VATEDU39700 - Group 6 Item 1 Education, research and vocational training provided by eligible bodies: eligible bodies: other organisations

Note (1)(e) of Group 6 of Schedule 9 of the VAT Act 1994 (see VATEDU15000) includes these organisations as eligible bodies:

(e) a body which -

(i) is precluded from distributing and does not distribute any profit it makes; and

(ii) applies any profit made from supplies of a description within this Group to the continuance or improvement of such supplies.

This covers, for example, many educational charities. There are two criteria, both of which have to be met in order for a body to qualify for exemption under the terms of the Note:

• the constitution, articles or other terms under which the body was set up must preclude it from distributing any profits it makes; and
• any profit it does make must be reinvested in the education it supplies. By this we mean that the profits are used to support the range of education supplied. Profit from, for example, art courses can be used to support courses other than art.

If either of these conditions is not met, then a body is not an eligible body under note 1(e). It may of course be an eligible body under one of the other notes; but if it is not, then the education it provides is standard rated.

We are aware of arrangements whereby bodies that would ordinarily make profit from educational courses argue that they meet the terms of Note 1(e) because such sums are passed to associated companies through charges such as rent or management charges, or alternatively, because such profits are covenanted to a parent company. We do not agree with either argument. If you should come across such an argument you should consult your Tax Avoidance Visiting Officer (TAVO).

Conversely, an organisation that is ostensibly an eligible body may seek to avoid exemption by arranging to make its supplies of education through a related company that doesn’t meet eligible criteria, for example because it is not precluded from distributing profits. This may be done because the recipient of the supplies of education is able to recover any VAT charged to it (such as a local authority eligible to reclaim VAT under Section 33 of the VAT Act 1994), and the supplier does not wish to suffer input tax restriction themselves by making exempt supplies. Such cases should also be referred to your TAVO, who may need to consult the Education Unit of Expertise or VAT Reliefs Policy Team.