VAT , FUNDING AND ACADEMIES

What is happening on VAT and other matters

Comment

Under academy status, the main funding will continue to be at the same level as the school would have received as a maintained school (ie the individual schools budget share). This would include funding to continue to purchase traded services from the authority or from other providers in the same way as at present. Additional funding would however be given to academies by the government to replace certain strategic and support services previously provided and funded by the authority. In essence, academies would also have the freedom to decide where and how to provide these services in the future.  On VAT for maintained schools (ie non-Academies) local authorities can recover input value added tax, so their costs will not rise when the VAT rate rises. Since maintained schools count as part of the local authority when spending local authority funds (section 49(5) of the School Standards and Framework Act 1998), they can recover VAT though it   is probable that the increase in the rate of VAT will not cause any significant pressure on schools’ budgets.  Initially, new academy buildings had been zero rated due to academies’ status as charities. However, this zero rating placed restrictions on the “business use” of the buildings i.e. the community use of the buildings for which a charge is made. The previous Government announced the removal of VAT constraints for current academies and those planned for the future, which enables the scope of these buildings’ use to be extended and future buildings can now be designed with community use in mind.  Academies, as independent schools (ie independent of the LA) must pay VAT, as they cannot use the local authority to reclaim VAT so have to fund the cost. However, the government provides a VAT grant to compensate for this change. The other main difference in funding are:

  • funding is provided on an academic year rather than financial year
  • the amount deducted from the authority for the support services may not be the same as provided to the academy by the government
  • redundancy and similar termination of employment costs would become the responsibility of school rather than the authority.

There are some unresolved aspects of accountabilities arising from academy charity status. Academies have exempt status meaning that they are subject to Charity law but are not regulated by the Charity Commission.

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