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United Kingdom

Court of Appeal: supplies of education by alternative providers qualify for VAT exemption

2 hours ago
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Summary
  • On 4 July 2026, the London Court of Appeal ruled that certain alternative education providers are entitled to claim a VAT exemption for their services under Group 6, Schedule 9 VATA 1994, overturning HMRC’s earlier denial. The judgment may affect VAT treatment across educational institutions supplying non-mainstream educational programmes. [vatfaqs.com]
  • Separately, HMRC’s (27 April 2026) responds to the Court of Appeal’s judgment of 27 March 2026 in Colchester Institute Corporation [2026] EWCA Civ 363, confirming HMRC will not appeal. FEI public funding is now recognised as third-party consideration for taxable/exempt supplies of education, not non-business grants. [gov.uk] [gov.uk], [pinsentmasons.com]
  • Impact: FE institutions and charities must revisit partial exemption, capital goods scheme and input VAT recovery models. Reliefs on buildings, fuel and power based on non-business use may need reassessment. Private-school fee VAT under the Finance Act 2025 (upheld again on 27 Feb 2026 in BYL v Chancellor of the Exchequer) remains unaffected. [blackstone…ambers.com], [crowe.com]
Article
Two July 2026 developments push the UK education VAT landscape in fresh directions.
Alternative education providers (4 July 2026). As, the London Court of Appeal ruled that alternative education providers are entitled to claim a VAT exemption for their services, overturning HMRC’s earlier denial. The judgment applies from the date of the decision and is a reminder that the boundaries of Group 6, Schedule 9 VATA 1994 (the education exemption) remain fact-sensitive: providers that had accepted HMRC’s denial in the past should reassess. [vatfaqs.com] [vatfaqs.com]
Colchester Institute – RCB 3 (2026). HMRC’s, published 27 April 2026, sets out HMRC’s response to the Court of Appeal’s judgment of 27 March 2026 in Colchester Institute Corporation [2026] EWCA Civ 363. The Court, applying a multi-factorial analysis starting from the terms of the EFA/SFA Funding Agreements, concluded that the funding was paid in consideration of CIC delivering approved courses to eligible students, not as general support — upholding the Upper Tribunal’s 22 December 2020 decision. HMRC is not appealing, will consult with stakeholders and will issue a further RCB with updated guidance. Institutions that had not adopted the third-party-consideration position under RCB 08/21 will only see any change apply prospectively from a future date. [gov.uk] [gov.uk], [crowe.com]
Sector implications. As note, the reclassification of grant-funded education as taxable / exempt supplies with third-party consideration ripples through the FE sector’s VAT models: [pinsentmasons.com]
  • Partial exemption methods may need to be amended;
  • Historic zero-rating on buildings used solely for non-business purposes may be affected;
  • 5% VAT on utilities and climate change levy relief based on non-business use may need to be revisited;
  • Impacts extend to the wider charity sector and to independent schools / SEN providers that receive public funding. [crowe.com]
Private schools remain in scope. Separately, in, the Court of Appeal (Vos MR, Singh and Falk LJJ) dismissed a human-rights challenge to Finance Act 2025 provisions removing the VAT exemption for private school fees, finding no Thlimmenos discrimination and no interference with property rights. Independent schools should continue to charge VAT on fees; low-cost school carve-outs remain rejected. [blackstone…ambers.com] [blackstone…ambers.com]
Actions for institutions:
  • Model the current vs. third-party-consideration position on a partial exemption special method basis;
  • Assess CGS adjustments for buildings and IT infrastructure;
  • Alternative education providers previously denied exemption should revisit prior assessments in light of the 4 July 2026 ruling;
  • Track HMRC’s follow-up Revenue and Customs Brief and any policy paper on transitional rules.
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