Potential VAT refunds for alternative education providers

23 September 2026| CATEGORIES: Education, HMRC policy, VAT exemption, VAT refunds| TAGS: alternative providers, fiscal neutrality, further education, higher education, VAT refunds

Alternative providers of higher and further education may now be able to reclaim VAT on supplies previously treated as standard-rated, following a significant Court of Appeal ruling. HMRC has confirmed that businesses in the same position as the taxpayers in St Patrick’s International College can submit claims for a refund while HMRC’s appeal to the Supreme Court is pending, although HMRC continues to maintain that such supplies are standard rated.

Background

HMRC has published Revenue and Customs Brief 9 (2026) (“RCB 9/26”), following the Court of Appeal’s decision in St Patrick’s International College Ltd & Ors v HMRC [2026] EWCA Civ 852.

The Brief concerns the VAT treatment of education and closely related services supplied by alternative providers of higher and further education.

Under Group 6 of Schedule 9 to the VAT Act 1994, supplies of education by an “eligible body” are generally exempt from VAT. Eligible bodies include UK universities, colleges and certain other institutions, including further education corporations and certain non-profit-making bodies.

Alternative providers which do not meet the relevant conditions to be an eligible body have historically been required to account for VAT at the standard rate on their supplies of education.

The St Patrick’s International College case concerned three alternative providers: St Patrick’s International College, London College of Contemporary Arts and Interactive Manchester.

The providers supplied, among other things, Higher National Certificate (“HNC”) and Higher National Diploma (“HND”) courses. They argued that their supplies should be exempt from VAT, including by relying directly on Article 132(1)(i) of the EU VAT Directive.

They argued that the UK’s implementation of the education exemption breached the principle of fiscal neutrality because, from the perspective of students, their courses were sufficiently similar to equivalent courses supplied by universities, colleges of universities and further education corporations whose supplies were exempt from VAT.

The First-tier Tribunal and Upper Tribunal rejected the taxpayers’ arguments.

Court of Appeal decision

The Court of Appeal reached a different conclusion.

The central issue was how the principle of fiscal neutrality should be applied where an exemption contains a condition relating to the status of the supplier.

The taxpayers argued that the assessment should be made from the perspective of the typical consumer, applying the approach established by the Court of Justice of the European Union in Rank Group plc v HMRC. Under that approach, supplies which are identical or similar from the perspective of the typical consumer should not generally be subject to different VAT treatment.

HMRC argued that the Rank test was concerned with the similarity of the supplies themselves and did not override conditions concerning the status of the supplier.

The Court of Appeal rejected HMRC’s arguments.

It considered its earlier decision in Leisure, Independence, Friendship and Enablement Services Ltd v HMRC (“LIFE”) and concluded that LIFE was binding authority. The Court held that, even where an exemption contains a supplier condition, compliance with the principle of fiscal neutrality must be assessed from the perspective of the typical consumer.

The Court therefore concluded that the First-tier Tribunal and Upper Tribunal had applied the wrong test by focusing on the comparability of the suppliers and their regulatory status.

It was accepted that students would regard the relevant HNC and HND courses as equivalent to those offered by recognised exempt providers. The Court consequently concluded that excluding the taxpayers’ supplies from exemption breached the principle of fiscal neutrality.

HMRC’s position

The Court of Appeal decision does not, however, represent a change in HMRC’s published policy.

HMRC has received permission to appeal the decision to the Supreme Court. Pending the outcome of that appeal, HMRC continues to maintain its long-standing position that supplies of education made by providers which are not eligible bodies are subject to VAT at the standard rate.

HMRC also continues to maintain that the perspective of the typical consumer does not alter this position.

However, RCB 9/26 recognises that some businesses may wish to protect their position while the Supreme Court appeal is pending.

Potential VAT refund claims

HMRC has confirmed that alternative providers which believe they are in the same position as the taxpayers in St Patrick’s International College can submit a claim for a refund of VAT.

This potentially creates a significant VAT recovery opportunity for affected providers that have historically accounted for VAT on their supplies of education.

HMRC will consider claims on a case-by-case basis and has identified a number of matters that will need to be taken into account, including:

• Unjust enrichment – whether the business has passed the cost of the VAT to its customers and, if so, whether any repayment to customers may be required;
• Partial exemption – whether treating the relevant supplies as exempt affects the business’s entitlement to recover input VAT; and
• The supply chain – whether VAT which has been overdeclared has been correctly accounted for by other parties in the supply chain.

These considerations are important because the amount of VAT originally charged and paid to HMRC may not represent the amount that can ultimately be recovered by the business.

For example, if supplies are treated as exempt retrospectively, this may affect the input VAT previously recovered by the provider. The potential refund therefore needs to be assessed on a holistic basis, taking into account both output VAT and any consequential changes to input tax recovery.

HMRC has also made clear that it will protect its position to secure tax revenues pending the outcome of the Supreme Court appeal.

What should alternative education providers do?

Alternative providers of higher and further education should review their VAT position in light of the Court of Appeal decision and RCB 9/26.

In particular, businesses should consider:

• whether they are an alternative provider whose supplies are comparable with those considered in the St Patrick’s International College case;
• the nature of the education and closely related services supplied;
• the periods for which VAT has been accounted for;
• the amount of VAT potentially overdeclared;
• the impact of treating the supplies as exempt on historic input VAT recovery and partial exemption calculations;
• whether VAT was ultimately borne by students or other customers and the potential implications of unjust enrichment; and
• whether a protective claim should be submitted to HMRC pending the Supreme Court’s decision.

Businesses that consider they may be in a similar position should act now to establish the potential value of a claim and ensure that relevant records and supporting evidence are available.

The Court of Appeal’s decision creates a potentially significant VAT recovery opportunity for alternative providers of higher and further education. However, given HMRC’s continuing policy position and the pending Supreme Court appeal, businesses should carefully assess both the technical basis of any claim and the wider VAT consequences before submitting a refund claim.

RBCVAT can assist alternative education providers in assessing whether their supplies may fall within the scope of the St Patrick’s International College decision, quantifying any potential VAT refund and preparing and submitting claims to HMRC.