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News - 26 January 2011

VAT 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.
An announcement from the Government last November concerning VAT and Academy Schools has bought to light several interesting points, says Tonmoy Kumar(TK), Manager of the Accounts Department of ABDS.

It is understood from the Treasury 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.
Assuming the Academy is VAT registered then it will be able to recover VAT on its business taxable activities. Thus any VAT incurred on exempt business activities will remain irrecoverable.
 

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. 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. (See below)
 

However, several points arise:
• 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?

My(TK) recommendations are that from the 1st April 2011, that Academies should enter invoices on to accounting systems in such a way that there is a clear audit trail in case they have to make a claim under the new legislation.
 

De Minimis: Article 173(2)(e) of the principal VAT Directive (2006/112/EC) (formerly Article 17(5)(e) of the Sixth Directive) permits member states to allow businesses to deduct the element of their input tax that would otherwise not be deductible so long as it is insignificant. It is up to individual member States to define what is insignificant. (see HMRC)


If you need any help and advice for the implications and variations of VAT don’t hesitate, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar to discuss how ABDS can help.

ABDS Chartered Certified Accountants of Southampton.
Tel: 023 8083 6900  E-mail: abds@netaccountants.net
 

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