Academies have a special VAT regime under s 33B of VAT Act 1994 which allows them to recover VAT which relates to their non-business activity of providing free education to their pupils funded by the Education Funding Agency. However, they also need to consider whether VAT registration may be required if their taxable business supplies exceed the VAT registration threshold.
An academy which is not VAT registered can submit a VAT 126 claim to HMRC in order to recover input VAT incurred on their non-business activities. Any VAT incurred on purchases relating to business activities must be excluded. An invoice schedule must be provided, which will include details of the supplier and their VAT number.
VAT 126 claims must cover a minimum period of at least one calendar month and are subject to a four year time limit from the date of the supply.
If an academy is VAT registered (see below) then the academy will make their claim using an electronic VAT return. Ordinarily these need to be completed on a quarterly basis, however an academy may request to submit monthly returns.
A VAT registered Academy will also pay output VAT on its VAT return in respect of any taxable business activities and will also be able to reclaim the VAT which relates to these supplies.
An academy must identify whether its income is non-business or business and if VAT registered whether the business income is subject to VAT.
The level of taxable business income must be monitored as VAT registration is compulsory when this exceeds the VAT registration threshold in the last 12 months. Academies which make some taxable supplies, but below the registration threshold, may consider seeking voluntary registration.
The following table should be treated as a general guide only. The VAT liability of income depends on a variety of factors and this table is therefore for illustrative purposes only.
|Grant Income||✔||Nothing must be supplied in return for the grant income|
|Community lettings||✔||Business activity - however, does not count towards the VAT taxable threshold. VAT exempt|
|Commercial lettings||✔||Business activity - however, does not count towards the VAT taxable threshold. VAT exempt|
|Meals sold to pupils||✔||Closely related to education*|
|Meals sold to staff||✔||Counts towards taxable threshold|
|IT Consultancy||✔||Counts towards taxable threshold|
|Recharge of teaching staff||✔||Closely related to education*|
|Recharge of non-teaching staff||✔||Supply of services, counts towards taxable threshold.|
|Commission from school photographer||✔||Income must not be treated as a donation - something is given in return for the commission e.g. access to the pupils/school facilities|
|Sale of stationary to students||✔||Closely related to education*|
|Sale of musical instruments to pupils||✔||Closely related to education*|
|School trips||✔||Non-business provided that no profit is made|
|Donations||✔||Must be voluntary with nothing given in return|
|Sale of school uniforms||✔||Counts towards taxable threshold|
|Sale of goods to parents||✔||Counts towards taxable threshold|
* An academy can treat the supply of goods and services as a non business activity provided that they are closely related to the non business provision of education. The goods and services supplied with the education must be supplied for the direct use of the pupil.
An academy can obtain zero-rating on construction services and on building materials incorporated into a new building when the building is used solely for non-business purposes. HMRC accepts solely as being 95% or more non-business use.
Certain services like those of an architect, surveyor or project manager for example are however excluded from zero-rating although this VAT can be recovered using a 126 claim
In order for an academy to secure zero-rating they must provide the contractor with a certificate confirming that they will be using the building for non-business purposes.
A copy of this certificate is available in HMRC Notice 708 Buildings and Construction, section 17.1.
The ability to reclaim input VAT will depend on how the purchases are used by the academy and whether the academy is VAT registered.
Academies must differentiate between VAT incurred on taxable, exempt and non business activities.
Input VAT incurred on purchases used to make taxable supplies can only be recovered by a VAT registered academy.
Academies completing VAT 126 claims will need to adjust their claims to take account of the proportion of overhead costs which relate to business activities, as well as excluding any costs which relate directly to business activities.