Sarah Halsted

Written by: Sarah Halsted

Sarah Halsted

Technical Associate Director

Where does a student really live and does it matter for VAT?

The First-tier Tax Tribunal (FTT) ruled that careers-coaching services provided to international students are not subject to VAT because the students were ‘usually resident’ outside the UK rather than at their UK university address. But, despite winning the argument in principle, the provider had not kept sufficient records to prove that the students normally lived outside the UK and must now account for VAT on some of its contracts.

Mandarin Consulting is a UK company providing training to students from China studying at British universities to help them gain global job opportunities. The company delivered one-to-one careers coaching, covering interview skills and how to produce job applications and CVs. It also offered soft- skills training to students in communication, leadership and teamwork required in the international job market.

A dispute arose with HMRC over the correct VAT treatment of the company’s services. The company regarded its services as consultancy which, for VAT purposes, is supplied in the country where the recipient of the service belongs. It believed its services were either supplied to the parents of the student (almost all of whom were resident in China) or to the students themselves who, it argued, were only in the UK for the temporary purpose of education so had their usual place of residence in China. As it believed its services had been received in China, the company treated its supplies as outside the scope of UK VAT, so did not charge VAT.

HMRC disagreed, arguing that the company made supplies of education which are subject to VAT where the activity is performed, in this case by Mandarin Consultancy in the UK. It assessed the company for VAT of £1.2 million on supplies made in the previous four years. The company appealed against HMRC’s decision and the FTT has now made a number of findings on the VAT position of its services. 

Firstly, the FTT found that the company supplied consultancy services rather than education. Its training focused on job-hunting skills that did not form part of the students’ university education. The candidates sought specialist advice from Mandarin Consultancy on job applications and interviews.

Under the current contractual arrangements, the FTT found that the service was provided to the student’s parents, who were resident in China. The contracts named the parents as the client rather than the student and gave them a direct contractual right to require Mandarin to provide the coaching and to receive progress reports. Therefore, Mandarin’s services on recent contracts were not subject to UK VAT.

However, under the previous contractual terms in place prior to July 2016, the services were provided to the students themselves. Although the cost was usually paid by the parents, the student was named as the client on the contract and the parents had no contractual right to require that the company supplied its services to their son or daughter. 

The FTT then ruled that the student’s ‘usual residence’ at which they received the supply of training, is determined by the place that they usually live as a result of personal and occupational ties. The FTT interpreted ‘occupation’ as meaning employment or business activity and found that studying at a school or university is not an occupation in that sense. Therefore, the student was ‘usually resident’ for VAT purposes at their permanent home rather than their UK university addresses.

Although in principle, the students received the training services at their home address (usually in China) rather than their address while at university in the UK, in practice the company had not kept records of where its students were otherwise resident, so was unable to prove that its pre-2016 services to students were received outside the UK. HMRC’s assessment was therefore upheld in respect of the company’s pre-July 2016 contracts. 

The coronavirus emergency has led to travel restrictions which will put UK universities and other businesses that depend on overseas students under considerable strain. So, to avoid the additional burden of unexpected VAT bills, it’s vital that providers carefully check the VAT position of their contracts at the outset and, where VAT is not applicable, make sure that they keep the required records as supporting evidence.   

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