils or their parents the photographer will pay the school a commission
  • where the photographer sells the photographs to the school (for onward sale to the pupils/parents) they will be sold at a discount

12.2 VAT treatment of the commission or discount (for the use of school premises)

The VAT treatment of the commission that the photographer pays to the school (for the photographs that it sells direct to pupils/parents) or the discount (for the photographs that it sells to the school) depends on whether the school is independent or LA-maintained.

If it is LA-maintained, the VAT treatment will depend on:

  • what type of school it is
  • whether it is registered for VAT; and
  • whether it acts for the LA or the governing body in supplying the photographer with the use of its premises and facilities

So, in order to decide the correct VAT treatment of the commission or discount, each time a contract is entered into, the photographer must first establish whether the head teacher is acting for the LA or the governors.

In the following examples, the head teacher is employed by the governors of the school and acts as such on their behalf:

  • foundation and voluntary aided schools in England
  • self-governing schools in Scotland; and
  • voluntary maintained, voluntary grammar and grant maintained integrated schools in Northern Ireland

In these cases the school will have to charge VAT on the supply of the premises and use of facilities to the photographer, if either:

  • the taxable turnover from the school, including the income that the school receives from the photographer, exceeds the VAT registration threshold; or
  • the school has registered voluntarily for VAT

The consideration for this supply is the commission or the discount that the photographer pays to the school.

12.3 Photographs supplied to an LA or school to sell to parents or pupils

VAT will be due on the price that the photographer actually charges.

Where the customer is:

  • Registered for VAT (ie the LA, school, governing body or parent teacher association) it may recover the VAT it has been charged (subject to the normal rules) and must charge VAT on the full value of the photographs supplied to pupils.
  • Is not registered for VAT further information may be obtained from the HMRC Helpline although VAT should be charged initially until advice has been received. In this event a Notice of Direction may be issued requiring the photographer to account for VAT on the price charged by the unregistered body to the pupil (see paragraph 12.2).

13. Government approved vocational training schemes

This section explains what the main schemes are and how they work. It also gives guidance about when VAT should be charged and the arrangements for issuing VAT invoices.

13.1 The schemes

These are vocational training schemes that provide vocational training to young or unemployed people. They are approved by:

  • the Department for Education
  • the Department for Work and Pensions (through Job Centre Plus); and
  • devolved administrations in Wales, Scotland and Northern Ireland

and administered and funded by:

  • the Young People's Learning Association (YPLA)
  • the Skill Funding Agency (SFA)
  • local authorities in England (working together with the YPLA)
  • the Welsh Assembly
  • Skills Development Scotland; and
  • the Training and Employment Agency in Northern Ireland

They also include:

  • approved schemes that are paid for using funds derived from the European Social Fund
  • training administered by further education colleges and funded by any of the bodies listed above
  • the training of workplace assessors in connection with National Vocational Qualifications; and
  • training aimed at providing additional skills for use in the workplace (for example, to Health and Safety and First Aid Officers)

13.2 When exemption applies

Exemption from VAT applies to supplies of:

  • vocational training, including work experience (see paragraph 5.3, under one of the schemes listed in paragraph 13.1)
  • any goods and services supplied directly to trainees that are essential to the training

but only to the extent that they are ultimately funded by the government as detailed in paragraph 13.1.

An eligible body's (see paragraph 4.1) supplies of vocational training are exempt regardless of how they are funded.

The exemption does not cover:

  • counselling and careers guidance services (unless they are a compulsory part of a vocational training package); or
  • accreditation or assessment services - although these may qualify for exemption as examination services (see section 7)

13.3 VAT on vocational training under a government approved scheme

VAT should not be charged as the supply is exempt, however:

If …


Then …


And …


the trainee or an employer pays part of the cost of the training from their own resources


that part of the supply is not covered by the exemption


the exempt and standard-rated elements are to be established for the purposes of apportionment unless the training provider is an eligible body (see paragraph 4.1)


with the provider of the training contracts with a further education college


the proportion of the payment by the college derives from funds listed in paragraph 13.1 must be established


apportioned between exempt and standard-rated elements unless the training provider is an eligible body (see paragraph 4.1)


the contract allows for a separate supply of management services


the management services are not covered by the exemption


VAT must charged


If a trainee hands a training credit voucher to the training provider to be redeemed with the local office of the Young People's Learning Association (YPLA) or the Skill Funding Agency (SFA) the income received from it is part of the training provider's exempt supply.

