In my experience, there is a general assumption that all “education’ is exempt. It is true to say that a lot of education and tuition is indeed exempt, but that is not automatically the case. It is important to establish the reason for the application of non-taxable treatment. The VAT treatment depends on; what is actually being provided, who is providing it and the precise arrangements. I consider the more common issues below:
The legislation covering education is VAT Act 1994, Group 9, Schedule 6.
What does the term education mean?
It means a course, class or lesson of instruction or study in a subject. This includes:
- lectures
- educational seminars
- conferences and symposia
- recreational and sporting courses
- distance teaching and associated materials
Schools etc
The first type of education exemption is relatively clear: It is the provision of education by an eligible body. An eligible body is, broadly; a school, college, or university (supplies by Local Authority schools, city technology colleges, sixth form colleges, academies and free schools – where education is provided for no charge, are non-business activities rather than exempt, and have their own set of rules). More on academies here
It is also worth noting that any ‘closely related” goods or services provided with exempt education are themselves exempt. This may cover items such as; certain stationery, accommodation, transport and catering.
There is usually very little disagreement about the VAT treatment of these entities.
Charities/ non-profit making organisations
If a charity/NFP entity is an eligible body supplies of education and vocational training (see below) by it are exempt. Such an organisation is likely to be an eligible body, where it’s a charity, professional body or company which:
- cannot and does not distribute any profit it makes, and
- any profit that does arise from its supplies of education is used solely for the continuation or improvement of such supplies.
There can be disputes over the term “does not distribute any profit” so care should be taken in this respect and advice sought if there is any doubt.
Tuition
Exemption applies to the supply of “private tuition, in a subject ordinarily taught in a school or university, by an individual teacher acting independently of an employer” – VAT Act 1994 Schedule 9, Group 6, item 2.
Taking each of these tests in turn:
- What is “private tuition?
In order to qualify, the provider of tuition must act independently and not be an employee. Practically, this means that the person providing the tuition must either be a sole proprietor, a partner in a partnership, or a member of a Limited Liability partnership (LLP). Consequently, exemption does not apply if the teaching is carried out by a company or an employee. This is a matter of fact, however, it is possible to structure matters such that the exemption applies if it does not currently (and the restructure is possible commercially).
- What does “ordinarily taught” in schools/universities mean?
This is often a moot issue and the significant amount of case lawn highlights this. Most of the mainstream subjects are covered of course, but what about subjects like; golf, horse riding and dance? Would they be ordinarily taught in schools? (The answer according to case law is; yes). However, there are many other subjects which are debatable and HMRC usually take an uncompromising line on this area, especially around sporting activities. If there is any doubt, we recommend seeking advice.
Clearly, if a person teaches or coaches a subject to an individual or group, then this qualifies as tuition. However, a distinction must be made between this and a recreational type of activity which may be called a “class”, but no actual tuition is provided. Exemption does not apply, for example, for the simple provision of gymnasium or swimming pool facilities, or a yoga class where no coaching takes place (however, it is possible that these may be exempt under different parts of the legislation, but that is not the subject of this article).
Vocational training
Vocational training means training or re-training and work experience for paid employment or voluntary employment in areas beneficial to the community.
If vocational training is provided for a charge the VAT consequences are either:
- for an eligible body (see above) vocational training is exempt
- for a non-eligible body vocational training is still exempt to the extent that it is funded under an approved government funding scheme. Otherwise the supply is taxable.
English as a Foreign Language (EFL)
If a commercial entity makes supplies of tuition of EFL they will qualify for exemption. In these cases, 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.
General
In respect of all of the above, if exemption does not apply the supply of education falls to be taxable as a default.
For completeness, exemption may also apply to; research, examination services, youth clubs, day nurseries, crèches and playgroups but these activities are outside the scope of this article.
Summary
There are many traps for the unwary here. Planning is always advisable and I recommend that any entity which provides education is conscious of the VAT implications and seeks advice where/when necessary.
