Around half of all sixth-form colleges have expressed an interest in converting to academy status, TES can reveal.
More than 40 of the 93 sixth-form colleges in England have so far lodged their interest with government officials, according to the Sixth Form Colleges’ Association (SFCA). More are expected to follow suit, in what could be the biggest structural shift in the FE sector since incorporation more than two decades ago.
But it has emerged that a VAT loophole could end up costing some colleges millions of pounds, and experts have warned that this might deter many from making the transition.
While one of the principal attractions of becoming an academy for colleges is being refunded VAT costs – an average of £335,000 a year – some institutions could end up being hit by a far higher one-off tax bill.
Clarification ‘urgently’ needed
The complications relate to buildings completed after March 2011, for which colleges have been exempt from paying VAT. Under HM Revenue and Customs rules, any sixth-form college that becomes an academy would have to pay this VAT retrospectively.
Mark Bramwell, associate director for sixth-form colleges at the Association of Colleges, said he was aware of one institution that could potentially receive a VAT bill of £2 million if it became an academy. “Now that the applications are coming in, it is becoming more urgent to have this clarified,” he said. “Colleges are getting mixed messages.”
TES understands that MPs in the All-Party Parliamentary Group for Sixth-Form Colleges plan to write to chancellor George Osborne calling for the VAT issue to be resolved.
Leaders have also expressed concerns about whether colleges’ debts would be cleared by the government if they were convert to academy status. Institutions could be hit by higher interest rates if they adopted a new structure, with some banks expected to renegotiate the terms of outstanding loans.
The growing enthusiasm for academy conversion among colleges follows last month’s announcement that all schools would be expected to become academies by 2022. “This has led to some sixth-form colleges thinking, ‘We had better get in there before the existing big chains get involved’,” Mr Bramwell said.
James Kewin, deputy chief executive of the SFCA, told TES that the different timings of area reviews across England were creating confusion and frustration for colleges looking to convert (see panel, left).
“If your area review is not until September, you can’t now apply to be an academy,” he said. “The big issue for us is that the government is saying, ‘Make the decision’, but on the other hand they can’t answer some really big questions.”
New College Pontefract is one of the sixth-form colleges that is hoping to convert. Principal Pauline Hagen said that it had already prepared an application to be considered by the West Yorkshire area review steering group.
“It is a bit clunky to have to wait for steering group endorsement, but it is not insurmountable,” she added. “We are really excited to be aligning with academies and free schools. We are grasping this opportunity with both hands.”
TES understands that Department for Education officials are thinking about how to ensure that VAT commitments are not an obstacle to strong academy proposals from colleges.
A spokesman said the DfE would “consider all applications alongside the relevant post-16 area review and local educational needs”.
‘In line with our mission’
Matthew Grant (pictured), principal of Priestley College in Warrington, is keen to pursue academy conversion. And establishing a multi-academy trust is his college’s preferred option.
“We would say the key benefit to us is that we would be facing towards the schools sector, which is more in line with our mission and vision,” he said.
However, Mr Grant does have some concerns that the conversion process could lead to increased bureaucracy and a loss of autonomy.
The college also has an outstanding loan for a building project, and it has been warned by the bank that academy conversion could lead to the interest rate being increased. “It is a concern,” Mr Grant said. “But it is not an insurmountable hurdle.”
How to become an academy
First, a sixth-form college must express an interest to the Education Funding Agency and Skills Funding Agency’s joint area review delivery unit.
It must then consult its stakeholders (including any schools it wishes to join with in a multi-academy trust) and seek the agreement of its governing body, banks and any other partners. Staff should also be informed about the impact of academy conversion, before the proposals are put to the local area review steering group.
After the conversion plans have been endorsed and included in the area review’s recommendations, they can be put forward to the regional schools commissioner, who, with the help of sixth-form college commissioner Peter Mucklow, will make the final decision.
Once permission is granted, it’s time for the sixth-form college to either set up a new academy trust or join an existing one. In order to do this, it will need to dissolve the existing college and transfer its property, liabilities and rights to the receiving trust. From then on, there’s no going back.
This is an article from the 29 April edition of TES. This week's TES magazine is available in all good newsagents. To download the digital edition, Android users can click here and iOS users can click here