VAT management and administration is an important issue for academies, as their change in status creates the need to use a new mechanism for recovering VAT costs.

VAT is an important issue for academies

From 1 April 2011, academies are no longer reimbursed by local authorities for the VAT costs they incur in educating their pupils. Instead, academies need to apply for refunds of VAT from HM Revenue & Customs themselves.

Obtaining a VAT refund

There are two possible mechanisms. Firstly, academies that become VAT registered with HMRC will reclaim VAT through their VAT returns. VAT returns are normally submitted quarterly.

Alternatively, academies that are not required to register for VAT will need to use a special refund mechanism to reclaim VAT on costs related to their educational activities. HMRC initially said this system would be similar to that used by Parish Councils where claims can be made direct from HMRC.

Registering for VAT

VAT registration is required when VAT taxable turnover reaches the set threshold — currently £73,000. The VAT taxable turnover includes the value of any goods or services supplied within the UK, unless they are exempt from VAT. Therefore, it includes any supplies that are standard and zero-rated.

Academies not registered for VAT

Only VAT incurred on costs and expenses linked to non-business activities can be reclaimed — such as costs incurred in providing free education, or in receiving grant funding/voluntary donations where nothing is supplied to the funding body/ donors in return.

Academies registered for VAT

As above, VAT on costs incurred in order to educate the academy’s pupils (non-business activities) can be reclaimed. VAT costs incurred in relation to the provision of taxable business supplies — whether VAT is charged at the standard or zero rate — can also be reclaimed. However, VAT costs incurred in the provision of exempt supplies generally cannot
be reclaimed, unless the amount is below certain limits. This can mean that academies need to use a partial exemption method in order to calculate the proportion of VAT on their costs that is allocated to exempt activities.

Other VAT issues

Many academies have their own sports centres for use by themselves and the local community. Following further advice these centres have been placed into separate legal entities for which the VAT rules will be entirely different depending on the status of the Company. Great care needs to be taken to establish the best legal entity to use and the
consequent VAT status of the activities that this entity will produce.

Elysian can help

VAT is a complex area. Specific rules apply to certain costs, such as those related to buildings and refurbishment projects. Professional advice should always be sought. Elysian can help academies to understand how the VAT rules apply to them, including how different types of supply should be categorised. We can then advise on whether VAT registration is required or beneficial.

Where academies do need to register for VAT, we can assist not only with the VAT registration process, but also with making sure the academy is able to provide the information required on its VAT returns.

We can also address any other VAT-related issues, such as the calculation of appropriate partial exemption methods and how to deal with property and refurbishment costs.

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