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VAT and further education colleges

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Further education colleges, and by implication certain other kinds of college, will be interested in the recent First-tier Tribunal decision in the case of Wakefield College [2013] UKFTT 731 (TC), since it establishes what appears to be a general proposition that certain activities of such colleges, which may have been regarded as being part of their business activities, are non-business for VAT purposes. Since education is, in any case, exempt from VAT, the importance of this lies in its bearing on VAT expenditure reliefs, which require the activity to be non-business as opposed to exempt.

Further education colleges commonly make non-business supplies to students who do not pay for tuition, but circumstances can arise where students are required to pay a small contribution towards the cost of their course if they fall into certain categories.

To put this a different way, students are offered a significant remission of the full scale fees on various grounds that could be regarded as forms of ‘means testing’. The issue is whether a small payment towards the overall cost is consideration for a supply which falls within the scope of VAT, or is outside the scope for whatever reason.

The tribunal compared the facts of Wakefield College with those of the earlier CJEU decision in Finland (C-246/08) and found that they were a close match.

The CJEU had decided that the payments from students in that case were not consideration for a supply because the payments were not determined by reference to the potential cost of the activity, but by the ability of the participants to pay.

Context is important in this, because further education colleges often provide services free, so that in situations where a student needs to make a payment towards the provision, the only reason for their making a payment may be their personal circumstances, as distinct from it being a general requirement for all to make a payment in order to procure the education services.

This can be contrasted with a situation where everybody pays at a very low level, and particularly where everybody pays more or less the same dependant upon the nature of the service being consumed, but unaffected by personal circumstances.

Nonetheless, the Finland decision is a strange one, and HMRC will not welcome its deployment for the UK further education sector.

Colleges will wish to compare the precise facts of their case with those of the Finland case.