New HMRC Guidance on Supplies Closely Related to Education
HMRC have published revised education guidance on what closely related to education means following the May 17 Judgement of the European Court in the Brockenhurst College case.
This was concerned with the VAT liability of supplies of catering provided by students at a catering college to members of the public. The colleges motivation in providing such was to enable their students to gain practical experience in a realistic professional environment. This is common enough with vocational educational providers and many catering college do similar, as do drama schools and other providers of education where practical experience counts.
The College argued that their supplies they were exempt under the VAT education exemption as they were closely connected to education. In contrast HMRC argued they were supplies enjoyed in their own right, not linked to education and were standard rated. The matter eventually went before the European Court of Justice which agreed with the College and allowed them to treat the supplies as exempt.
Its reasoning was that the College met all three conditions for the supply to be exempt. Firstly the supply was made by a body eligible for the exemption which meant it was a recognised college or educational establishment. Secondly the practical course element which the supplies were part of was essential to the education. Thirdly the supplies were not principally a way of obtaining more income and were not in direct competition with commercial providers. The reasons why this third condition was met was that the diners were mainly associated with the students, be they family or friends and the charges only met 80% of the cost of providing the food, meaning it was not an income generator.
In their new guidance on what supplies are closely associated with education HMRC have essentially reproduced these tests. They do however stress that you can only treat such supplies as closely associated with a supply of education if there is an exempt supply of education to start with. Although Higher Education Colleges now charge fees and make supplies, this is not true of the Further Education sector which is largely grant funded. Wholly grant funded courses do not involve making supplies and are non business. In such cases there is no exempt educational supply for restaurant or other services to be closely associated with. Where an FE College has both paid and grant funded students then HMRC say this needs to be declared when any claim is made.
One suspects that the next question will be whether in reality FE Colleges are making a supply. I have always rather wondered about whether HMRC policy towards the VAT treatment of education funding is necessarily correct. If the state or local authority pay for places on courses why is this funding necessarily outside the scope. I can see the Policy reasons for wanting it to be treated as such but if there was a similar relationship in the commercial world I wonder if HMRC would had the same view.
The new HMRC guidance can be found here