Recommendation 3

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