Funding made available to address college VAT loophole for academy conversion

12th May 2016 at 12:58
VAT loophole colleges academies conversion
The government will make funding available from the area review restructuring facility to reimburse those colleges that face a VAT charge due to a change of ownership, the Education Funding Agency has announced

Government funding will be made available to address a VAT loophole which could have seen colleges facing multi-million-pound tax bills following academy conversion or a merger.

Sixth-form colleges currently pay an average of £317,964 per year in VAT, according to the Sixth Form Colleges’ Association (SFCA), but by becoming an academy, sixth-form colleges would have their VAT costs refunded.

However, TES revealed last month that under HMRC rules, the process of academisation would also trigger the repayment of VAT relief that colleges have received on buildings completed after March 2011.

Now the Education Funding Agency (EFA) has stepped in to tackle the problem. An EFA update published today said: “The government will make funding available from the restructuring facility to reimburse those colleges that face a VAT charge due to a change of ownership of a premise, which was previously zero-rated. This will be available where the premise will continue to be used for educational purposes following a merger or a successful application to become an academy, following the area review process.” New guidance will give further details on how colleges can reclaim VAT.

James Kewin, deputy chief executive of the Sixth Form Colleges’ Association, said: “SFCA is pleased that the government has responded to our concerns and those of college leaders and MPs. This decision means that sixth-form colleges will not be hit with a retrospective VAT charge on buildings if they decide to academise, or merge with another institution. We look forward to seeing the updated guidance on academy status and area reviews that will contain further details on the VAT reclaim.”

Julian Gravatt, assistant chief executive of the Association of Colleges, said: “This is good news for colleges of all types that are undertaking mergers or sixth-form colleges considering converting to academy status. The government is right to repay the VAT it would otherwise collect. AoC suggested it in its budget submission and it's helpful the government has acted quickly.”

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