Under EU VAT law, and under current UK VAT law, the provision of education by eligible bodies – including universities, colleges and independent schools – is exempt from VAT; something the Labour party will have to give due consideration to if it does make a manifesto commitment to apply VAT to private education fees.
In the landmark decision of Brockenhurst College, the Court of Justice of the European Union (CJEU) has confirmed that sales to the public such as catering sales in training restaurants and admission charges to theatrical performances by students, are services closely related to the provision of education, and also exempt from VAT.
For the purpose of enabling students enrolled in courses related to catering and hospitality to learn skills in a practical context, a growing number of further education colleges run ‘training’ restaurants. The catering functions of such training restaurants are generally undertaken by the students, under the supervision of their tutors, and open to members of the public.
HMRC’s longstanding position has been that, as the provision of meals, and attendance at theatrical performances, were supplies to the general public, they should be subject to VAT at the standard rate.
However, the CJEU has determined that such services offered by the College to a limited number of customers, did not appear to be comparable to those offered by commercial restaurants, but was practical training forming an integral part of the student’s curriculum, without which students would not fully benefit from their education.
Consequently, the CJEU ruled that sales to the public may be regarded as services ‘closely related’ to the principal supply of education and exempt from VAT.
Having local colleges providing VAT free restaurant services may be seen by some commercial operators as competition, with the resulting likelihood being further calls for a VAT reduction in the hospitality and catering sectors. In apparently recognising such, the CJEU acknowledges that it would be for the national courts to determine if there is any distortion of competition resulting from treating such supplies as exempt from VAT.
Given this binding judgment of the European Court, colleges, schools and the public may benefit from other supplies made as part of vocational training courses: for example, hair and beauty salons, car repairs etc. As such could also be considered as services ‘closely related’ to the supply of education, they would, subject to competition rules, also be exempted from VAT.
For more information please get in touch with David Wilson, or your usual RSM contact.