The subject of education often gives rise to complex VAT issues – as the number of Tribunal cases illustrates.

Background

A number of schools provide early or pre-school education (before compulsory education). All children aged four should be able to access an early education place and some early education and childcare services offer free part-time early or pre-school education to three year olds. This is paid for at the discretion of Local Authorities. Places for children under three in voluntary or private pre-school settings are paid for mainly by parents.

Update

In light of, inter alia, the Yarburgh Children’s Trust, Wakefield College , Longbridge and St Paul’s Community Project, HMRC has updated to reflect changes to it’s policy in respect of charities supplying; crèche, pre-school education, nursery, after-school clubs and playgroup facilities.

Business test

HMRC’s past position was that if a charity supplied nursery and crèche facilities for a consideration that was fixed at a level designed to only cover its costs, this was not a business activity for VAT purposes. Now the two-part test derived from the Wakefield College Court of Appeal case will be applied:

• Test One

The activity results in a supply of goods or services for consideration. This requires a legal relationship between the supplier and the recipient. The initial question is whether the supply is made for a consideration. An activity that does not involve the making of supplies for consideration is not a business activity.

• Test Two

The supply is made for the purpose of obtaining income therefrom (remuneration)

General

The provision of pre-school education (without charge) is non-business; breakfast clubs and after-school child-minding/homework clubs remain non-business in the Local Authority sector even when a charge is made. This is on condition that the school offers the service strictly to its own pupils and that the fee charged is designed to no more than cover overhead costs.

Law

VAT Act 1994, Schedule 9, Group 6 – Education

VAT Act 1994, Schedule 9, Group 7, Item 9 – Health and Welfare