Education provided for payment in any form (e.g. from students, an employer or local authority) is normally a business activity. Where no there is no payment (e.g. by direct funding from local or central government) the education is not a supply and, as a non-business activity, is outside the scope of VAT.
Optimising the VAT position can be complex and the nature of the building constructed, the management and administration structure, the mixture of income streams and any letting arrangements will all have to be considered.
Universities and other higher education providers
Although universities generally have charitable status, the supply of education in this sector is an exempt business activity. Any VAT incurred cannot be recovered. Some activities such as academic research may qualify as a non-business activity, allowing certain inputs to be zero-rated as being for charitable purposes.
Student Accommodation
The construction of new student accommodation will be zero-rated, as should approved alterations to a listed building for the same purpose. The conversion of non-residential property to student accommodation should be reduced rated. Some apportionment is always likely to be necessary as different rates may apply to different parts of a building and some items such as carpets will always be standard rated.
Careful consideration must be given to issues such use for short-term accommodation and vacation lettings.
Taxable Supplies
Some supplies made by the University will or can be standard rated, including the use of sports facilities, conference halls, catering for non-students and car parking. It may be possible to attribute some of the input tax incurred on construction projects to such uses, allowing partial recovery.
Further Education Colleges
The education of students under 19 is a non-business activity of further education colleges, restricting the recovery of input tax. However many institutions in this sector have charitable status enabling the college to take advantage of the zero and reduced rates applicable to relevant charitable purpose buildings and works to improve access for people with disabilities.
Older students over 19 or from overseas are likely to be fee-paying which may prejudice the status of the buildings, but they may qualify under the 90% concession whereby less than 10% business use is ignored. If fee-paying students make up more than 10% of the total then it might still be possible to apply it to specific buildings depending on the students using them.
Consultancy service and other supplies made by a college are likely to standard rated. A review of the partial exemption method utilised may improve input tax recovery on construction projects.
Independent Schools
Fee-paying schools are in business and although the school may have charitable status the buildings will not qualify as being used for charitable purposes. Pupil accommodation at boarding schools can be treated in the same way as other student accommodation.
On the other hand, a non-fee paying school run by a charity may well obtain charitable purpose treatment for all of its buildings.
Local Authority Schools
The majority of schools in the state sector are maintained and funded by a Local Education Authority. The governing body acts agent for the authority in acquiring goods and services and the authority can recover VAT on such purchases. Problems can occur when funding is obtained from other sources and recovery becomes more complicated.
