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Treatment of university trading subsidiaries

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HMRC have announced that in most cases where universities set up trading subsidiaries, which themselves provide education, they are acting as if they are a college institution, school or hall of a university.

That means the education can be treated as exempt from VAT in accordance with VATA 94 Schedule 9 Group 6.

The announcement was made in Business Brief 09/2010 on 11 March 2010, and the treatment takes effect from that date although there are some transitional arrangements.

For the trading company qualify for this new treatment, the following conditions must be fulfilled:

it must be owned or controlled by a university;

it must provide university level education which results in a qualification awarded by a university or a nationally recognised body;

it must have close academic links with its parent university. This would normally mean that students are registered or enrolled with the parent; are made subject to its rules and regulations and are awarded its qualifications.

Assuming these conditions are met, all supplies of education and closely related supplies by the subsidiary are exempt, although other supplies, such as consultancy services would be standard rated.

Affected parties may apply the new rules retrospectively subject to the capping rules, or apply the old treatment to all supplies delivered before 1 August 2010. If a tax point is created relating to supplies delivered before and after 1 August, only that part relating to the period before 1 August may be taxed.

HMRC will not allow these transitional arrangements to apply if used for tax avoidance purposes, which, in their view, includes any pre-invoicing or prepayments made in anticipation of this announcement.

VAT Information Sheet 03/10 provides more detail on these changes, including their impact on the capital goods scheme.