VAT status update for Academies

Following the announcement in November that Academies will receive special VAT status similar to local authorities a number of issues have arisen.

Buzzacott has been in contact with HM Treasury and from our discussion can relate the following points:

The legislation will be confirmed in the Budget in March and the subsequent Finance Bill which should gain Royal Ascent (become law) in June or July with effect from 1st April 2011.

The Treasury believes that Academies will have a legal right to claim VAT from 1st April but any claims for the period up till 31st August 2011 would have to be repaid to Young People’s Learning Agency (YPLA) as the funding for Academies was based on the Academy not being able to recover VAT. This prevents the Academy getting the VAT element funded twice in that period.

The VAT recovery will only be for the non business activities of the Academy. Any Academy that has business activities will have to deal with the VAT on those activities in the normal way. Thus any VAT incurred on exempt business activities will remain irrecoverable (subject to any de minimis limits). Assuming the Academy is VAT registered then it will be able to recover VAT on its business taxable activities. Academies will be subject to the normal partial exemption rules and de minimis limits.

HM Treasury believes that the YPLA and or the Department for Education (DfE) will be issuing a Question & Answer information sheet.

Clearly there are still some unresolved issues such as:

• What if the irrecoverable VAT grant does not cover the VAT incurred in the year – how will the Academy deal with this – an application to YPLA or obtain a VAT refund?

• What about VAT on capital projects?

At present the best advice would be to ensure that from the 1st April 2011, that invoices are entered on to accounting systems in such a way that there is a clear audit trail in case the Academy has to make a claim under the new legislation.

If you have any questions please contact Andrew Norman, VAT Manager in Buzzacott’s Charity and Not-for-Profit team on +44 (020 7556 1366 or normana@buzzacott.co.uk.

These issues will also be discussed at our Academy seminar on 4th April 2011 delivered jointly with Stone King.