Managing VAT
• Taxable activities – these are the sales on which schools must charge VAT if they are VAT registered (unless they happen to be zero-rated!) or which count towards their VAT registration threshold if they aren’t registered. Some examples here would be charges for staff and visitor meals, school photos and some charges to pupils (see below). If the school is not registered for VAT it must monitor the turnover on taxable sales (including zero-rated sales). If the total turnover in any twelve month period exceeds the VAT registration threshold (currently £81,000) they need to register for VAT and start charging VAT on standard rated sales. Then, the VAT paid through such sales can be recovered in the VAT return, together with the VAT incurred on non- business activities.
Academy or free school activities Pupil charges - HMRC accepts that most fees and charges made to pupils are non-business if made by the school at or below cost. This means that breakfast clubs, after school clubs, school lunches, food from tuck shops and vending machines, sales of stationery, calculators, photocopying and charges for pupil trips, outings and holidays are all considered non-business. The special local authority scheme for musical instruments also extends to academies. However HMRC does not accept the following attract this treatment:
• Sales to staff and visitors - These attract their ‘normal’ VAT treatment, so for example sales of lunches to staff and visitors are VAT standard rated
• Sales of pupil uniforms and sports clothes - The sale of bought in children’s sized clothes (broadly under age 14 sizes) attracts zero- rating but adult sizes are standard rated. However, the move to academy status presents an opportunity for selling donated clothes (and indeed any other donated goods such as sports equipment). The sale by a charity of any type of goods is zero-rated if the goods are donated to the charity for sale. So asking parents to donate unwanted items of uniform and sports equipment is a VAT efficient way to raise funds
• School photos - Most schools converting to academy status will be familiar with the school photo issue. The issue is the same for an academy. The VAT treatment depends on who is supplying the photo – the school or the photographer. If the school sells the photo the school’s income is VAT standard rated. If the photographer sells the photos and the school receives a commission, the commission is VAT standard rated income for the school.
Letting out premises - The VAT rules here are particularly complicated. The default position is that letting fees are VAT exempt although a school can choose to make it VAT standard rated by ‘opting to tax’. Different rules apply to letting out sports premises where schools then have to consider the status of the hirer. Lets of some other special types of premises are standard rated including parking facilities, storage, letting a hall with catering for a party and letting out a recording studio. As always with VAT there are further exceptions and complications.
Catering contractors - If school meals are made by a catering contractor the VAT position depends on who is making the supply of catering – if it is the academy (or another academy or local authority school) then supplies to pupils at or below cost can be treated as non-business, but if it is a commercial contractor then the contractor may have to charge standard rated VAT. Fee paying education and/or child care - Supplies of fee paying education and or care
services by an academy will normally be VAT exempt for example youth clubs, evening classes, holiday courses and adult education.
VAT advantages of being an academy or free school
Academy and free school status does offer a few VAT advantages that are not available to local authority schools. For example:
• Sales of donated goods attract a special zero-rating only applicable to sales by charities (and persons who will donate all proceeds to a charity)so for example to sales of donated uniforms and sports clothing and equipment.
• There is a special VAT exemption for supplies at charity fundraising events. To qualify the primary purpose of the event must be fundraising; the event must be promoted as such and there must not be more than 15 events of the same kind at the same location in the charity’s financial year, though small scale events that generate income of under £1,000 per week can be ignored in considering the 15 limit. Fundraising events where accommodation is provided (for example multi-day challenge events) are excluded from the exemption.
• Supplies of advertising to a charity are zero- rated, for example supplies in newspapers, magazines and broadcast media. This will not normally matter for an academy (as for example VAT on adverts for teaching staff would be reclaimable) however, it means irrecoverable VAT can be avoided when the advertising is for a VAT exempt activity such as a fundraising event or holiday club.
Local authority schools are to a large extent shielded from the uncertainties of VAT. Most local authorities provide comprehensive guidance and have expert staff available in the case of queries and complete the VAT returns themselves. However, academies and free schools are on their own and it is their responsibility to make sure they get it right and submit accurate and timely VAT claims. Welcome to the world of VAT!
Helen Elliott is a partner at Sayer Vincent, auditors and advisors to charities including academies and free schools. Helen is one of the authors of a free guide VAT for academies and free schools available from the Sayer Vincent website –
www.sayervincent.co.uk
April 2014
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