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HMRC loses an important VAT case

Date posted: 5th Apr 2019

A ruling by The Supreme Court will now see the application of VAT education exemption based on public policy and not on the previously narrow definition applied by HMRC.

The VAT exemption covers:

  • the provision of children’s or young people’s education, school or university education, vocational training or retraining, by
    • a recognised school, a college or a university
    • a public body
    • a provider in receipt of Exchequer funds from a body specified in regulations
  • the provision by a body of other specific programmes and courses where specific criteria are met
  • the provision of private tuition by a teacher/sole trader covering school or university education
  • the provision of vocational training and retraining services where certain conditions are met
  • the provision of instruction in the driving of certain mechanically propelled road vehicles

HMRC is increasingly taking a literal view of the legislation and rarely seeks to apply the rules on a considered basis and the rules are therefore applied narrowly.

In the case of SAE Education v Commissioners for Her Majesty’s Revenue & Customs, the Court ruled unanimously that SAE (a commercial education provider) was entitled to claim exemption from VAT as a College of Middlesex University. The fact that this entity is a commercial profit-making business did not mean it could not benefit from VAT exemption.

Organisations may want to consider their arrangements to ensure they are not adversely affected by this judgement as there is a risk that trading companies could be seen as an extension of a charitable provider (eligible body) and their supplies classified as exempt rather than subject to VAT.

This could result in a very different VAT model.


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