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There Is No Such Thing as a VAT Free Lunch

on Monday, 10 July 2017.

Many higher education institutions provide practical training for students, particularly on vocational courses. This ranges from providing musical entertainment to dental work to patients.

Typically, those 'customers' will be asked to contribute towards the cost of providing those services. Should VAT be charged, given that these are services provided to the public, as opposed to students? The European Court of Justice (ECJ) was recently asked to rule on this point.

What Happened?

Brockenhurst College had been offering students the ability to develop skills in a practical context, operating a restaurant and staging performances. The events were offered at a reduced price which, in relation to the meals, covered approximately 80% of the cost. If the restaurant bookings did not meet a minimum of 30 servings, the meal is cancelled.

The College had been charging VAT in relation to these services and became aware that it may have done so incorrectly. It sought to reclaim VAT from HMRC on the basis that the services were closely connected to its provision of education to the students and therefore exempt from VAT. Whilst the claim was initially allowed by the courts, HMRC appealed.

What Did the European Court of Justice Decide?

The ECJ confirmed that services in this context could be exempt for VAT purposes, provided that the provision of meals and entertainment to the public were ancillary to the principal supply of education, ie the restaurant was not there to provide catering as much as it was there to provide an integral element of the students' education.

What Do You Need to Do?

Higher education institutions which offer 'paid-for' services to the public will need to consider whether these principles apply to the provision of these services.

The services must:

  • be essential to the students’ education
  • not be carried out with a view to obtaining "additional income for the establishment by carrying out transactions which are in direct competition with those of commercial enterprises"

If you consider that this may be the case and you have been charging VAT historically, then time is of the essence in order to reclaim overpaid VAT. You should also consider whether to cease charging VAT going forward.


If you have any queries arising from this article or would like advice from our Tax team, please contact Shimon Shaw on 01923 919 352.

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