Source · Select Committees · Public Accounts Committee
Recommendation 3
3
It is clearly iniquitous that sixth-form colleges have to pay VAT while post-16 academies and...
Conclusion
It is clearly iniquitous that sixth-form colleges have to pay VAT while post-16 academies and schools with sixth forms do not. As part of the area reviews of post- 16 education and training provision, sixth-form colleges were given the option of becoming academies and, by 2018/19, 24 sixth-form colleges had converted. There is a financial incentive for colleges to convert because colleges have to pay VAT while academies (and other schools) do not. The Sixth Form Colleges Association estimates that the requirement to pay VAT means the average sixth-form college diverts around 4% of its funding away from frontline provision. This would equate to around £20 million per year across the remaining sixth-form colleges. The Department believes that, despite regular discussions between the two departments, the issue of inconsistent VAT treatment is not a priority for HM Treasury. Recommendation: The Department should work with HM Treasury to assess the merits of making the rules on VAT consistent for schools and colleges. 6 Managing colleges’ financial sustainability
Government Response
Acknowledged
HM Government
Acknowledged
3.1 The government agrees with the Committee’s recommendation. Target implementation date: August 2021 3.2 State and academy education providers are typically engaged in ‘non-business’ activity as there is no charge for the education provided – this means there is no taxable supply made and value added tax (VAT) is not chargeable. Most of these said providers are covered by the Education Act 2011. 3.3 The meaning of ‘business’ is concerned with making supplies to other persons for any form of payment or consideration. Educational suppliers who engage in the provision of education (for example, higher or further education) for a charge are deemed to be ‘in business’ for VAT purposes - the sales of goods and services are taxed in the normal way. Education providers must register for VAT, if the taxable supplies go beyond the VAT threshold, in a similar manner as other businesses. 3.4 The department’s Tax and Expenses Team will engage with its Customer Relationship Manager at Her Majesty’s Revenue and Customs (HMRC) to explore the potential routes and efficacy of taking forward the Committee’s recommendation. The department will also engage HMRC/HM Treasury (HMT) to gauge ministers’ appetite for changing or implementing legislation to level-up across the education provider base.