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VAT on Educational Services

Client wants to register for VAT but is service exempt?

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A client has just set up a school to provide specialist educational services to special needs pupils. Charges are made to the local authority on a per pupil basis. The client is incurring some input VAT and would like to register for VAT. However my understanding is the service is exempt? Is there a way it can be structured to be Vatable?

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By Anonymous.
22nd Oct 2020 11:43

Please note that posting as an anonymous user is reserved for sensitive content that you need help with but don't want people to know who you are.

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By Duggimon
22nd Oct 2020 11:46

The answers you seek are all here https://www.gov.uk/guidance/vat-on-education-and-vocational-training-not...

I would ask for more info to be more help, but clearly you feel this is a sensitive subject and you need to preserve your anonymity.

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By SWAccountant
22nd Oct 2020 11:49

The question is why would you want to? If you were actually an accountant, you'd know the answer to this.

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Replying to SWAccountant:
By Duggimon
22nd Oct 2020 12:08

If the supply was VATable, I would tell them to register if the input VAT is at all significant. It's probably not VATable though.

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Replying to SWAccountant:
RLI
By lionofludesch
22nd Oct 2020 14:12

Quote:

The question is why would you want to?

Hmmm - dealing with a council ? Not sure whether the council wouldn't just pay the VAT as an extra.

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Replying to lionofludesch:
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By SWAccountant
22nd Oct 2020 15:12

Perhaps. We still don't know enough information to change the question from "Why" to "How", though.

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By Paul Crowley
22nd Oct 2020 11:57

Quote:

A client has just set up a school to provide specialist educational services to special needs pupils. Charges are made to the local authority on a per pupil basis. The client is incurring some input VAT and would like to register for VAT. However my understanding is the service is exempt? Is there a way it can be structured to be Vatable?

For posterity

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Jason Croke
By Jason Croke
22nd Oct 2020 15:51

Is the client a Limited by guarantee entity with no distribution of profit by way of dividend, or is it for profit?

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Replying to Jason Croke:
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By Mgdaly
22nd Oct 2020 17:58

No, not ltd by guarantee, normal for profit ltd by shares.

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Replying to Mgdaly:
Jason Croke
By Jason Croke
22nd Oct 2020 19:24

Read this Notice, section 4.1 to 4.4
https://www.gov.uk/guidance/vat-on-education-and-vocational-training-not...

Education is exempt when made by an "eligible body" and section 4.1 to 4.4 explain what an eligible body is, if your client does not meet the conditions for an eligible body, its education supplies will be taxable.

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Jason Croke
By Jason Croke
22nd Oct 2020 15:52

Will the Council accept VAT charges from your client? What does the contract say about VAT, is the per pupil payment VAT inclusive (ie, if Council pays £100 per pupil, is that £100 including VAT if client charges VAT (ie, £83.34 net plus £16.66 VAT) which then reduces the turnover, can client charge VAT on top of the £100 fee? Not sure Council would agree to that.

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By Mgdaly
22nd Oct 2020 18:00

Council would be OK with VAT, contract not yet in place.

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Replying to Mgdaly:
Jason Croke
By Jason Croke
22nd Oct 2020 19:27

Council may not be okay with being charged VAT, if contract hasn't been signed as yet, then now is the time to ensure clarity on the VAT.

If the Council agrees a contracted fee of £100 per pupil, if you try and add VAT on top the Council will likely reject and argue the contract was £100 and if VAT is to be charged then it will come out of the £100, not added on top.

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By Matrix
22nd Oct 2020 18:43

It sounds as if there is an issue with the pricing. If they can’t recover the input VAT then they need to include the gross cost in their pricing methodology.

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By Julie.T
23rd Oct 2020 09:24

If it's an exempt supply, you can't register for VAT or charge VAT - you know that. You could provide a standard rated activity alongside the exempt supply so you could register the client for VAT but the VAT you could claim back on expenses related to the exempt sales would be restricted under the partial exemption rules. You can't just claim anything under the £1875 quarterly de minimus limit, the 50% rule stops it: if VAT on expenses from the exempt activities is > 50% of all of the input VAT, only a proportion of the VAT can be claimed relating to standard rated sales. See 11.2
https://www.gov.uk/guidance/partial-exemption-vat-notice-706 Good luck, hope you find a solution!

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By spidersong
23rd Oct 2020 09:45

As others have stated it's extremely unlikely that the Council would have an issue with an additional VAT charge. If they've agreed, as per an above example, a charge of £100 per pupil, then they won't care if they're charged £100 gross or £100 plus VAT.

S33 of the VAT Act 1994 gives Local Authorities the ability to recover any VAT they're charged that they incur in the course of their non-business activities. That largely covers all statutory and public activities such as provision of care or free education. If registered for VAT (which as a County or Unitary they will be) then they can also recover VAT on their taxable business activities.

So the only way they'd have a problem was if they were buying this in to make an onwards exempt supply, and even then the preferential partial exemption position they hold would probably render that moot.

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Replying to spidersong:
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By Mgdaly
23rd Oct 2020 10:09

Agree the Council would not have an issue. The problem is that as far as I see see the activity is exempt although there appears to be some evidence of similar establishments being VAT registered.

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Replying to spidersong:
RLI
By lionofludesch
23rd Oct 2020 11:20

Quote:

As others have stated it's extremely unlikely that the Council would have an issue with an additional VAT charge. If they've agreed, as per an above example, a charge of £100 per pupil, then they won't care if they're charged £100 gross or £100 plus VAT.

S33 of the VAT Act 1994 gives Local Authorities the ability to recover any VAT they're charged that they incur in the course of their non-business activities.

Of course, that VAT would need to be properly incurred.

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