Tax officials this week confirmed that a 1994 ruling by the Government means that any course which is non-statutory is liable to VAT, even if not for profit, because it is assumed to be run as a business. The decision will embarrass ministers following their repeated denials of any intention to extend VAT to areas such as newspapers and food. It also comes amid accusations that Customs and Excise is attempting to impose VAT on education much more widely.
The new interpretation by HM Customs and Excise emerged when the Snowdonia National Park Study Centre was told to pay VAT and the Abernathy School Outdoor Centre in Inverness-shire was refused exemption.
A spokesman for shadow Education and Employment Secretary David Blunkett said there had been unease over the loose wording of the VAT (Education) Order 1994, which was meant to prevent VAT being levied on all courses not run exclusively for profit.
"We need to have proper clarification on this issue as a matter of urgency. "
When the order was made the Department for Education and Employment insisted that the wording in the ruling was watertight and that VAT is not chargeable where courses were run "otherwise than for profit". But a spokesman for the department this week said the latest moves to impose VAT was not an issue for them to comment on. "We abide by the Customs and Excise Order as any organisation would do."
Tax officials have made it clear in a letter to the National Institute for Adult Continuing Education that VAT should be imposed. The institute had appealed on behalf of the Snowdonia Centre.
David Hart,general secretary of the NAHT expected Customs and Excise would charge VAT wherever it could. The association this week won on appeal in the Scottish case. "But different offices around the country will interpret the rules differently."
Alan Tuckett, director of NIACE, told The TES: "We are left in no doubt of the taxman's intentions." A letter from the VAT Policy Directorate Government and Education Branch to NIACE spelled out the new interpretation of the 1994 VAT order.
"Regardless of the status of the provider, the only question that needs to be considered is whether payment is required in any form, monetary or otherwise, for the education that is provided." Where payment was provided then VAT should normally be paid, he said.