As a business, we are committed to developing our staff and consequently have a number of employees on training contracts, whereby as their employer we pay for professional training costs and examinations. The terms of engagement are fairly typical in that should they leave within a certain period they are required to repay the costs incurred. Some of the training has been invoiced to us with VAT on and some without. Could you please clarify the correct treatment when we invoice the employee who is leaving?
The VAT liability of training costs incurred will depend on the status of the provider; in the main, whether they have eligible body status for the VAT education exemption. Many providers of professional qualifications are non-profit making bodies who ring fence those profits arising from the training and therefore meet the definition of an eligible body. VAT Notice 701/30 Education and Vocational Training has the details of eligible body status in section 4.
However, if education and training are supplied by a non-eligible body, such as a profit-making company it will be chargeable to VAT.
With regard to your particular query, the original VAT liability is irrelevant when seeking to recoup the costs from an ex-employee. When an individual repays such costs, the repayment represents compensation to the employer who is to be deprived of the services of the individual in whom they have invested. As such the employer is entitled to be compensated for that loss. Compensation for loss is outside the scope of VAT as there has been no supply. Therefore there will be no VAT to charge and the quantum to be recovered is a contractual matter between employer and employee.