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VAT on apprenticeships

When can we reclaim VAT?

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Hi, 

My client is a 99% ESFA (government funded) apprenticeship training provider. So they are Ofsted registered and have one giant contract with the governement for delivering apprenticeships under their framework, with the funding (and associated funding caps/conditions).

But they are also being hammered by VAT charges, which as the supply is outside of scope, they cannot recover. 

I have tried HMRC and tried to say that we are an Eligible Body, i have also tried to put a claim in for VAT recovery under form 126, but they are saying we have to qualify as a S33 business in order to do this (but another advisor said we didnt? because we are controlled by the government then we are not actually "in business"?

I could really use some help with this one! Where can I go from here? VAT levels are currently being expensed at a rate of £35k+ per year.

Replies (13)

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By Les Howard
03rd Aug 2021 16:11

If you are in business and an eligible body, your activities might fall within the education exemption. If you are not in business, you can only claim under s33 if you are explicitly referred to in the legislation. Otherwise you are stuck with irrecoverable VAT.
You can have someone review (1) your Constitution and (2) s33, to confirm either way.

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By L Green
03rd Aug 2021 16:25

Hi,
Yes, I agree. We are a Ltd company with 98% ESFA income to deliver apprenticeships with about 2% Commercial invoicing (max). I have spoken to HMRC VAT Tech person this afternoon who said we didn't qualify as S33 because "you are not a school" but could not provide any further qualification than that!
But then he also said we categorically could not apply for Partial Exemption either. We are not currently VAT registered, but i understand that as we do have SOME taxable supplies, we could register voluntarily? HMRC said not this afternoon.. I think (dare i say it) he might be wrong.
There must be a solution to this, i feel that i am just not asking the right questions..

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By L Green
03rd Aug 2021 16:29

If it helps anyone out there who might be able to offer me some advice, we do not charge our learners for courses at all. It is all fully funded.
When i spoke to HMRC today, i said so we are not "in business" then (we are more distributing something like a grant??) he said but you ARE in business.
But when i read the definition - if we dont charge learners for courses - then we are not and we should be classed as an eligible body.
Round in circles..

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By Duggimon
03rd Aug 2021 16:46

I can't advise you on your specific situation but I can advise you that you absolutely cannot seek tax advice from HMRC. They will make things up, misinterpret guidance and use sources that are entirely flawed in order to cobble together an answer, and then state it is 100% correct.

With £35K p.a. at stake, if you believe there is scope for that to become reclaimable then seek advice from a VAT specialist who has a professional obligation to not lie to you rather than from HMRC who don't care whether the information they provide is correct.

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By Leywood
03rd Aug 2021 18:00

Two fabulous VAT experts on here, worth paying for their services, if of course one of you is prepared to take you on.

One is Les, who has provided an answer. Other is Jason, you will see him post on here too.

Never take advice from HMRC, look at all the tribunals they lose.

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By L Green
03rd Aug 2021 18:19

Hi
I totally agree! But unfortunately we are coming from a position where we have been "absorbing" 35k in vat each year, for many years... and without some hope that spending money on a VAT expert who could argue our case successfully, then we are a little stuck in some thing + sticky and smelly...

VAT advice is well worth the money, we all know that - but HMRC are telling me that there is basically no hope whatsoever...
and we desperately need a lifeline.
If only Tax advisors worked on a no-win-no-fee basis, we would be OK!
But I am not aware that any do...
L

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Replying to L Green:
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By Leywood
03rd Aug 2021 18:32

.

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Replying to L Green:
Jason Croke
By Jason Croke
04th Aug 2021 07:55

??

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By L Green
03rd Aug 2021 18:36

I think if Les were convinced that our investment would provide hope then that would be great.
But we are a ltd company delivering a government contract, and we now have very... limited funds to be able to do anything with. We cant chase rainbows.

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By L Green
03rd Aug 2021 18:36

I think if Les were convinced that our investment would provide hope then that would be great.
But we are a ltd company delivering a government contract, and we now have very... limited funds to be able to do anything with. We cant chase rainbows.

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Jason Croke
By Jason Croke
04th Aug 2021 09:16

The problem with HMRC is that they will answer based on what you tell them....and what you have told them is confusing.

You have told HMRC you are "not in business", if that is so, you cannot register for VAT if you are "not in business". HMRC have subsequently said that you are "in business", and I err towards agreeing with them....presumably you do make some sort of profit here in terms of an admin or management fee (usually charged to the grant provider/ESFA). Even charities who do this sort of thing still make a profit in terms of a surplus after costs.

You have stated you have tried to reclaim VAT via a VAT126, why did you do that if you were not clear as to the legal status of the client?*

You can only be an "eligible body" if you are a limited by guarantee, not for profit entity with no distribution of profit within your Articles of Association. If that definition fits your business then you may well be an eligible body.

To claim under s33 (VAT126) you need to be on a specified list of approved organisations, as Les has noted earlier.

You stated earlier that your supplies are outside the scope of VAT, that doesn't sound correct either, if anything, your supplies would be exempt supplies of education.

Have a look at this link here https://www.gov.uk/guidance/vat-on-education-and-vocational-training-not... section 13 as a starter (and the table at section 13.3 in particular), but the whole guide explains the nuances of the sector you are in.

Starting point for you is to be very clear as to what your turnover is. You say you don't charge the apprentice for training, so that means you must charge someone else - the ESFA? So say you get £1,000 from ESFA and you spend £900 of that training the individual and that leaves you £100 after costs which is your profit. Does it work something like that? Or do you take £1,000 from ESFA, give £900 to a sub contractors to do the training and keep £100 for yourself?

If you have income which is 98% ESFA (exempt) and 2% commercial (taxable), then you can register for VAT but you would be partially exempt and can only reclaim 2% of your input tax (it's a little more complex than that but you get the gist). HMRC were wrong to say you can't register for VAT (but then you had told them you were i) not in business and/or ii) were a s33 body and/or iii) only making outside the scope supplies).

I know you state you can't afford advice, but I very much doubt the business is making a loss (government policy is to ramp up apprenticeship funding/training) and it feels odd that you can afford to lose £35k per year of VAT but not have any funds for advice - bearing in mind your business model seems to be about imparting knowledge for a fee.

But hopefully you've got some pointers that can set you on the right path.
*your initial post refers to "my client...." but subsequent posts refer to "we are a Ltd company...." which suggests you are not an Accounting practice but the business itself. You need to speak with your Accountant as they should be able to help you with this. HMRC will send you around in circles unless you are very specific with your wording and HMRC do not give tax/planning advice, they will simply answer the question you ask them based on the words you use.

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Replying to Jason Croke:
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By Tax Dragon
04th Aug 2021 09:44

Jason Croke wrote:

HMRC do not give tax/planning advice, they will simply answer the question you ask them based on the words you use.

A role model for this forum?

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Replying to Tax Dragon:
Jason Croke
By Jason Croke
04th Aug 2021 09:52

Yes, probably :)

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