26 May 2017

Could you recover VAT on college services?

Following a recent European Court of Justice decision, colleges and other educational bodies could recover VAT on activities carried out by students.

The European Court of Justice (ECJ) has recently confirmed that the income colleges receive from their training restaurants is exempt from VAT. This provides an opportunity for all colleges and other educational bodies to recover the VAT they have paid to HMRC on activities carried out by students.

As we touched on previously, Brockenhurst College sells meals to the public through catering activities carried out by its students as part of their education courses. Brockenhurst College believed that anything provided within its training restaurant should be exempt from VAT since it was linked to education.

Although HMRC disagreed with this assumption, the First-tier Tribunal and Upper Tribunal both concluded that the supplies were in fact VAT-exempt. As a result, HMRC went on to appeal the decisions of the UK tribunals to the European Court of Justice (ECJ).

The ECJ agreed that the supplies made by Brockenhurst College are closely-related to education and should therefore be exempt from VAT. According to the ECJ, supplies can be exempt if “those services are essential to the students’ education and their basic purpose is not to obtain additional income for that establishment, by carrying out transactions which are in direct competition with those of commercial enterprises liable for VAT”.

So, as long as the services form part of the students’ education and the primary purpose is not to generate profit, they should qualify for VAT exemption.

Following the ECJ’s decision, however, the case has now been referred back to UK courts and HMRC is currently considering the judgement.

Could you receive a repayment of VAT?

In the meantime we understand that, as a result of the ECJ’s decision, colleges that submitted protective claims and stood behind the Brockenhurst College case may now receive repayments of VAT.

Colleges and any other educational bodies that decided not to submit protective claims should consider submitting repayment claims for VAT that has been over declared in the last four years. Claims could be made for all services that are performed by students and this is not limited to catering. For example, VAT charged on services provided in a college’s training restaurant, hair and beauty salon or building and vehicle repair centre may all now be recoverable. Claims may also be available for other services that are supplied to the public by students, such as income from the sale of tickets to student shows or performances.

Any claims made should consider, and possibly adjust, the recovery of VAT that has been made on associated expenses.

If you would like to discuss the ECJ’s recent decision and what this means for you please contact our VAT experts, Alan Glen or Scott Berry, on 0131 473 3500.

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