Education exemption – SAE Education Ltd

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The VAT exemption for education depends on (1) the nature of the supplies made, and (2) the status of the provider. I see more issues with the second factor than the first, so was interested to see the Court of Appeal address it, in relation to whether a provider was "a United Kingdom university, and any college, institution, school or hall of such a university" (VAT Act 1994, Sch 9, Group 6, Note 1(b)).

Previous litigation has provided 15 factors to be considered. These are derived mainly from the SFM Ltd QBD case [2001] STC 1690. More recent cases have refined these factors. However, this approach was disapproved (para 36). In contrast, the correct approach is “to look at the core legal relationship between the college as an institution and the university.”

Following this approach, the Court concluded that the company was not part of the University. Therefore, its supplies must be taxable, not exempt. The key conclusions are:

"The test is whether SEL (or SAE Institute) is or was part of the University in the constitutional or structural sense described earlier. That test is not satisfied in this case for a number of reasons. The only document which arguably gives SEL the right to call itself a "college" of MU is the SACA. But it is clear that this agreement merely recognised and "built on" the "special relationship" between the parties in relation to the courses which SEL provides. Neither SAE Institute nor SEL is in any legal sense a composite part of MU. They have always been and remain separate companies operating in the educational field and in particular in relation to audio and digital media technologies. They were chosen because of their expertise in this field to provide a limited number of special courses which would qualify successful students for an MU degree. For that purpose it was necessary for the courses to be validated by the university in terms of qualitative assessment but that would have been and is necessary in the case of any university degree course which is outsourced to an external provider. The accreditation of SAE Institute with its concomitant ability to validate its own courses was undoubtedly, as Professor Klich observed, a vote of confidence in SAE Institute's ability to set and assess its own courses but I do not accept that this in any way altered the constitutional or structural relationship between the two bodies."

"The fact remains that SAE Institute through SEL provides only a very small number of highly specialised courses for MU. It is not accredited to run all the degree courses available at the university and the students enrolled on the courses have strictly defined rights in terms of the use of MU facilities rather than becoming full members of the university by virtue of their acceptance as an SAE Institute student. This is merely reflective of the fact that SAE Institute is not part of the university with corresponding general rights of admission for all its students. It remains a separate commercial organisation which MU, for perfectly legitimate economic and other reasons, has chosen to provide some of its external degree courses. This is recognised by the inclusion of SAE Institute in Part 1 of the Schedule to the 2010 Order as one of the bodies which provides courses in preparation for a degree awarded by a recognised body under s.216(3)(a) of the 1988 Act but not as a college of a university under s.216(3)(b). The contractual arrangements with SAE Institute are subject to periodic review and can be terminated in the event of concerns about academic standards. The SACA is for a period of 6 years. Again none of this is consistent with SEL being institutionally part of the university."

I have noticed HMRC looking at educational suppliers’ governing documents more frequently. Very substantial assessments usually follow.

Do advise educational organisations to review their governing documents from time to time.

You can read the decision here:

About Les Howard


Hi, I am a VAT Consultant, working mainly with charities. I am based in Cambridgeshire

I have over 20 years experience in VAT, and am currently also a part-time member of the Tax Tribunals.


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