Huge VAT loans let-off after HMRC admits poor guidance

Private providers are being let off millions of pounds in unpaid VAT because the tax office gave them bad advice, FE Week can reveal.

ITPs were meant to start adding a 20-per-cent charge to advance learner loans courses when the scheme was introduced in 2013, but it seems as though the rule has not been applied consistently.

HMRC finally seems to have realised that it is missing out on considerable sums of money, and has now published “clarification guidance” emphasising that all independent providers – many of which were unaware of the requirement – must pay VAT.

It is not forcing providers to make up missed payments from the past, admitting that its previously conflicting guidance had been an error of its own creation.

FE Week has seen a 2016 letter from the tax office, for example, which wrongly informs an unnamed private provider that it doesn’t need to charge VAT.

In the letter, officials mistakenly state that an exemption applies to VAT payments because the loans are an “agreement made between itself [the provider] and the secretary state for business, innovation and skills”.

HMRC has caused a great deal of confusion among providers

It suggests the loans are “training supplies which are to be treated as being funded by the Skills Funding Agency within the scope of VATA94” – for which the tax doesn’t apply.

HMRC’s official view is that advance learner loans are “a loan which is ultimately funded by the student and not by the secretary of state” meaning that they do not “result in the course qualifying for exempt treatment”.

It is understood that most other private providers have received the same incorrect advice since 2013, and the total amount of unpaid VAT could run into the millions.

The clarification implies HMRC accepts that providers have been given erroneous advice, and suggests that it will only chase future payments.

“The policy outlined in this brief is operative with immediate effect as it’s a clarification of HMRC’s existing policy,” states the guidance, published in January.

“HMRC will write to any business that has received an incorrect ruling or guidance and will issue a revised ruling, from a current or future date.

“If businesses have adopted an incorrect treatment on the advice of HMRC, they should write to us quoting Revenue and Customs Brief 2 (2018) by March 31 at the latest, providing evidence if there are individual circumstances to be taken into account.”

It added businesses which “don’t do this” will be expected to “apply the correct treatment from the date of this brief”.

The tax does not apply to FE colleges and not-for-profit organisations.

However, many providers are upset at having to fork out more money.

“HMRC has caused a great deal of confusion among providers in terms of providing conflicting guidance,” said the Association of Employment and Learning Providers’ boss Mark Dawe. “We are currently consulting with members and deciding what the best way forward is.”

Our contract is now 20 per cent less income, there’s no other way of looking at it

FE Week spoke to a private provider boss who is furious with HMRC.

“As we understood it, advance learner loans were government funding like any other type of funding which would be exempt from VAT,” said Samuel Riley, the director of the North West Skills Academy in Manchester. “Most providers are in that boat. This will massively affect us now.”

He explained that providers cannot simply add the 20-per-cent charge to the courses for learners to pay, and the amount would now have to be taken from the value of existing contracts.

“Our contract is now 20 per cent less income, there’s no other way of looking at it,” he insisted.

He also pointed out that, if advance learner loans cash is not “perceived as government funding, why is it in scope for Ofsted?”

Mr Riley claimed his organisation had numerous meetings with the Student Loans Company, which administers the loans but which had never brought up VAT.

Advance learner loans, originally known as 24+ loans, were introduced in 2013/14 for students studying courses at levels three or four and aged 24 and older.

A spokesperson for the HMRC recognised that VAT on FE loans had not been enforced properly, but would not say how much money it has failed to collect.

“When we became aware that the policy was not being applied correctly we issued guidance to give greater certainty to providers on what needed to be paid,” they said.