13.4 Subcontractors to training providers

(a) Government approved vocational training programme

VAT should not be charged on services provided by the subcontractor to the extent that the training provider pays for the services (and any goods and services supplied by the subcontractor directly to trainees that are essential to the training) using funding obtained from any of the sources listed in paragraph 13.1.

Any funding that the subcontractor receives but must pass on to trainees or students as:

  • statutory living allowances
  • travel costs; or
  • lodging expenses

is outside the scope of VAT - it does not form part of the consideration for the supply of vocational training. (But see paragraph 13.5.)

(b) Training provided to businesses for their employees and to individuals

It is the responsibility of the subcontractor to account for VAT where it is due, but also to exempt supplies when they qualify for exemption.

If a body is …


Then …


And …


an eligible body (see paragraph 4.1)


supplies to it are exempt


should not be charged VAT


not an eligible body (see paragraph 4.1)


it will be necessary to establish with the customer whether the supplies made by the contractor are ultimately funded by any of the bodies listed in paragraph 13.1


1) evidence should be requested;


2) retained; and


3) the supplies are to be treated as exempt to the extent that they relate to that funding


13.5 Work placement providers

Where work experience is provided to a trainee or an employee of another business or a college student under one of the government’s approved vocational training schemes, the business or college must charge the placement provider VAT because s/he benefits from the services of the trainee, employee or student. This is separate from the supply of exempt vocational training to the trainee.

Unemployed trainees qualify for a statutory living allowance and, possibly, expenses. If a placement provider has to fund any part of these allowances or expenses from his or her own resources, the amount s/he pays is consideration for the standard-rated supply to the placement provider of the trainee’s services by the training provider or further education college.

This is the case even though the placement provider may make no actual payment to the training provider or college itself.

If a trainee is also the placement provider's own employee, any payments made to him or her as wages or allowances are outside the scope of VAT.

13.6 Is VAT recoverable by a body that is making exempt services under a vocational training scheme?

VAT will probably not be recoverable. VAT that relates to exempt activities cannot be recovered unless it is below certain limits. Further information is provided in Notice 706 VAT: Partial exemption.

13.7 Careers services or counselling paid for by the Young Persons Learning Agency (YPLA) or the Skills Funding Agency (SFA)

If a supply is to the third party who actually benefits from the services rather than to the YPLA or SFA, any VAT invoices should be issued to the third party and not to the YPLA or the SFA.

However if the contract is set up in such a way that the supply is to the YPLA or the SFA, any VAT invoice should be issued to them (see also paragraph 14.1).

There is more information about issuing VAT invoices in Notice 700 The VAT Guide.

13.8 The VAT liability of the services supplied under the New Deal and Flexible New Deal

The New Deal and Flexible New Deal are subject to the same VAT principles as other government approved vocational training schemes. However, because it is designed to respond flexibly to the conditions and requirements of individual districts and regions, it uses a broad variety of contractual arrangements and methods of delivery. The VAT treatment of the services depends on the contractual arrangements between supplier and customer and precisely which services are being provided.

The following tables will assist in deciding the liability of the services supplied.

Exempt


Standard-rated


Vocational training
Work experience


Counselling
Advice
Careers guidance
Job clubs
Mentoring


If …


Then …


And …


Job Centre Plus funding is used to buy in vocational training or work experience


the supply by the provider is exempt to the extent that this money is used to pay for the service


an apportionment should be made between exempt and standard-rated elements (unless the recipient of the supply is an eligible body - see paragraph 4.2)


a single supply comprises both vocational training and careers advice


the vocational training element can be exempted if it is separately identifiable


the element of careers advice is to be standard-rated


the single supply comprises mostly vocational training


any taxable elements of the package may be disregarded if it is not practical to identify them separately


the whole supply is to be exempted


in a New Deal and Flexible New Deal partnership work is subcontracted by one partner to another partner or to an unrelated third party in return for payment


that payment is consideration for the supply of services


the liability depends on what services are actually supplied


in a New Deal and Flexible New Deal consortium or joint venture and the lead partner or administrator passes on Jobcentre Plus funding to another member of the consortium


there is no supply of services to the other member of the consortium


the supply is to the Jobcentre Plus


in a New Deal and Flexible New Deal consortium or joint venture the lead partner or administrator charges another member of the consortium for passing on Jobcentre Plus funding


the payments by that member are consideration for the supply of a management service


the lead partner or administrator must charge VAT


New Deal and Flexible New Deal services are not provided but arrangements are made for others to carry them out but merely arrange for others to carry them out


