Is all Higher Education VAT exempt?
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What are the issues?
Alternative providers of higher education may suffer from a disparity in VAT treatment, caused by the UK’s outdated approach to the VAT rules as they affect this important sector of the economy. The legislation affecting the VAT treatment of higher education has not changed since the Finance Act 1972, which introduced VAT to the UK on 1 April 1973.
EU law allows VAT exemption to extend to any ‘organisation’ providing ‘university education’, which has ‘similar objects’ to a body governed by public law.
UK law restricts VAT exemption for higher education to universities or colleges of those universities, and to other bodies which are not for profit or eligible for public funding. This restrictive interpretation has not changed since the introduction of VAT on 1 April 1973. Moreover, this interpretation is not a requirement of EU law.
A provider of higher education, which seeks to make a profit, cannot treat its services as exempt from VAT unless it is classed as a university or a college of a university. There have been a succession of cases in the UK courts, which have sought to understand the phrase, ‘college of a university’. These cases culminated most recently in the Court of Appeal judgement in SAE Education. The SAE case has been accepted for a hearing at The Supreme Court, which may provide further clarity on this thorny issue.
Navigating a path through these precedent setting cases provides a means of achieving a sensible VAT solution, while we await a change in UK VAT law prompted by the Office of Tax Simplification’s desire to modernise UK VAT legislation, to more appropriately reflect the provision of higher education in the 21st century.