Date of issue: 15th November 2005

VAT RULING IS A TAX ON BOOKS

A recent House of Lords ruling which changes the way in which businesses that provide distance learning programmes are required to account for VAT on printed educational matter is effectively a tax on books.

So says chartered accountants Clement Keys, which is highlighting the recent decision in a landmark House of Lords case involving the College of Estate Management.

Originally the VAT and Duties Tribunal and the High Court judged that the College of Estate Management was making a single supply of educational services. This supply is only exempt if the provider is a qualifying body, otherwise it is standard rated.

On appeal to the Court of Appeal the College of Estate Management successfully argued that it was, in fact, making two separate and distinct supplies - one of exempt education and a second of zero-rated printed matter.

In response to the Court of Appeal decision, HM Revenue and Customs released a Business Brief advising organisations that provide distance learning courses that they could zero rate their supplies of printed matter such as work books and, where appropriate, seek a refund of VAT they had overpaid on previous supplies.

"While clarifying the position, HM Revenue and Customs made it plain that this was not the end of the matter," explains director of VAT services Steven Simmonds.

"If the decision were to be overturned at a future date, HM Revenue and Customs informed businesses they would not only be expected to repay any VAT reclaimed and/or account for any VAT not declared, but also pay interest where applicable!

"And this is precisely the problem companies are facing, now that the House of Lords has upheld the original VAT and Duties Tribunal and High Court decisions."

In light of the House of Lords ruling, HM Revenue and Customs has issued a further Business Brief (20/2005) advising companies to pay outstanding VAT of up to £2,000 by way of an adjustment to their next VAT return. If the sum due is greater than £2,000, it is to be paid via Voluntary Disclosure.

Educational organisations that took advantage of the initial Court of Appeal decision will now need to rework their partial exemption calculations and declare any over claimed input tax.

Meanwhile, commercial providers will again have to account for VAT on what were previously treated as zero-rated supplies of printed matter.

"The House of Lords decision impacts on all providers of distance learning courses, who may well need to seek professional advice in order to fully understand their obligations and make sure they account for VAT correctly," says Mr Simmonds.