The Court of Appeal has confirmed that, while tuition fees payable to universities for higher education are exempt from VAT, fees payable to commercial providers of higher education are subject to VAT at the standard rate.
Finance and Business Training Limited (FBT) is a ‘commercial’ provider of education with some (but by no means all) of its courses and students qualifying for degrees from the University of Wales. They attempted to argue before the court that the UK had failed to correctly implement the education exemption afforded under the European VAT Directive.
This European VAT legislation requires member states to exempt university education from VAT but, the education has to be provided either by bodies governed by public law ‘or by other organisations recognised by the member state concerned as having similar objects’. In the UK, VAT exemption applies to education provided by universities and ‘any college, institution, school or hall of such a university.’
In this case, the Court determined that, even though FBT was supplying educational services, it failed to meet the EU law-compliant ‘supplier condition’ as it was not an ‘eligible body’. Its supplies therefore could not qualify for VAT exemption.
The disparity in the VAT treatment in the provision of higher education is not new and, following proposals within Budget 2012, there was some anticipation within the commercial sector that HMRC’s formal consultation on higher education would bring these and other such institutions within the realm of VAT exemption. However by treating higher education as a VAT exempt supply, commercial providers, like universities, would no longer be able to recover VAT incurred in underlying costs with the effect that, any potential reduction in ‘commercial’ fees being passed on to students would be significantly reduced.
HMRC subsequently withdrew its proposals explaining that, because of the issues relating to non-recoverable VAT costs it was unable to find a solution acceptable to the majority of the ‘for-profit’ sector which would also meet government objectives of accessible ‘VAT-free’ education by commercial providers.
If you would like to discuss any of the points raised further, please contact David Wilson or your usual RSM contact.