In the education sector, the VAT legislation allows for numerous VAT exemptions that can potentially apply. This is to ensure that key educational services can be provided as easily and cost-effectively as possible. However, the rules regarding VAT can sometimes be complex and difficult to follow for providers of educational services.

A tribunal ruling from 2015 demonstrates the potential risks and costs that education providers can face if they do not properly account for VAT in their business activities, or if they make a mistake in terms of their eligibility for exemption. In order to avoid falling foul of these rules, it is important that education providers properly acquaint themselves with how the regulations work, and ensure they are fully entitled to any VAT exemptions they try to claim.

Which educational services are exempt from VAT?

Generally speaking, establishments that provide free or wholly government-funded education are exempt from charging VAT for their services, as they are not regarded as businesses. These include community schools, foundation schools, special schools and free schools, as well as city technology colleges and academies, among others.

Additionally, other establishments such as universities and independent fee-paying schools are generally classed as “businesses”, but these usually generate their income in return for the supply of educational services that are exempt from VAT.

As such, anyone applying for a VAT exemption for their educational services will need to determine which of the following categories they fall into:

• A non-business supply of education, which are paid for by government funding
• A business supply of VAT-able education, where a charge is being made for the education provided and the criteria for exemption is not met
• A business supply of VAT-exempt education, where a charge is made for an education service that meet the criteria specifically allowing them to be exempted from VAT

The risks of getting this wrong

In the case of Simon Newell vs HM Revenue & Customs from 2015, Mr Newell - a tutor of motocross riding and motorcycle maintenance to young people over the age of four - chose to appeal against an HMRC ruling against his assertion that his services fell under the scope of exemption from VAT, on the basis of being a supply of private tuition.

Mr Newell had been providing tuition on this topic for many years, and was considered to possess a high level of knowledge on the subject. However, HMRC disagreed that the sessions taught satisfied the conditions for exemption, which state that the supply of private tuition is only an exempt supply if the subject being taught is done “ordinarily in a school or university” and is provided by “an individual teacher acting independently of an employer”.

Although Mr Newell as an individual qualified for exemption, HMRC contended that the subject itself did not satisfy the criteria necessary for Mr Newell to exempt his supplies from VAT. Despite the fact that related subjects were taught at GCSE level, the respective syllabuses were judged not to be similar to a satisfactory degree.

As such, the First-Tier Tribunal ruled in favour of HMRC and agreed that Mr Newell's educational sessions did not meet the criteria for exemption, meaning he was liable for a VAT charge. 

The lesson for businesses

There are a number of other similar cases looking at the VAT treatment of private education for providers in a diverse range of subjects, so it is sensible to seek advice if you or your client provides private tuition.

It is possible in some cases to restructure the services provided to fall within other VAT exemptions, such as the sporting one, thus reducing the level of VAT due on these supplies.

If you provide any form of education services, you need to be aware of the conditions that need to be satisfied to allow for these services to be exempt from VAT. Only by doing so can you avoid being assessed by HMRC for incorrect VAT treatment of a supply.

If you require more in-depth advice on potential VAT issues pertaining to educational services, please call one of our consultants on our free helpline on 0161 477 6600 to discuss the matter further.

You can also read more about our VAT advice for education providers.