How VAT works on Education?
A complete guide to how VAT works on education
VAT can get complicated and needs to be treated in different ways depending on the industry and the specific regulations around it. In this guide, we look at VAT in the education industry, its treatment and the specific criteria around it
VAT in the Education Industry
What is included in Education?
- Educational conferences, seminars and symposia
- Sporting and recreational courses
- Distance teaching and related materials
Registration fees may also be included for the above.
It is necessary to determine whether it is a single supply, or if a variety of elements are being supplied then you need to check if it’s a multiple supply to determine how to apply VAT.
How does the single and multiple supply work:
Single supply: VAT rate of the predominant part of the supply will be applicable to the entire supply.
Multiple supply: VAT rate will be determined after the assessment of each part of the supply.
VAT determined by Business or Non-business Activity
For VAT purposes, business is a very widely drawn area
- When looking at education supplies it is normally the activity of making educational supplies to other individuals for consideration
- Where consideration is charged for educational provision then is it most likely to be business income.
- Activities resulting in losses can be considered businesses for VAT purposes as well
- Supplies may fall within zero-rating, reduced-rating or exempt supplies if the supplies are UK-business supplies.
- Supply may fall outside the scope of VAT for the purposes of UK VAT if the place of supply is not the UK.
- The business supplies will be considered as standard-rated supplies of education if the supply does not fall under any of the categories mentioned above.
Non-business income usually includes income or funding that has been received through government grants, voluntary donations and activities provided for no consideration.
If the supplies are being provided at or below cost, then the supplies that are associated with free educational provision can be considered as non-business.
It is advisable to speak to a competitive VAT Accountant or finding a competitive Accountant in London if you do not have one to help you identify business and non-business income in your education business.
Types of rates that can apply to an education business and the basis around it:
- Books that include school workbooks with blank spaces to answer, journals, booklets, and printed music provided with charges can be zero-rated. E-books can not be considered as zero-rated.
- Children’s clothing is zero-rated. For instance, school uniforms. Zero-rating may be applicable on maximum sizes.
- The business has an option on whether to treat the supply as zero-rated or exempt if it is associated with the supply of exempt education.
- If it is a single supply of printed matter, then the distance learning courses may occasionally be considered as zero-rated. However, if it is a multiple supply of printed matter and education services, then the supply should be distributed between education and zero-rated printed matter.
- Welfare information and advice is reduced-rated if it is provided by charities or private welfare institutions under state regulations.
- The exemption gets priority if the supply provided by the eligible body falls under exempt education.
- The advice provided must be directed to the welfare of aged, sick, distressed or disabled persons physically or mentally or to the protection or care of children or young persons.
When can you get exemptions from VAT in education?
Exemptions are of two types:
- The one that is not based on the learner’s age.
- The one that is based on the learner’s age.
- All education and vocational training is exempt if it is being provided by an eligible body
- Private tuition of a subject provided by an individual teacher, who is independent of the employer, in a school or university is exempt.
- Examinations services supplied by an eligible body or a teacher are exempt.
- Given that the consideration is primarily funded according to government acts (for instance, apprenticeships act or employment training act), educational or vocational training, along with any necessary goods supplied by the same person, is exempt.
- Educational or vocational training supplied with all relevant goods where it is provided by the same person and is paid by the secretary of state will be exempt if the recipient is:
- Under the age of 19.
- Is 19 or over but began their education before the age of 19.
- Started education at the age between 19-24 and is subject to learning difficulty assessment.
- Eligible body’s provision of good and services closely associated with education will be exempt, if:
- The students receiving an education are directly using the goods and services provided.
- The same eligible body is making goods and services or the goods and services are made from one eligible body to another body, who is making the supply of education.
What are eligible bodies?
Eligible bodies would be as follows:
- Would be a school according to the UK education Act, a school can be considered either of the following:
- Receives grants from the Secretary of State
- Registered independent
- Community, foundation or voluntary school
- Maintained school
- Special school
- Grant maintained school
- UK university (does not include subsidiary companies of universities)
- Other appointed institutions under the UK’s Further and Higher Education Acts
- Public bodies include:
- Government departments
- Local authorities
- A non-profit body acting under an enactment or instrument for public purposes, performing government department duties or local authority’s functions.
- A body investing profits from the supply of education to enhance and improve those supplies, given that they cannot and do not manage or distribute any of the profits.
- A body that is providing teachings of English as a foreign language
Private tuition and VAT
Private tuition exemption is usually the most misunderstood part of VAT exemption.
In order, to exempt the supply of tuition, two conditions must be met:
- The supply of tuition should be of a subject that is normally taught in a school or university, along with the evidence required that it is normally taught.
- Individuals acting independently of the employer must be responsible for its provision.
Here are examples of courses that do not qualify as normally taught in a school or university
- Belly dancing
The following qualify as normally taught in schools:
You also need to make sure about these points:
-It should be supplied by an individual teacher, who is independent of the employer.
-Sole trader and partnerships qualify if the partner is providing the tuition.
-Limited companies can not qualify, as the tutor is dependent on an employer.
What are examination services
These services are used to ensure the maintenance of educational and training standards and can include conducting and marking exams, the setting of education or training standards, the making of assessments and other services.
Closely related goods and services
If the education is being provided by an individual who has non-business income, for instance, income through grants, then any closely related goods and services provided with that education may be treated as non-business.
In order to be non- business, closely related goods and services must be provided at cost or below, that is, must not be making any profits
Any goods or services, that are closely associated with the supply of education are exempt if the supply of education by an eligible body is exempt. For those goods or services, there is no requirement for them to be non-profit making:
The following can be considered as closely related goods or services
- Sports equipment (excluding clothing)
- Maths equipment
- Student accommodation
- Student transport
- Student catering
- School trips
- Field trips
You should also know that:
- Normal VAT treatment will be applied to goods or services that are not closely related to the supply of education.
- Closely related goods do not include laptops.
- Normal VAT rules for food and catering are applicable to the meals that are provided to staff.
According to HMRC, services can be considered as closely related goods and services, if:
- The education is provided by way of business
- The students must lead the activity, which should be necessary to their education
- The purpose of the activities does not revolve around generating extra income that comes in direct competition with commercial businesses. This implies that:
- Advertising should not be adopted as a means to offer services to the general public.
- The cost of providing the services to the general public plainly goes beyond any income that is generated.
Supplies of staff
The supply of teaching staff or faculty by one eligible body to another is exempt.
The standard rating is generally applicable to the supply of staff.
If an education provider is making any taxable supplies either zero-rated, reduced rated, or standard rated, they are eligible to register for VAT.
The education providers must register for VAT, if the taxable supplies they are making go beyond the VAT threshold, in a similar manner as any other business
VAT can be recovered by the provider to the limit that it is incurred on costs directly related to the taxable supplies if the provider is VAT registered. However, evidence will be required and VAT must be properly charged at the true rate. Click here to learn more about VAT.
A partial exemption might be needed to calculate the amount of VAT related to non-business or exempt supplies and the residual VAT that links to taxable and non-taxable supplies, that is eligible to be recovered, only if the business is partially exempt or possesses non-business supplies along with taxable supplies.
Clear House Accountants are specialist Accountants in London, our trained in-house VAT Accountants make sure that smart and effective solutions for VAT are implemented for our clients while ensuring accuracy and savings. Speak to us to learn more.