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Education Exemption - Brockenhurst College case

7th Apr 2014
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The VAT exemption for education extends to the supply of goods and services closely related to the main supply. This is an important issue, and can sometimes cause confusion.

HMRC’s guidance on the issue is on their website (VATEDU53200). Do note that HMRC seek to restrict exemption to those supplies which are delivered BY the education provider, and delivered TO the education recipient.

This issue was recently addressed in relation to supplies of catering and entertainment made by a College. Those supplies were a key element of the education delivered to its students. The relevant course syllabuses for Food, Beverage and Professional Chefs Diploma, and for Dramatic Arts included a number of practical elements. Thus, the College operated a restaurant, and arranged artistic performances, both of which members of the public could attend. Those activities were not profit-making, and were demonstrably an essential part of the education provided to its students.

HMRC’s argument was mainly that the supplies of catering, and performances were not made by the College to the students, and therefore must fall outside the definition of ‘closely related’ goods and services. They argued that the fact that the general public enjoyed access must prevent the exemption from applying.

The First Tier Tribunal found in the College’s favour. HMRC appealed, and the Upper Tier upheld the FTT decision. One of the key arguments was that, although catering and the artistic performances were supplied to members of the public, the students were the beneficiaries of the activities. The Upper Tier pointed out that EU Law does not require that such ‘ancillary’ supplies be made to the students.

The Upper Tier decision includes reference to a series of ECJ decisions which discussed the issue of ‘closely related’ goods and services. Para 34 of the decision helpfully brings together the principles derived from those decisions:

  • The exemption must be construed so as to be consistent with its objective;
  • An especially narrow interpretation of the exemption for activities closely related to the main supply is not appropriate;
  • To be ‘closely related,’ the goods or services in question must be ancillary to the main supply;
  • The closely related supply must be essential to the objectives of the principal supply;
  • There is no requirement that the closely related supply be made to the recipients of the principal supply.

You should note that the issue of ‘closely related’ goods and services is found in a number of VAT exemptions. Not only in education, but the principle applies also in health & welfare, sports, and cultural services. Thus the decision may be applied to a wide range of other organisations.

(Additionally, subscriptions to professional, philosophical, and other bodies are also covered. This is a little different, as UK practice allows an apportionment of otherwise exempt subscriptions.)

Of course, a widening of the exemption will affect an organisation’s Partial Exemption and Capital Goods Scheme calculations. This will increase unrecoverable VAT, and also require re-calculation of Returns if the case is applied retrospectively.

You can find the decision at: http://www.tribunals.gov.uk/financeandtax/Documents/decisions/HMRC-Brock...

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