HMRC VAT crackdown on FE sector continues

Stephanie Mason, head of further education at RSM, said:

‘It appears that HMRC is reviewing the contractual arrangements with subcontractors to ensure all further education providers are complying with VAT rules on management fees.

‘Sub-contracting is widespread across the sector and the move could see colleges and training providers facing an increased VAT bill and potential fines if HMRC takes the view monies retained by the college are in return for services provided. If liabilities do exist HMRC will go back a maximum of 4 years – highlighting that providers who have overlooked the VAT rules may face a liability and financial penalties.

'There would appear to be good reasons why colleges do not have a VAT liability but we know many further education organisations are working to thin margins and affected providers could find themselves in a position where they have to charge considerably more for their services, cut their delivery costs and potentially accept lower levels of profitability. Although it could be the students that are hit hardest with additional costs, an increase in debt, course closure and compromises in course quality.

‘This is the second financial blow to the sector in so many weeks as HMRC clarified the position regarding the treatment of VAT on Advance Learner Loans, highlighting that private providers who have not been charging VAT on such provision will now be expected to do so.

‘It is reassuring that HMRC appear to accept some responsibility for the confusion and do not appear to be seeking repayment for historic non-compliance on the advance learner loans. Whether this extends to the management fees investigation we are yet to see, but what is clear is the importance for providers to take stock of the current VAT position, seek advice and establish a clear plan to deal with the consequences including engaging with HMRC to resolve the issues.

‘Taking a pro-active approach will not doubt be looked upon more favourably, and could reduce any potential penalties for an organisation, so colleges and training providers need to get on the front foot to mitigate risk.’