VAT advice for Academy Trusts

An important part of the effective management and audit of an Academy Trust’s finances includes VAT.

We recognise this and the need our clients have in this regard; that is the ability to access a professional service, which offers clear advice and practical solutions to issues.

We have built an experienced charities and education sector specialist team at Kreston Reeves that we as accountants and our clients can call upon.

Our VAT team advise on any issue an Academy Trust has, whether related to conversion and deliberations on what is required to be VAT compliant, through to substantial development projects.

As an overview, an Academy Trust, like a local authority, has the special ability to reclaim most of the VAT it incurs. This is in respect of its ‘non-business’ education. However, most Academy Trusts do make charges for services or use of facilities which tend to be ‘business’ activities. This not only leads to a decision if registration is required and VAT must be charged but also to a likely restriction of some overhead VAT. Our assistance can include the following:

Is VAT registration required, or is it beneficial to register voluntarily, or should we just file Form VAT126 claims to HMRC?

• Registration will mean VAT is charged on taxable income, but it may improve VAT recovery, where in contrast the 126 form does not allow for ‘business’ related recovery. What is best?
• Registration gives more certainty in our experience in terms of repayment timing. HMRC can sit on repayments under the 126 option.

What is the treatment of our income, given that we do make charges for use of sports/hall facilities, clubs and school equipment?

• Is it outside the scope of VAT, taxable or exempt, and what does it mean for our VAT recovery position?

How do we calculate a restriction of VAT on costs relating to ‘business’ activities?

• There may well be an incorrect assumption that all VAT can be reclaimed, and as HMRC have the ability to visit and look back four years a sizeable exposure could exist unless a fair method of apportionment is undertaken.

Can we obtain building works at 0% VAT, and if we do pay VAT can we reclaim it all?

• New building works, additions and renovations need to be considered carefully. In some cases reliefs may apply. In others a substantial amount of VAT can be incurred and some of this may well be irrecoverable due to ‘business’ use.
• There is a 95% non-business use test when achieving zero-rating for whole/parts of new charitable use buildings and annexes. The use must be monitored annually for 10 years to avoid any clawback of VAT on the value of construction where non-business falls beneath the 95% test.

How do we treat charges for working with other schools and academies?

• Some charges to own pupils are not regarded as ‘business’ income as they may be closely related to the education provided, whereas charges/recharges to other entities for costs/services can be and may be taxable.
• Multi-academy Trusts give rise to further issues in sharing of services/goods or a requirement to register for VAT.

Can you help with compliance, our VAT returns and importantly training of our finance team?

• From time to time we run seminars and courses. We also can provide one-to-one tailored training which is the best solution to help you manage VAT.