Andrew Needham looks at charging and reclaiming VAT on staff training.
When considering VAT and staff training, the first point to determine is whether VAT is being charged on staff training. The basic position is that if a business engages a profit-making organisation to provide vocational training to its staff it will normally be charged VAT at the standard rate.
Vocational training occurs where trainees attend courses, conferences, lectures, workshops or seminars and the purpose is to prepare for future employment or add to existing knowledge to improve their performance in their current work. This would normally be subject to VAT at the standard rate of VAT.
VAT-exempt training
However, supplies of training are exempt if someone is contracted or subcontracted to provide education or vocational training under one of the government’s approved training schemes. The schemes benefiting from the exemption are mainly vocational training schemes that provide vocational training to young or unemployed people. They are approved by:
- the Department for Education;
- Jobcentre Plus;
- Government offices for the regions; and
- their national counterparts in Wales, Scotland and Northern Ireland.
These schemes are administered and funded by:
- Education and Skills Funding Agency;
- the National Council for Education and Training for Wales;
- Skills Development Scotland; and
-
the Training and Employment Agency in Northern Ireland.
These forms of training also qualify as government-approved:
- Approved schemes that are paid for using funds derived from the European Social Fund;
- training administered by further education colleges and funded by any of the bodies listed above;
- training for workplace assessors in connection with National Vocational Qualifications; and
-
training aimed at providing additional skills for use in the workplace (for example, to health and safety and first aid officers).
Education and vocational training may also be exempt if supplied by a sole proprietor or the partners in a partnership and the subject is normally taught in a school or college.
Vocational training covers training or re-training; and work experience.
It all depends…
If a training course is partly funded by a qualifying grant and partly from the employer’s own funds, VAT will be charged on the element paid for by the employer and the grant funded element will be exempt from VAT.
If a business sends its staff to a local college for training (e.g., a course run as part of an apprenticeship), the college will not charge VAT on the training. Any VAT on the employees’ subsistence expenses can be reclaimed by the business if it pays for them through the normal expenses system.
Can a business recover the VAT?
In most cases, HMRC considers vocational training to be for the benefit of the business and therefore a legitimate business expense. As such, the VAT would normally be recoverable by the business.
However, if a business is partly exempt it cannot normally recover all of its VAT. Staff training would be seen as being a general overhead of the business and any VAT incurred on training would only be recoverable in line with the VAT recovery on general overheads for the business. The only exception to this would be if a business could prove that the training only related to the taxable activities of the business, which may be difficult.
If a business organises pre-retirement courses for its staff it will be charged VAT on them. However, HMRC sees these courses as being for a legitimate business purpose and will allow input VAT recovery.
Practical tip
Most staff training will be subject to VAT at the standard rate. However, if a business obtains government grant funding it will be exempt from VAT. If a business is charged VAT it should be recoverable as a legitimate business expense.
