As the Apprenticeship Levy beds in we are starting to identify potential practical issues and questions facing charities and would welcome your feedback on your experiences to date.

• Are you facing increased costs from suppliers seeking to include the cost of the Apprenticeship Levy as part of employment costs for outsourced services (for example cleaning, facilities, security etc provision)? If so are you planning to pay it, challenge this and/or clarify what apprenticeship training the supplier has in place to benefit from the Levy?
• Are you including Apprenticeship Levy as an employment cost in your grant funding?

More generally we would welcome feedback from charities as to whether they expect to make use of their Levy contributions, and the extent to which all or part of that contribution has effectively been written off as an additional payroll tax. Please send all comments to info@charitytaxgroup.org.uk.

HMRC has also published an updated Notice 701/30 Educational and Vocational Training. It explains the treatment of funds taken from the new apprenticeship service account to pay external providers for apprenticeship training with effect from 1 May 2017. Apprenticeship training is covered by the VAT exemption but only to the extent it is funded by Levy contributions, so where the trainee or an employer pays part of the cost of the training from their own resources that part of the supply is not covered by the exemption. The relevant sections are outlined below.

Notice 701/30 Educational and Vocational Training

5.5. Training supplied by non-eligible bodies

Supplies of training will be exempt if someone is contracted or subcontracted to provide education or vocational training under one of the government’s approved training schemes and the services are ultimately funded by:

• the Young People’s Learning Agency or the Skills Funding Agency
• funds taken from the new apprenticeship service account to pay external providers for apprenticeship training as announced in Apprenticeship funding: how it will work
• the National Council for Education and Training for Wales
• a Local Enterprise Company; or
• the European Social Fund (under a scheme approved by the Department for Education)

13. Government approved vocational training schemes
 
This section explains what the main schemes are and how they work. It also gives guidance about when VAT should be charged and the arrangements for issuing VAT invoices.
 
13.1 The schemes

These are vocational training schemes that provide vocational training to young or unemployed people. They are approved by:

• the Department for Education
• the Department for Work and Pensions (through Job Centre Plus); and
• devolved administrations in Wales, Scotland and Northern Ireland

and administered and funded by:

• the Young People’s Learning Association (YPLA)
• the Skill Funding Agency (SFA)
• local authorities in England (working together with the YPLA)
• the Welsh Assembly
• Skills Development Scotland; and
• the Training and Employment Agency in Northern Ireland

They also include:

• apprenticeships funded from the new apprenticeship service account with effect from 1 May 2017 as announced in Apprenticeship funding: how it will work
• 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
• the training of 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)

13.2 When exemption applies

Exemption from VAT applies to supplies of:

• vocational training, including work experience (see paragraph 5.3, under one of the schemes listed in paragraph 13.1)
• any goods and services supplied directly to trainees that are essential to the training

but only to the extent that they are ultimately funded by the government as detailed in paragraph 13.1.

An eligible body’s (see paragraph 4.1) supplies of vocational training are exempt regardless of how they are funded.

The exemption does not cover:

• counselling and careers guidance services (unless they are a compulsory part of a vocational training package); or
• accreditation or assessment services – although these may qualify for exemption as examination services (see section 7)

  13.3 VAT on vocational training under a government approved scheme

VAT should not be charged as the supply is exempt, however:

If …	Then …	And …
the trainee or an employer pays part of the cost of the training from their own resources	that part of the supply is not covered by the exemption	the exempt and standard-rated elements are to be established for the purposes of apportionment unless the training provider is an eligible body (see paragraph 4.1)
with the provider of the training contracts with a further education college	the proportion of the payment by the college derives from funds listed in paragraph 13.1 must be established	apportioned between exempt and standard-rated elements unless the training provider is an eligible body (see paragraph 4.1)
the contract allows for a separate supply of management services	the management services are not covered by the exemption	VAT must charged

If a trainee hands a training credit voucher to the training provider to be redeemed with the local office of the Young People’s Learning Association (YPLA) or the Skill Funding Agency (SFA) the income received from it is part of the training provider’s exempt supply. Supplies which are partly funded by an employer or an employee and partly funded by the apprenticeship levy being introduced on 6 April 2017 will only be exempt to the extent of the funding from the apprenticeship service account. This includes any monthly top up from the government to that account.
 
13.4 Subcontractors to training providers

(a) Government approved vocational training programme
VAT should not be charged on services provided by the subcontractor to the extent that the training provider pays for the services (and any goods and services supplied by the subcontractor directly to trainees that are essential to the training) using funding obtained from any of the sources listed in paragraph 13.1.

Any funding that the subcontractor receives but must pass on to trainees or students as:

• statutory living allowances
• travel costs; or
• lodging expenses

is outside the scope of VAT – it does not form part of the consideration for the supply of vocational training. (But see paragraph 13.5.)

(b) Training provided to businesses for their employees and to individuals
It is the responsibility of the subcontractor to account for VAT where it is due, but also to exempt supplies when they qualify for exemption.

If a body is …	Then …	And …
an eligible body (see paragraph 4.1)	supplies to it are exempt	should not be charged VAT
not an eligible body (see paragraph 4.1)	it will be necessary to establish with the customer whether the supplies made by the contractor are ultimately funded by any of the bodies listed in paragraph 13.1	1) evidence should be requested, 2) retained; and 3) the supplies are to be treated as exempt to the extent that they relate to that funding

13.5 Work placement providers

Where work experience is provided to a trainee or an employee of another business or a college student under one of the government’s approved vocational training schemes, the business or college must charge the placement provider VAT because s/he benefits from the services of the trainee, employee or student. This is separate from the supply of exempt vocational training to the trainee.

Unemployed trainees qualify for a statutory living allowance and, possibly, expenses. If a placement provider has to fund any part of these allowances or expenses from his or her own resources, the amount s/he pays is consideration for the standard-rated supply to the placement provider of the trainee’s services by the training provider or further education college.

This is the case even though the placement provider may make no actual payment to the training provider or college itself.
If a trainee is also the placement provider’s own employee, any payments made to him or her as wages or allowances are outside the scope of VAT.
 
13.6 Is VAT recoverable by a body that is making exempt services under a vocational training scheme?
VAT will probably not be recoverable. VAT that relates to exempt activities cannot be recovered unless it is below certain limits. Further information is provided in Notice 706 VAT: Partial exemption.
 
13.7 Careers services or counselling paid for by the Young Persons Learning Agency (YPLA) or the Skills Funding Agency (SFA)

If a supply is to the third party who actually benefits from the services rather than to the YPLA or SFA, any VAT invoices should be issued to the third party and not to the YPLA or the SFA.

However if the contract is set up in such a way that the supply is to the YPLA or the SFA, any VAT invoice should be issued to them (see also paragraph 14.1).