(depending on what the contract says) the supply is one of a taxable management service to the Jobcentre Plus


the consideration for the supply is the amount supplier is allowed to retain to cover its administrative costs


In general, consideration for the supply that is made to the Jobcentre Plus, is the total amount received from them, less any amount passed on to individuals by way of statutory living allowances and travel expenses.

This is subject to the proviso that all payments received from the Jobcentre Plus for trainees that are being employed are subsidies towards wage costs and therefore outside the scope of VAT.

14. Government business support and enterprise scheme

14.1 Providing business support and consultancy

Business support and consultancy services are standard-rated unless supplied as part of a broad package of government approved vocational training (see section 13).

If a person supplying these services …


Then …


contracts with a local business


the supply is to the business and if the supplier of the services is registered for VAT; that person should:


  • issue a VAT invoice;
  • charge VAT on the full amount;
  • show that the payment has in part been received from the YPLA or the SFA.

contracts with the YPLA or the SFA


  • the supply is to the YPLA or the SFA; and
  • that person should issue the YPLA or the SFA with the VAT invoice; and
  • the YPLA or the SFA might then make an onward supply of the services to the business

There is further information about issuing VAT invoices in Notice 700 The VAT Guide.

14.2 Income received from Business Link

VAT should not be charged on income received from the local Business Link under the government’s Business Start-up scheme because this is not consideration for any supplies that have been made. However, it is still possible to recover the VAT that has been incurred, subject to the normal rules, so long as it relates to taxable business activities.

There is further information in Notice 700 The VAT Guide.

15. Construction, land and property

15.1 VAT liability of building work

Most building work is standard-rated. The following table, however, provides a broad overview of works for educational establishments that can be zero-rated or reduced-rated:

Where the work is the …


And after the work the building will be used solely …


Then the work is …


construction of a new building, or carrying out of an approved alteration to a listed building


as residential accommodation for students or school pupils; or by a charity for non-business purposes


zero-rated


construction of an annexe to an existing building


by a charity for non-business purposes


zero-rated


conversion of a dwelling


as residential accommodation for students or school pupils


reduced-rated


15.2 Additional information on the VAT treatment of supplies of building work

Further information on zero-rated and reduced-rated supplies, including the detailed conditions that need to be met, can be found in Notice 708 Buildings and construction.

The Notice also explains:

  • the need for a certificate to be issued to the builder confirming that the building will be used solely for a qualifying use
  • when a penalty may be imposed for issuing an incorrect certificate; and
  • VAT liabilities that arise if the use of the building is changed

15.3 Purchasing and leasing of buildings

The sale or lease of a building may be standard-rated, zero-rated or exempt from VAT depending on the circumstances.

Broadly, zero-rating applies to the first sale or long lease by the developer of a building intended for use solely:

  • as residential accommodation for students or school pupils; or
  • by a charity for non-business purposes.

If the supply is not zero-rated then:

  • the sale of a building less than 3 years old is standard-rated; and
  • the sale of a building over three years old or the lease of a building is exempt from VAT

However, the supplier may, opt to tax an exempt supply and charge VAT unless the building is intended for use solely for one of the above zero-rated uses.

Further information on exemption and option to tax, including the detailed conditions that need to be met, can be found in VAT Notice 742 Land and property and Notice 742A Opting to tax land and buildings.

15.4 Meaning of the term 'charity'

With the exception of community schools and community special schools, all of the institutions listed in paragraphs 3.2 and 3.3 have charitable status, together with universities and many independent schools. Other individual education providers may also be charities. Notice 701/1 Charities contains further details.

