VAT & Private Colleges

The Court of Appeal's decision in St Patrick's International College Ltd reopens the VAT position for private higher education providers.

The case concerned three independent colleges offering higher national certificates, diplomas and degree level courses comparable to those run by universities and further education colleges. The education exemption carries two conditions: the supply must be education or vocational training, and the provider must be an eligible body, a category the UK has confined largely to universities and further education corporations. It was accepted that the colleges met the first condition and shared the educational aims of exempt bodies, but they were not recognised as eligible bodies, so their courses were treated as standard rated.

Both tribunals below sided with HMRC. The Upper Tribunal accepted that the UK could restrict the exemption to specified bodies, and held that fiscal neutrality required looking not only at whether courses were similar to the consumer but also at whether the providers were comparable. Because private colleges were not regulated like universities, it found no breach.

The Court of Appeal disagreed. The decisive question, it held, is how a typical consumer sees the supplies, not fine distinctions between the providers. That approach was settled by the court's own earlier decision in the LIFE case, which it held it was bound to follow. HMRC argued that LIFE was wrongly decided, and while the court accepted there was real force in that argument, it concluded that the rules of precedent required the same result rather than a departure from a considered ruling on the same point.

As it was undisputed that the colleges' courses were sufficiently similar to those of eligible bodies from the typical consumer's perspective, taxing one while exempting the other breached fiscal neutrality. The appeal was allowed and the supplies are exempt.

The implications reach beyond these three providers. Independent providers whose courses mirror those of universities and further education colleges may have accounted for VAT that was never due, and historic treatment may now be open to review. Given HMRC's acknowledged reservations, a further appeal cannot be ruled out, and any action should be planned with that in mind.

If you advise or operate an independent education provider and want to assess the impact or protect a historic claim, VITA can help.