A recent decision of the Supreme Court, that overturned decisions by the Court of Appeal and Upper Tribunal, has gone some way to clarify the scope of the VAT education exemption where education providers hold themselves out as a college of a university. This could mean that more institutions may qualify for VAT exemption.
The SAE Education case
UK VAT legislation permits supplies of education to be treated as VAT exempt when provided by ‘eligible bodies’, including universities. This exemption enjoyed can extend to bodies that are ‘colleges of a university’. In this instance, SAE Education (SAE) held various agreements to teach undergraduate degree courses in collaboration with Middlesex University.
HMRC formed the view that SAE Education did not qualify for the education exemption because it was not sufficiently integrated with Middlesex University to be a college of that university for the purposes of the VAT legislation. The matter was litigated the whole way to the Supreme Court which has found in favour of SAE Education. The Supreme Court decided that SAE did qualify to be treated as a college of Middlesex University and was therefore, entitled to VAT exemption on its supplies of education.
The Supreme Court’s decision
The Supreme Court unanimously decided that SAE was entitled to claim exemption from VAT as a college of Middlesex University, based on the premise that the intention of EU law is to ensure that VAT is not charged on supplies of education and HMRC’s application of the exemption was too narrow. Irrespective of the fact that SAE is a commercial provider, the Supreme Court opined that the correct approach in determining whether a body is a ‘college of a university’ is to ascertain the nature and purpose of its educational activities and the context in which they are delivered, rather than the precise nature of the legal and constitutional relationship between the body that provides them and its university.
The Supreme Court has outlined the following five questions that they consider are highly relevant in assessing whether a body is a college of a university:
- whether they have a common understanding that the body is a college of the university;
- whether the body can enrol or matriculate students as students of the university;
- whether those students are generally treated as students of the university during the course of their period of study;
- whether the body provides courses of study which are approved by the university; and
- whether the body can in due course present its students for examination for a degree from the university.
Implications for other education providers?
HMRC has not yet responded to the judgement as to what policy changes may be required to comply with the Supreme Court’s decision. That said, education providers who are treating their supplies as exempt or who have been denied exemption should review their position in the light of this decision and the five questions above. There could be an opportunity to make VAT savings.