15.5 'Non-business' buildings used by charities

The following are examples of business use buildings:

  • any building, for example an assembly hall, at a fee-paying independent school
  • any building at a further education college used for teaching fee-paying and non-fee paying students
  • a sports hall at a foundation school that is regularly made available to the wider community for a charge, even if not for profit

15.6 The recovery of VAT charged on building work

VAT can be recovered according to the normal rules. (See Notice 700 The VAT Guide.)

15.7 VAT incurred by voluntary schools on building work

There are no special rules for voluntary controlled schools. However, at a voluntary aided school the governors are responsible for:

  • external repairs to buildings; and
  • certain fixed items of furniture and equipment.

The Department for Education normally funds these expenses by a direct grant covering 90% of the costs. When that occurs the governors cannot recover the VAT they incur when they contract for the work.

However, occasionally the LA may agree to make contributions to works for which the governors are responsible. Previously when this occurred HMRC allowed the LA to recover the VAT incurred on such contributions but in the light of a policy review it was established that this goes beyond what the law permits. With effect from 1 September 2009 VAT may no longer be recovered by LAs in such circumstances as the supplies have not been made to them. You will find more information on this in HMRC guidance (V1-14).

An LA may continue to recover VAT on expenditure at a voluntary aided school for which the local authority is statutorily responsible, or where the local authority, rather than the governing body, procures a supply of works and pays for that supply from its own funds. In such cases HMRC accept the local authority receives the supply in connection with its non business activities. (See also paragraph 10.4.)

16. Supplies of fuel and power

16.1 Supplies of fuel and power at the reduced rate

Fuel and power may be supplied at the reduced-rate of VAT (currently 5%) if a certificate is issued to the supplier confirming that it is for a qualifying use. 'Qualifying use' means:

  • domestic use (including certain residential accommodation); or
  • use by a charity (see paragraph 15.2) for its non-business activities

If …


And …


Then …


the fuel and power is partly for qualifying use


at least 60% of the use is for that purpose


all supplies can be received at the reduced rate


less than 60% of the use is for that purpose


There must be an apportionment between qualifying and non-qualifying use


There is more about this relief in Notice 701/19 VAT: Fuel and power.

17. Supplies by overseas agents

Where services are received from agents belonging in other EU Member States and outside the EU for obtaining pupils/students, the organisation needs to be aware that with effect from January 2010 it may be required to register and account for any VAT that may be due on the services that it has been charged.

For further information see Notice 741A Place of Supply of Services.

Your rights and obligations

Your Charter explains what you can expect from us and what we can expect from you. For more information go to Your Charter.

Do you have any comments or suggestions?

If you have any comments or suggestions to make about this notice, please write to:

HM Revenue & Customs
VAT Liability Team
3rd Floor
100 Parliament Street
LONDON
SW1A 2BQ

Please note this address is not for general enquiries.

For your general enquiries please phone our Helpline 0300 200 3700.

Putting things right

If you are not satisfied with our service, please let the person dealing with your affairs know what is wrong. We will work as quickly as possible to put things right and settle your complaint. If you are still unhappy, ask for your complaint to be referred to the Complaints Manager.

For more information about our complaints procedures go to www.hmrc.gov.uk and under quick links select Complaints.

How we use your information

HM Revenue & Customs is a Data Controller under the Data Protection Act 1998. We hold information for the purposes specified in our notification to the Information Commissioner, including the assessment and collection of tax and duties, the payment of benefits and the prevention and detection of crime, and may use this information for any of them.

We may get information about you from others, or we may give information to them. If we do, it will only be as the law permits to:

  • check the accuracy of information
  • prevent or detect crime
  • protect public funds.

We may check information we receive about you with what is already in our records. This can include information provided by you, as well as by others, such as other government departments or agencies and overseas tax and customs authorities. We will not give information to anyone outside HM Revenue & Customs unless the law permits us to do so. For more information go to www.hmrc.gov.uk and look for Data Protection Act within the Search facility.

Download options

This document is available in the following formats

Please be aware that our PDF, Word, Excel and Powerpoint documents will open in a new window.

Download free viewers for all formats >>

$START-DATA$ title=Education and vocational training^ summary=VAT Notice 701/30: This notice explains the VAT treatment of education, research, vocational training, goods and services.^ doctype=PublicNotice^ date=04-Mar-2014^ author=hd114469^ $END-DATA$
content tools
Glossary

Don't understand some of our terms ?

Find the answers in our Glossary