Right.
So an academy school teaches GCSEs and gets state funding. Under the old rules it was not making business supplies as it wasn't receiving consideration for the supply (so Sch 9 doesn't even come into it), so it couldn't register or recover VAT.
Now, with the new rules, the supply is still non business, but VAT recovery is allowed on related items (VATA94 33B) despite this. However, in my example the school has to use form VAT126 to make a reclaim, as 33B doesn't change the nature of the supply (i.e. it is still outside scope), thus no VAT registration is possible.
If it offered lessons caught by Sch 9, it would still not be able to register as only exempt supplies would be made.
So only if it offered some sort of service that brought in outside money and wasn't caught by Sch 9 would it be allowed to register (and then would only charge VAT on that one service). I'm thinking... play groups maybe?
That's correct isn't it? I've read all sorts, including Notice 09/11, but just want to be sure what I've read is what it actually says (basically, where no taxable services are made, the academy can't actually register but can still reclaim the VAT on its inputs).
This moment of paranoia has been brought to you by some course notes that say 'recover through VAT return' several times followed by 'academies are unlikely to be able to register for VAT'. D'oh.
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Replies (15)
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Yes
I mostly agree. S.33B has its foundations in S.33 available to local authorities so that "VAT doesn't fall as a cost to the domestic rate [read council tax] payer". Under VATA 1994 all local authorities are required to register for VAT, but in practice HMRC don't require small parish councils and the like to actually register, and it's they who have traditionally used VAT 126.
I'm not aware of any "breaks" for academies other than S.33B though, so "normal" registration rules apply. No taxable supplies means no registration, which means you can only claim via VAT 126 (detailing each and every supply received on which a VAT repayment is sought, I believe).
However, there may be taxable supplies:
canteen - the liability of pupil meals (and those for supervising staff) where the school supplies them as principal follows the main supply and is "non-business", but non-pupil meals (non-supervising staff, visitors, etc.) will be standard-rated if hot or taken in the canteen, or otherwise zero-rated.Use of sporting facilities for "non-clubs" or where the 24 hour or 10 lets conditions aren't satisfied.tuck shop - pretty much all standard-rated.uniform sales - zero rated.school bags - standard-rated.
If all else fails and you want to register, sell school bags!
But, if you do register, you will need to first apportion your inputs between business and non-business to get to the VAT recoverable under S.33B, and then carry out a partial exemption calculation. There may well be significant exempt "use of land" supplies
Many thanks
Glad I was on the right lines, and I'll bear in mind the latter half of your reply (I think we could easily create a SR/ZR supply if we so wanted. I saw we, I mean the client of course!).
Many thanks.
i missed your original play groups suggestion by the way
I think play groups would still be exempt under Item 9 of Group 7 to Schedule 9. I'd imagine an Academy would satisfy the definition of "public body" in note 5(c) and a play group would satisfy the definition of "welfare services" in note 6(b).
Memo
There's a guidance memo from HMRC to CIPFA on the use of VAT 126 for academies. Have you seen this? It's available on the CIPFA TIS Online website. If you don't have access to this I can email you a copy.
Cheers
Typical
I think play groups would still be exempt under Item 9 of Group 7 to Schedule 9. I'd imagine an Academy would satisfy the definition of "public body" in note 5(c) and a play group would satisfy the definition of "welfare services" in note 6(b).
Poor example on my part, I didn't think it through. Thanks.
Neileg, do you mean the memo that starts 'Dear Maria'? (http://www.tisonline.net/contentuploads/111114%20Academies%20and%20VAT%2...)
Can I ask
Say an academy also, as Steve says, provides food. The academy decides not to register as its hot food supplies are minimal.
Would I be correct in thinking that, via form VAT126, only input tax relating to non-business activities can be recovered (and in full, no need to worry about the usual de-minimis and the rate the supply would be at were it a business activity)?
So you have the 'odd' situation where making a non-business supply of food to children allows the related input VAT to be recovered, whereas the VAT suffered on providing a meal to an outsider (as a business activity which would normally be SR) can't be recovered? So registering would have the benefit of allowing the reclaim of all VAT (subject to de-minimis rules) whereas not registering would only allow the recovery of the non-business VAT.
If I work it round my head enough it will start to sink in I think :)
Yes, but...
... the input VAT directly attributable to meals would be minimal, although input VAT on overheads (particularly power) would need to be apportioned.
If you register though you have a partial exemption calculation to do in any exempt supplies of using the school buildings or other education/training provided. You could opt to tax the buildings, but that increases the cost to the user who might choose to go elsewhere.
Each academy will need to be considered on a case by case basis, I think, to establish whether registration will be worthwhile and just how to do the apportionment calculations. You'd probably want to agree a special partial exemption method with HMRC, as well as any business/non-business apportionment.
Just one of the many wonders of "joined-up" government!
Thanks
... the input VAT directly attributable to meals would be minimal, although input VAT on overheads (particularly power) would need to be apportioned.
I agree, I was just being curious and not really thinking of the amounts, just the principles. As you say, swings and roundabouts, but if there was significant business input VAT, it may be worth considering registering and trying to make the recoverable percentage as high as possible.
I think I understand now :)
Not always minimal
If an external provider supplies the catering services, a common occurance, then the supply to the academy will be standard rated. The onward supply to the pupils will be non-business since it is in association with the supply of education. Some academies and caterers have got this wrong and the supply has been from the caterer to the pupil which makes it standard rated since the supplier of the food is not the supplier of the education.
Cheers
Agreed
Yes, I'd overlooked the external provision possibility Neil, which would then make the inputs significant, probably swinging things towards registration.
Following from Neileg
So in that example, VAT charged on supplying catering services. Onward supply to pupils = non business, so use VAT 126 to reclaim.
BUT, what if they also sell some food to passer bys? Does that negate the entire claim (as part of the input tax relates to a business activity)? I feel I read somewhere it does... I'll track down the guilty paragraph.
Can't see why
S.33B(6) effectively says you apportion the input VAT between business and non-business.
Ahhh
S.33B(6) effectively says you apportion the input VAT between business and non-business.
Fair enough. The paragraph that made me originally think there was a problem I had not read correctly now I see it with fresh eyes. It talks of putting items in 'the pot' unless they are entirely and only attributable to one type of activity (non-bus, taxable or exempt). However it goes on to say, in so many words, that the pot is then split in a reasonable way.
Thank you for putting me right.
Just to add
The way I read S.33B(6), if you've got a particular item of which part is wholly attributable to business and part is wholly attributable to non-business, I think you'd make the allocation directly (ie no pot).
With something like school meals provided by an external organisation, they usually charge an amount per meal. Provided you know how many non-pupil (an non-supervising staff) meals have been served, you know your business and non-business elephants and are able to make a specific apportionment of the input VAT into it's business and non-business elements. That's my view at least.