Academies and free schools will inevitably have to pay VAT on some costs involved in their educational activities so they will want to reclaim the VAT involved in a way that maximises recovery whilst minimising paperwork and administration.
Efficient VAT recovery is essential, to avoid a 20 per cent dent in cash flow or, even worse, a 20 per cent dent in their budget.
Once turnover reaches £81,000 (financial year 2014-15 figures), the academy or free school has no choice about VAT registration, as it then becomes compulsory. However, the majority of academies or free schools will choose either to register voluntarily with HM Revenue & Customs (HMRC) or use a system known as the section 33B, or s33B, refund scheme, which enables them to reclaim their non-business VAT costs, even though their own VAT-liable supplies may be minimal.
Those that choose not to be VAT-registered can reclaim input VAT (VAT paid out) where it relates specifically to the provision of non‐business education, using HM Revenue & Customs’ form VAT126. However, they cannot reclaim input VAT relating to business activities.
As “business” has a very wide meaning for VAT purposes, academies and free schools will need to be very careful in deciding what their business and non-business activities are.
Each option has its advantages and disadvantages, both in financial and administrative terms, and each organisation will need to carefully consider which will be the most appropriate approach.
Haslers has a particular specialism in VAT and our experts will use their knowledge and experience to assist academies and free school in deciding the best way forward, then help implement the chosen approach.
We can carry out VAT accounting on your behalf or give you the tools you need for your own VAT reporting, providing ongoing assistance and advice as queries or issues arise. We can also advise on VAT issues arising from specific projects or transactions, to maximise tax efficiency and avoid potential pitfalls.
To find out more about Haslers’ Essex-based accountancy and tax services for academies, free schools and independent schools, please contact us.