HMRC VAT Education Manual 53400 relates to Group 6 Item 4: Closely related goods and services sold to third parties. This guidance explains the HMRC’s position following the Brockenhurst College case (C-699/15). Revenue & Customs Brief 39/14 is hereby cancelled. CTG Technical Advisor Graham Elliott has written a commentary on the case here.
Following the judgment in Brockenhurst, further education colleges and other bodies are able to treat certain supplies to the public in the course of education or vocational training undertaken by students as exempt from VAT, provided they meet the conditions described below.
HMRC will apply the judgment in the case to other cases where the facts similarly indicate that the services are not being provided in competition with commercial enterprises. This will be the case where the services are not offered to the general public through advertising, including over the internet, and the costs of providing the supplies to the general public clearly exceeds any income generated from that activity.
HMRC will apply the guidance of the Court on a case by case basis (for example where cases have been stood behind Brockenhurst) to decide whether the supplies are exempt as being closely related to exempt supplies of education, or are standard-rated.
There are three main criteria that must be satisfied:
- The education in question must be being provided by way of business
- Most further education is fully grant funded, and as such is regarded as a non-business activity. If a Further Education College has claims which relate to both grant-funded education and exempt education for fees, HMRC will require the proportion of students whose education is ‘business (i.e. fee-paying, not fully grant funded) in each case. This will vary from one course to another, but is likely to be in the region of 15-20%.
- The activity in question must be student-led and ‘essential’ to their education.
- In the Brockenhurst case, both the training restaurant and the theatrical productions were staffed by students, for whom the activity was akin to a classroom. The wording ‘essential to the transactions exempted’ comes from the mandatory condition in Article 134 (a) of the Directive.
- The activity must not have the purpose of generating additional income for the body in direct competition with commercial enterprises.
- In Brockenhurst, the training restaurant only provided meals to those who were on a restricted list, and only recovered 80% of the cost of the food. Hence they were not in competition with commercial enterprises, and were not generating additional income. Claimants must therefore be prepared to demonstrate whether the restaurant (theatre, beauty salon or other activity) is run so as not to generate additional income, and to provide figures which demonstrate this.