The latest guidance provided clarity on some issues, for example single supply, but questions still remain. This is a difficult area of the law and, despite the new guidance, schools should continue to make their own risk-based decisions.
To help with these decisions we have summarised the new guidance below:
Single supply
Multiple goods and/or services supplied together are usually viewed by HMRC as a single supply for VAT, which may be relevant for schools. Splitting a package of supplies to artificially create separate VAT liabilities is not advised.
If separate goods and/or services are supplied with distinct aims, they are treated as separate supplies with different VAT rates.
A single fee for a package of education, including meals, and transport will be considered a single supply. However education and separate services (like meals) that are charged separately, or for which parents "opt-in" may have different VAT liabilities, depending on a number of factors, such as the terms of the parent contract and the economic reality of how the supplies are provided.
Boarding and Welfare
Boarding and lodging fees will be subject to VAT for schools. The welfare and care element of boarding will be considered part of the single supply of boarding, where the main supply is education and therefore taxable.
If wrap around care or holiday clubs are offered by schools, these will be taxable unless the main supply is welfare and not education.
Grant funding
Grants or philanthropic funds in relation to specific pupils' fees will incur VAT. Block grants or general funding will usually will be outside the scope of VAT as it cannot form consideration for any particular pupil.
Bursaries
VAT applies to the total fee charged for education. This includes situations where a pupils fees are met through a combination of third party bursaries, charitable donations or by any other person, and or registration fees. Where a school offers an internal bursary itself, by effectively offering a lower fee for that pupil, VAT will apply to the lower fee.
Local authorities
Local authority-funded pupils' fees in private schools will be subject to VAT.
January invoices
Invoices for mixed VAT rates can be included in one invoice and should clearly show the rates applied to each supply.
Donations
Donations given freely without a return benefit are not subject to VAT.
Nurseries
Nursery classes that are wholly, or almost wholly, made up of children below compulsory school age remain exempt from VAT. For example, where 90% of the children in the class are below compulsory school age the class will be exempt from VAT.
School trips
Schools buying travel and accommodation for resale to pupils must use the Tour Operators Margin Scheme to account for VAT on such trips.
In a nutshell, schools should prioritise an analysis of income to help determine their supplies and work out the VAT treatment.
There is no simple, single answer as to whether a transaction comprises a single supply or several different supplies. Each circumstance will have to considered separately and the answer will turn on the facts. The decision will be a matter of judgement for the School based on an objective assessment of all the facts and circumstances, and we recommend this decision is taken (or approved) and recorded the appropriate level in the event of future queries.