Advice kindly provided by Clive Owen and Co LLP,
Many Academies are expanding their activities beyond the provision of education. These activities are usually considered to be business activities and their VAT treatment is sometimes confusing.
On top of this, the recovery of VAT on related costs is not always possible because of the partial exemption rules.
Below is a summary of a few types of business income for Academies:
• Property Rental: Hiring of premises or parts of the premises is usually exempt from VAT. Therefore, the hire of the school hall to a local youth club will not be subject to VAT. There are some exceptions to this though and one is the hiring of sports facilities to persons other than individuals and informal groups (which are exempt from VAT) where VAT may be chargeable.The VAT treatment can also depend on who does the hiring i.e. the Academy or a subsidiary company.
• Provision of Staff: The provision of staff in a teaching capacity to another school or Academy might either be exempt from VAT or, by concession non-business. However, where that member of staff does not directly teach the students, the supply will be standard rated.
• Provision of Meals to Staff, Contractors etc: The provision of meals to persons other than students
is a taxable supply, while the provision of meals to students is usually a nonbusiness supply. The provision of free meals to staff is not a supply for VAT purposes.
• Commissions: Commission received from suppliers such as school photographers, uniform suppliers is a taxable supply.
• Sale of School Uniforms: The sale of school uniforms by the Academy will either be zero rated or standard rated depending on the size.
• For those Academies that are not registered for VAT, the value of the taxable supplies made needs to be monitored to establish whether the VAT registration threshold has been breached so that registration is mandatory.
VAT Registration or S126 Claim?
If an Academy is not registered for VAT and not required to be registered, the only VAT that can be claimed (through the VAT126 form) is that which relates to the non-business activities. Where the VAT relates to both business and non-business supplies, it will only be reclaimable to the extent of the non-business usage.
If an Academy is registered for VAT, its recovery position will depend on whether it makes some exempt sales. VAT relating to making taxable sales will always be recoverable. But VAT relating to making exempt sales will not be recoverable unless it does not exceed £625 per month and less than 50% of the total VAT relating to business supplies.
Where an Academy is incurring significant amounts of VAT relating to its business and non-business activities (e.g. on construction works), VAT registration usually gives the better recovery outcome though it does also mean VAT has to be paid on any standard rated sales made.