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Corporation & Employment Tax Issues

Ensure you understand the limits of exemptions within tax legislation for academies

Taxation issues for academies

Academies face several tax issues including corporation and employment tax issues. Most academy schools will be constituted as a company limited by guarantee which have charitable objects in their articles. For tax purposes they are charities, although this does not mean that they will never pay tax!

There are significant exemptions within the tax legislation but these are not automatic blanket exemptions. It is important that academies understand the limits of the exemptions and how they must organise their affairs to ensure they benefit.

Registration with HMRC

Once formed the academy needs to register with HMRC. This includes completion of a registration form (ChA1) but also the charity needs to ensure that all its managers are “fit and proper persons”.

Basic tax exemption

There are a number of basic tax exemptions available to academies under the charity tax legislation: –

  • Trading income where the trade is exercised in the course of carrying out the primary purpose charitable objectives i.e. the provision of education;
  • Trading income where the trade is mainly carried out by beneficiaries;
  • Property income e.g. rents;
  • Savings and investment income e.g. interest, dividends;
  • Chargeable gains e.g. from the disposal of investments or property; and
  • Fundraising e.g. donations, Gift Aid, events such as a fete, ball or concert. Income from events income admission prices, programme sales and refreshments.
  • There is one major condition to these exemptions which are that the income should be applied for charitable purposes. Charitable exemptions can be reduced on a pound for pound basis where income is spent on non-charitable purposes – this includes capital expenditure.

Types of taxable income

There are a few sources of income which can create taxable income and are deemed to fall outside these exemptions. These include: sponsorship of events; merchandising; running of closed courses; lettings and hire of facilities for conferences; and lettings and hire of sports facilities to local clubs, community groups or individual members of the local community.

Where the amount of income from these non-exempt sources exceeds £50,000 in any accounting period then the academy will be required to calculate the taxable profit or loss from those combined sources and submit a Corporation Tax return within 12 months of the period end. If any tax is due, then it must be paid within 9 months and 1 day of the period end.

Academies who believe their non-primary purpose income from these types of activities will exceed £50,000 per annum on a regular basis should consider undertaking them via a trading subsidiary. This is a specialised area and academies should always seek appropriate taxation, accounting and legal advice before forming a trading subsidiary.

Employment taxes

Academies are just like any other business when it comes to payroll taxes. In common with many employers, key issues for academies will be ensuring that:

  • Dispensations are in place for the payment of expenses such as travel and subsistence and professional subscriptions in order to minimise the administration burden on completion of forms P11D;
  • Those responsible for payroll are aware of the distinction between employment and self-employment, what the key features of a genuine self-employment engagement are and the risks of non-compliance;
  • Accounting systems are set up to identify employee benefits to enable completion of forms P11D where appropriate; and
  • The payroll system is compliant with the requirement of Real Time Information (“RTI”).

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