No-Go on Proposed VAT Exemption for Profit-Making Higher Education Providers: HMRC

A recent consultation carried out by HMRC on whether for-profit providers of higher learning should be included in the VAT exemption currently enjoyed by universities and not-for-profit HE bodies has resulted in a no-go motion.

It is the government’s wish to facilitate a diverse, competitive higher education sector and that for-profit bodies providing courses similar to those offered at universities can exist on a level playing field. It is felt that an institution’s profit making capabilities give it an unfair advantage over not-for-profit bodies and that by qualifying for VAT exemption that advantage would only be stretched further still. A number of tax advisors and companies specialising in the education sector are currently conducting research into HMRC’s consultation.

There was however concern amongst the commercial enterprises themselves that the government’s proposals for exemption didn’t go far enough, failing to address key service areas such as vocational training and further education institutes.

Tax advisors had also been dreading the administrative headaches that could have surfaced had the consultations been given the green light, in that some of their educational clients offer not only both higher and further education but also commercial and non-profit services. This would mean institutions creating separate entities, some qualifying for VAT exemption and some not; an administrative headache indeed! A decision is due later this year on the case for exempting for-profit providers of further education.

The law firm Pinsent Masons are unconvinced as to the government’s intentions, arguing that it is difficult to encourage competition in the higher education sector without a levelled VAT playing field. There is also confusion as to ‘how any changes would apply to non-UK and distance learning providers’, according to company representative John Christian.

This brings the important question of cross-border VAT exemption and compliance into the spotlight. The EU VAT Expert Group was formed last year to clarify areas such as the cross-border supply of goods and services and what is liable to be taxed in these circumstances. Cross-border B2C services, i.e.: the supplying of online learning services between two countries, are currently exempt from VAT.

An already complicated issue could be about to get much more so in the years to come.