Academies in the UK are in a unique position in relation to VAT and this can often cause issues for finance managers as they try to navigate the challenges. As charitable organisations, academies are entitled to zero-rating for some purchases, but they are required to pay VAT on most goods and services bought from VAT registered businesses. However, academies fall within a special VAT regime which allows them to reclaim VAT on grant funded and other non-business activities, which is different from most charities.
Yet despite the special VAT status, academies are still governed by normal VAT rules meaning the issues can be very confusing and lead to academies missing out on opportunities to reclaim, or not pay, VAT.
Issues we regularly encounter with clients include VAT liability on costs associated with non-business income and whether to use the VAT refund scheme or to register for VAT and the linked issues this brings to academies.
Our academies experts have put together a factsheet on these issues which is a helpful guide for all academies and MATs.