Education update: Academies and VAT registration

Published: Wednesday 17 April 2013

Previously most State Schools came under Local Authority control and the VAT obligations were dealt with by Local Authority. Academy Schools are outside Local Authority control and they must now deal with their own financial affairs including accounting for VAT. The Finance Bill 2011 resulted in the inclusion of section 33B into the VAT Act 1994 which allows academies to reclaim VAT incurred in certain situations.

It is for each academy to review their income streams to consider whether it is to their financial advantage to register for VAT. This does not mean that if the academy is not VAT registered it cannot claim any of its VAT back on expenses incurred as an academy can opt to reclaim VAT through the Form VAT 126 refund mechanism.

It is important that each academy reviews the taxable supplies it makes. If taxable supplies, including zero rated sales and income, exceed the VAT registration limit (currently £73,000 per annum), it must register for VAT. If the taxable supplies are under the current limit of £73,000, the academy has a choice of either voluntarily registering for VAT, or remaining unregistered. The decision as to VAT registration has be made based upon the circumstances for each academy.

The decision of whether or not to register should be taken by each academy by reference to its own circumstances. A broad brush approach of “every academy should be registered for VAT” is not appropriate. Each must be separately reviewed so that the benefits or drawbacks of VAT registration can be independently assessed and a number of factors must be taken into account.

If an academy has registered for VAT it must account for VAT on its business activity sales, where appropriate, and abide by the timescales and penalty regime of VAT. Partial exemption rules will apply if the academy makes exempt supplies, meaning that some VAT on expenses may or may not be reclaimable depending on the circumstances.

If your academy is not VAT registered you will be able to recover the vast majority of VAT incurred, but you will not be able to recover the VAT incurred on ‘business activities’, some of which may be reclaimable had you registered for VAT.

If you would like to discuss the VAT issues of you academy, please contact our VAT specialist Julian Millinchamp. We are happy to review your income streams and individual circumstances to help you decide on the best option.