Academy trusts face a unique financial landscape, and navigating the complex rules and regulations around VAT can be a challenge.
To avoid any costly mistakes, it is important, therefore, for academy trusts to understand the complexities of VAT and how to claim relief properly.
With that in mind, a recent enquiry by HM Revenue and Customs (HMRC) to a trust that we have worked on highlighted the need for academy trusts to be wary of accidental under-declarations and the fact that these can potentially lead to penalties.
Academy trust’s VAT return under scrutiny
The case concerned an academy trust that was subject to an HMRC enquiry into its Spring 2022 VAT return, triggered by significant differences from previous returns.
The differences were for valid operational reasons, but the enquiry revealed that output tax had not been declared on payments received from families for laptops purchased by the trust and sold on for student use.
The HMRC enquiry resulted in a backdated claim for output tax. This was money the trust had to find from its budget - and unexpectedly so.
This example illustrates the importance of trusts taking care when submitting VAT claims, ensuring that VAT is reclaimed only on valid expenditure and that output tax is declared when trusts are VAT-registered.
Trusts need to be aware that under-declarations of VAT on returns can result in assessment for the tax due, interest charges and potential penalties.
Why VAT is complicated for MATs
When schools were under local authority control they were reimbursed by the local authority for the VAT costs they incurred.
Since April 2011, academy trusts have been required to apply for VAT refunds to HMRC themselves, and are required to register for VAT when VAT taxable turnover reaches a certain threshold.
The expertise in the local authorities has not necessarily transferred to the trusts, however, leaving trusts with the choice between hiring a dedicated finance expert or seeking external support.
VAT is a complicated area in its own right, and it can be particularly tricky for academy trusts. While they are largely subjected to the same VAT rules and regulations as any other business, their charitable status means they are eligible for VAT relief for certain items and services.
VAT relief can be complicated because it is available on a range of items, including educational supplies and books. However, there are specific rules and exemptions around what qualifies, and trusts need to ensure that they are complying with these rules.
Items can also be eligible for partial VAT relief, so it is a good idea to seek advice from an expert to help you understand exactly what is and isn’t included.
Avoiding HMRC penalties
Trusts should revisit their VAT treatment regularly.
This is especially true when there has been a change in income or activities subject to VAT, such as additional schools joining a multi-academy trust or a significant change in activities due to the removal of restrictions imposed during Covid.
Trusts reclaiming VAT via the online service (VAT126) may also benefit from a review of their activities against the VAT registration criteria.
It’s undoubtedly a complex area but it is clear that HMRC is more than willing to look into and make the necessary enquiries should something not seem right.
Rachel Barrett is head of academies at accounting firm Duncan & Toplis
