Funding for student courses

Income tax

Parents need to provide financial support for their children at university, as students in no longer receive a maintenance grant. The student can apply for a maintenance loan, but the amount they get is dependent on their parents’ income. Students in Scotland and Wales can apply for a bursary or a learning grant.

Alan Nicholson wanted to support his son (Mark) while he studied at Leeds University for a degree in sports science. So Alan paid Mark a wage of £150 per week out of his self-employed business and claimed a deduction in his accounts for that expense. HMRC argued that the expense was not wholly and exclusively incurred for the purposes of the business, so denied the deduction.

Mark’s work was described as “promotion of the business through internet and leaflet distribution and computer work”, and those duties were carried out while he lived away from home at university. Alan also paid for Mark’s weekly food shopping and claimed that as a business deduction as well.

It is not surprising that the tax tribunal agreed with HMRC. However, the tribunal judge noted that the expense could have met the wholly and exclusively test, if Mark’s work had been recorded more accurately on a time basis, and if the pay had been clearly connected to the hours he worked.

VAT

The supply of education in the UK is exempt from VAT if it is provided by an “eligible body” such as; a school, university or further education college (see para 4.1 of VAT Notice 701/30). If the educational provider is not an eligible body it must charge VAT at the standard rate on the cost of courses provided to students.

This position has been clarified in the Revenue & Customs Brief 2(2018). The snag is that many non-eligible bodies have previously received rulings from HMRC on the VAT treatment of their courses. Those earlier rulings are now replaced by the advice in R&C Brief 2(2018).

HMRC says it will write to all bodies who have received “an incorrect ruling or guidance”, and it will issue a revised ruling. It goes on to say that if a business has adopted an incorrect VAT treatment on the advice of HMRC, it should write to HMRC before 31 March 2018 and provide evidence of individual circumstances which may support a different VAT treatment.

 

Written by the Tax Advice Network