VAT – Supplies by foreign universities

The UK campuses of an American university were operated by a partnership between that university and a Spanish educational establishment. The partnership was a UK limited liability partnership formed under the Limited Liability Partnerships Act 2000. The Act introduced a corporate entity that allows members to limit their liability while organising themselves as a partnership. LLPs are in UK law regarded as bodies corporate and are subject to aspects of company law, but for tax purposes they are generally treated as partnerships.

Where an educational establishment is an ‘eligible body’ for VAT purposes not only are its supplies of education in the UK exempt from VAT but exemption also applies to any supplies of goods and services which are closely related to that exempt education. UK universities, schools, colleges and higher education establishments are specifically included as eligible bodies. UK campuses of foreign universities are not unless they operate through a body which is precluded from distributing and does not distribute any profit it makes and applies any profits made from exempt supplies of education, research or vocational training to the continuance or improvement of such supplies.

Section 10 LLPA 2000 ensured that where an LLP carries on a business ‘with a view of profit’ the members are treated for the purposes of income tax, corporation tax and capital gains tax as if they were partners carrying on business in partnership. In other words, the LLP is regarded as transparent for tax purposes and each member is assessed to tax on their share of the LLP’s income or gains, whether they are distributed or not. For this reason, the statutes of the LLP in which the American university had an interest provided that it would fund the members’ UK tax liabilities. On a strict reading of the definition of eligible body this would disqualify the LLP.


Clearance was obtained from HMRC that the LLP could be regarded as an eligible body provided that the only payments made to the members were of amounts necessary to satisfy a UK tax liability arising on their share of the LLP’s profits. This meant that the supplies in the UK were, in the main, exempt which was the desired result.


At the time of publication this case study was technically accurate however, as tax law and practice change rapidly, you should take specific advice before taking any action.