VAT treatment of Advanced Learner Loans

HMRC has issued Revenue and Customs Brief 2 (2018) to explain its view on the tax treatment of receipts of payments of Advanced Learner Loans from Student Finance England by educational bodies.

The Advanced Learner Loans are provided under a contract between the student and the Secretary of State for Education, and are administered by Student Finance England. The loan is repayable by the student in accordance with the regulations in force at the time repayment falls due.

The Advanced Learner Loan is not a grant nor is it funding provided to the course provider for VAT purposes. It is subject to an interest charge payable by the student on the repayments over time. HMRC views this as a loan which is ultimately funded by the student and not by the Secretary of State.

Consequently, receipt of the Advanced Learner Loan by the education provider doesn’t result in the course qualifying for exempt treatment under Items 5 to 5C of Group 6 of the VAT Act 1994. VAT is due at the standard rate on the educational provider’s full charge for the education it provides to the student.

The only exception is where the provider meets the criteria for being an eligible body for the purposes of the education exemption (paragraph 4.1 of VAT Notice 701/30: education and vocational training). These bodies can exempt all of their supplies of education and closely related services regardless of how they’re funded.

The above policy is operative with immediate effect as it is a clarification of HMRC’s existing policy. If businesses have adopted an incorrect treatment on the advice of HMRC, they should write to HMRC quoting Revenue and Customs Brief 2 (2018) by 31 March 2018 at the latest, providing evidence if there are individual circumstances to be taken into account. Businesses that do not do this will be expected to apply the correct treatment from 24 January 2018.