Consulting vs Education

Consulting vs Education 

Determining the difference between a consultancy service and an education service can play a critical role in the amount of VAT that is due, as one of the latest tax cases has proved.

A Tribunal recently heard the case of Mandarin Consulting (TC07714), in which HM Revenue & Customs (HMRC) argued that the services provided by Mandarin Consulting were educational rather than consultancy services.

The relevance of this was whether the place of supply for VAT purposes was the UK, where the students were staying, or China where their parents were resident.

The evidence showed that Mandarin had supplied career coaching and support to students of Chinese origin and that before July 2016 contracts were made directly between Mandarin and the students it supported. However, after that date, the contract was made directly with their parents, who mostly lived in China.

The company had not accounted for VAT as it thought that its supplies were outside the scope of UK VAT as supplied in China. However, HMRC raised VAT assessments of £1.3 million on the basis the Mandarin was making supplies of educational services in the UK.

The company subsequently appealed HMRC’s decision, arguing that it made supplies of consultancy services under the B2C rule for customers based outside the EU.

In response, HMRC argued that the services constituted educational activities liable to VAT where the activities take place and, thus, within the scope of UK VAT.

This led to an additional dispute as to whether the recipients of the supplies were the parents of the students or the students themselves.

Ruling on the case, the First Tier Tribunal (FTT) found that the services that were provided by Mandarin did not constitute educational activities but rather “specialised tuition which does not amount, in itself, to the transfer of knowledge and skills covering a wide and diversified set of subjects or to their furthering and development which is characteristic of school or university education”.

It also said that the term ‘consultants’ was not limited to persons who are members of the ‘liberal professions’ but rather to individuals who are in ordinary usage ‘consultants’ and act independently. It found that Mandarin satisfied these tests.

The FTT therefore concluded that the services supplied by Mandarin constituted consultancy services for the purposes of Article 59 and not educational activities within Article 54 of the Principal VAT Directive.

However, as Mandarin had not sought evidence of the residence of the students, the FTT found that it went against EU VAT legislation, which requires that proof of the establishment of the customer needs to be sought by the supplier.

Whilst the FTT allowed Mandarin’s appeal for periods commencing in July 2016 when it entered into contracts with the students’ parents, it concluded overall by finding against the supplier due to unproven facts regarding residence.

The nature of this case is fairly unique but the findings on the differences between educational services and consultancy services are useful for clarification. If you have any queries regarding this decision and how it may affect you or your business, please contact our team.


Consulting vs Education
Consulting vs Education

Consulting vs Education