Skip to main content

VAT loophole would dwarf the benefits of academisation, MPs warn

More than 50 MPs have warned the chancellor that repayments of VAT relief could cost colleges "millions of pounds"

News article image

More than 50 MPs have warned the chancellor that repayments of VAT relief could cost colleges "millions of pounds"

A cross-party group of 52 MPs has written to chancellor George Osborne to warn him that the repayment of VAT relief on college buildings would in some cases outweigh the financial benefits of allowing sixth-form colleges to become 16-19 academies.

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, 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.

The letter, which has been signed by Kelvin Hopkins, chair of the All Party Parliamentary Group (APPG) for Sixth Form Colleges, and Neil Carmichael, chair of the Education Select Committee, says that this appears to be "the result of an unforeseen technicality”, and urges Mr Osborne to clarify the situation “to enable sixth-form colleges to make an informed choice about their future”.

Commenting on the letter, Mr Hopkins said: “For some sixth-form colleges, the cost of having to repay the VAT relief received on science blocks, sports halls and other buildings would run into millions of pounds and would dwarf the financial benefits of having their annual VAT costs refunded. We do not believe the government wants sixth-form colleges to pay more VAT but the chancellor needs to clarify the situation as soon as possible”.

Clarification needed

In November 2015 Mr Osborne announced that sixth-form colleges would be allowed to become academies for the first time. Last week, the SFCA reported that around half of all sixth-form colleges had expressed an interest in converting to academy status, despite leaders warning that it might lead to the fragmentation of the sector.

James Kewin, deputy chief executive of the SFCA, said: “It would make little sense if a policy introduced to reduce the VAT burden on sixth-form colleges actually saw them pay more VAT. We are pleased that so many MPs have urged the chancellor to address this issue, and a swift resolution is essential if sixth-form colleges are to make sensible, well-informed decisions about their future." 

Want to keep up with the latest education news and opinion? Follow TES FE News on Twitter and like TES FE News on Facebook

Log in or register for FREE to continue reading.

It only takes a moment and you'll get access to more news, plus courses, jobs and teaching resources tailored to you