Non-finishers

Output tax on a non-refundable fee

The taxpayer offered trainee driving instructors the chance to pay an advance non-refundable fee to cover the costs of its three-part driving course. The fee was lower than if a trainee chose to pay for each part separately.

RDS accounted for output tax when it received the advance fee. It said if the student dropped out of the course before completing all parts the output tax on the original payment should be reduced accordingly even though no refund was given to the student. It argued that the element of the fee relevant to the uncompleted parts of the course did not relate to a supply of goods or services and was therefore outside the scope of VAT.

HMRC disagreed. It said from an economic point of view the company had supplied a single supply of a course and...