Source · Select Committees · Education Committee
Recommendation 59
59
Rejected
FE and sixth form colleges face an unjustifiable VAT burden on expenditure.
Recommendation
Whilst academies and schools with sixth forms do not have to pay VAT, FE colleges and standalone sixth form colleges are not eligible for refunds in the VAT they incur on their expenditure. As colleges were reclassified as public bodies in 2022, this arrangement is unjustifiable and FE colleges and sixth form colleges should now benefit from a VAT exemption, which would align them with other post-16 education providers. (Conclusion, Paragraph 219)
Government Response Summary
The government rejects the recommendation for VAT exemption for FE colleges, explaining that while education services are exempt, many public bodies cannot recover VAT on their expenditure, and any changes would need to be considered within broader public finances.
Government Response
Rejected
HM Government
Rejected
NOT TAKEN FORWARD Government recognises that VAT is of interest to the FE sector, and particularly so since the reclassification of further education colleges into the public sector. Education services supplied by an “eligible body” are exempt from VAT. For VAT purposes, an “eligible body” broadly refers to most regulated, publicly funded, or not-for-profit education providers. This means no VAT is charged on supplies of education made by further education colleges, nor are further education colleges able to recover the VAT they have incurred on their expenditure. Many public bodies cannot recover the VAT they incur. The government keeps all taxes under review, and any proposals to change the tax system would need to be considered in the context of the broader public finances.