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