HMRC has updated its guidance to businesses on VAT. The helpful instruction includes: email updates, videos and seminars which cover such subjects as:
HMRC has published updated partial exemption guidance in Manual PE21500.
The main changes are in respect of updated case law, including the Royal Opera House Court of Appeal case dealing with the attribution of input tax.
In that case the CoA considered: the test of direct and immediate link, economic necessity, business/non-business, and chains of transactions.
The subject of education often gives rise to complex VAT issues – as the number of Tribunal cases illustrates.
Background
A number of schools provide early or pre-school education (before compulsory education). All children aged four should be able to access an early education place and some early education and childcare services offer free part-time early or pre-school education to three year olds. This is paid for at the discretion of Local Authorities. Places for children under three in voluntary or private pre-school settings are paid for mainly by parents.
Update
In light of, inter alia, the Yarburgh Children’s Trust, Wakefield College , Longbridge and St Paul’s Community Project, HMRC has updated to reflect changes to it’s policy in respect of charities supplying; crèche, pre-school education, nursery, after-school clubs and playgroup facilities.
Business test
HMRC’s past position was that if a charity supplied nursery and crèche facilities for a consideration that was fixed at a level designed to only cover its costs, this was not a business activity for VAT purposes. Now the two-part test derived from the Wakefield College Court of Appeal case will be applied:
The activity results in a supply of goods or services for consideration. This requires a legal relationship between the supplier and the recipient. The initial question is whether the supply is made for a consideration. An activity that does not involve the making of supplies for consideration is not a business activity.
The supply is made for the purpose of obtaining income therefrom (remuneration)
General
The provision of pre-school education (without charge) is non-business; breakfast clubs and after-school child-minding/homework clubs remain non-business in the Local Authority sector even when a charge is made. This is on condition that the school offers the service strictly to its own pupils and that the fee charged is designed to no more than cover overhead costs.
Law
VAT Act 1994, Schedule 9, Group 6 – Education
VAT Act 1994, Schedule 9, Group 7, Item 9 – Health and Welfare
HMRC has published updated guidance on childcare following the decision in the RSR Sports Limited (RSR) case. The issue being what supplies fell within the definition of “services… closely linked to the protection of children and young persons” and supplies of “welfare services” – VAT Act 1994, Schedule 9, Group 7, item 9.
The guidance in VATWELF3032 states that RSR could be distinguished from Sports Academies (Decision No TC05171), a case where the tribunal had held that the activities element predominated.
The important key features were:
Other providers supplying services can similarly exempt their supplies where the facts demonstrate that they qualify and exhibit the key features set out by the FTT in RSR.
HMRC no longer interprets activity-based clubs to include those clubs exhibiting these key features. Such clubs can therefore, qualify for the welfare exemption if they otherwise meet the conditions.
Further to my article on apportionment valuation and case review here and Transfer Pricing valuation I thought it useful to consider HMRC’s internal guidance on its approach to valuation.
Sometimes a single monetary consideration may represent payment for two or more supplies at different VAT rates. In such cases, a business is required to allocate a “fair proportion” of the total payment to each of the supplies. This requirement is set out at in The VAT Act 1994, Section 19(4).
“Where a supply of any goods or services is not the only matter to which a consideration in money relates, the supply shall be deemed to be for such part of the consideration as is properly attributable to it.”
Although this section requires an apportionment of the consideration to be performed, it does not prescribe the methods by which this is to be achieved. The most common methods are based upon the costs incurred in making the supplies or the usual selling prices of the supplies.
Examples of methods that have been found to be of general application are contained in VAT Notice 700 para 8. A business is not obliged to adopt any of these suggested methods, and HMRC may accept alternative proposals provided that they achieve a fair and reasonable result that can be supported by valid calculation.
Some sectors have special methods called margin schemes to determine apportionment of the monetary consideration. Details of these found in their notices and guidance. The schemes include:
Basics
Before it is possible to perform an apportionment calculation, there are four basic questions that need to be addressed to determine whether an apportionment is appropriate and if so, what supplies it relates to.
The issue of whether there is a single or multiple supply has created problems from the outset of the tax. The volume of case law illustrates that each decision is based on the facts of each case and there cannot be a one-size fits all approach to this issue. The most important and recent cases are here:
Metropolitan International Schools
General Healthcare Group Limited