Minister Noonan’s Dail response signals Revenue climb down on VAT exemption for vocational training and retraining

Thursday, April 13, 2017

by Nick Ryan

Following the changes introduced under the Finance Act 2015 regarding the revisions to the legislation covering the application of the exemption for education and vocational training the exemption had been narrowed to reflect recent ECJ decisions. At the time the changes were introduced Revenue had made assurances that the position reflected prior to these changes was not upset though these statements,the lack of published Revenue guidance on the changes and, the amended legislation introducing a requirement to operate as a recognised body for the exemption to apply provided for a disconnect within the industry.A recent Parliamentary Question to the Minister of Finance has caused a stir in that it appears to contradict the understanding of what the legislative changes made actually cover.
The Minister’s response to a Parliamentary Question on the Amendment to VAT in Education and Training includes the following statement:
“The amendment provides that VAT exemption applies to providers of children’s or young people’s education and school or university education where it is provided by a recognised body. Exemption also continues to apply to training and development courses where the training and retraining is of a vocational nature. This means that exemption applies to training and retraining courses which prepares trainees for future employment and to training relating directly to a trade or profession given to a person in order to improve their ability to carry out their work. Where a course is offered by a business to their staff and it relates to their work, the training and development course continues to be exempt from VAT.”

On the face of it, the statement as it stands is good news for private sector providers of vocational training as it suggests that the requirement to be a recognised body for vocational training has been removed; this appears to provide for an open contradiction to the ECJ decisions on this and the requirement for Ireland to apply a narrower application of the exemption to fall in line with EU legislation.
What is also interesting is the Minister’s reference to the exemption applying where the training relates directly to a trade or profession. Without the detailed guidance leaflet it is difficult to determine what is meant by directly related though it does suggest there will be a need for a test to determine what this means as otherwise I can only see a continuation of the confusion many businesses have experienced to date in seeking clarity from Revenue on whether their services are exempt or not. One recent case we were involved in highlights the concerns whereby one Revenue district confirmed in writing that our client’s services were exempt vocational training only to for the decision to be over-rules by an audit district who decided the services were taxable; the facts were the same but the decisions reached by Revenue completely contradicted each other – where do you go from there?
Directly relating to a trade, profession or work still provides for a situation where a vocational training provider may be required to assess those attending a course to determine whether the exemption applies. This provides for both increased administration, course management and, a potential risk in VAT compliance. I think the majority of businesses want peace of mind and do not want to operate in an environment where , at a later date, Revenue might challenge the VAT treatment of a supply and, where that challenge could cost them their business.
I assume that the legislation introduced under FA 2015 when prepared, must have gone through some form of examination and testing to determine whether it reflected the ECJ judgements and, if so, why is not a Minister of Finance prepared to back the Revenue Commissioners in the steps taken to correctly apply the exemption? The Minister’s statement is not supportive in providing confidence in the Revenue Commissioners in managing the application of these judgements and clearly shows that industry pressure can work; what if the travel sector applied the same approach on seeking the application of the reduced rate for TAMS or the motor industry pressed on second hand car sales?
Another concern is what this announcement does in relation to the legislation as it now stands, how does Para 4(3)(b) apply now, is it all still relevant?
Following the Finance Bill 2015 announcements The VAT Practice has been involved in a number of training providers and is aware of how many followed FB 2015 commentaries in that the result of these changes was that a private sector training providers services will be taxable and, they should register for VAT. Does this now mean this was a mistake? What if by registering for VAT the business became un-competitive and lost turnover? What if Revenue imposed a VAT registration, assessed for under-declared VAT and imposed penalties and interest? Will there be some form of redress for these businesses?

With regard to the promised guidelines, I understand that these are now in final version format and will be published on Revenue’s website shortly. It will be interesting to see the detail that is applied as, looking at the current crop of Revenue Leaflets, it is often the lack of detail or clarity that continues to create problems for businesses and, provides for the variances in understanding and interpretation often experienced at local District levels.

I am not convinced a climb down was the right move rather, perhaps a dressing down by the Minister of the Revenue’s paucity in providing expedient detailed clarity on a very significant and costly change.
The VAT Practice is working with a number of training service providers in determining their overall VAT position, particularly where there are mixed supplies and, where there is uncertainty. Please contact Nicholas Ryan by email info@thevatpractice.ie or telephone 023 8838181.

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