Finance
ON FUNDRAISED INCOME PART ONE: LETTINGS
VAT
School lettings represent a valuable source of additional income, so we asked tax expert Rupert Moyle to explain where academies stand when recovering VAT
T
he usual rule for businesses recovering VAT from HMRC – on expenditure where they make a charge for what they
provide – is to allow recovery to the extent it relates to taxable ‘business’ activities, not where it relates to ‘non-business’ (or exempt) activities.
from a special provision that allows them to reclaim VAT that’s related to ‘non-business’ funded education. This provision puts them on a authority schools. Although this special rule usually
cost to academies, recovery is rarely entire. This is because the rule does not apply to any activities that are considered to be ‘business’. Looking at an academy’s income,
aside from large grant allocations, academies do make charges to third parties. These could include a Headteacher’s charge to other schools for management assistance; items not essential for use in the classroom; and letting premises and sports facilities. To manage VAT appropriately,
be to understand the distinction between business and non-business income. You should then establish whether business income is taxable or VAT exempt.
VAT relating to business activities can be claimed. This includes a proportion of ‘overhead’ VAT, as properties and running costs will, in part, be used to undertake and manage those activities. If a VAT registration is obligatory
(or an academy chooses to register voluntarily), a process of establishing business and non-business-related VAT is undertaken in a similar But there is also an additional step, which is to calculate the extent to which the ‘business’ VAT relates to taxable and exempt activities. This may result in the need to restrict the exempt element, but it will allow for
‘One area that often causes confusion is the letting of space. The key is to consider
exactly what is being supplied and the purpose of the hire’
the taxable element to be recovered it may even allow for all VAT to be recovered if the exempt element falls under a certain minimal amount.
Lettings agreements In my experience, one of the most challenging aspects for School VAT is often the decision on the treatment of certain areas of miscellaneous income. There are many, which cannot be detailed here, but one key area that often causes confusion is lettings. The decision process in the case of
the letting of space is not dissimilar to those made by commercial entities hiring rooms. The key is to consider exactly what is being supplied and the purpose of the hire. Is the space supplied without any
additional services or goods, or is a hall, for instance, supplied just with the usual equipment, such as chairs and lighting? If so, this income will be exempt from VAT. If there are other elements
included with the hire, consider whether the hire is the predominant aim for the customer, and if the
FundEd SPRING 2018 53
IMAGES: DOSECREATIVE; JACK HOLLINGSWORTH/
THINKSTOCK.CO.UK
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