Navigating the complexity of VAT in Education
Our specialists will help you discover how to streamline your VAT processes with ease.
How did we get here?
In the early 2000s, schools broke free from local authority shackles, becoming single or multi-academy trusts to chart their own course. But, VAT threw a wrench in the works. Most funds went to salaries, leaving little for essentials. In April 2011, legislative changes (Section 33B of the VAT Act 1984) saved the day, enabling trusts to reclaim VAT under Section 126.
Watch our webinar today to understand how these changes impact VAT in education and learn how to simplify these processes for your school.
Understanding your VAT situation
Navigating VAT Reclaim and Partial Exemption for Educational Institutions
To figure out your VAT situation, you need to know about Section 126 and Partial Exemption. If your school’s taxable business activity exceeds £85,000 a year, you must register for VAT. This also puts you in a potentially exempt situation. If your taxable activity is below £85,000, you can claim back input VAT under Section 126 by submitting a spreadsheet of invoice details online.
Understanding VAT reclaims and partial exemption is essential for efficient financial management in educational institutions.
How to claim under Section 126
VAT Reclaim (Section 126)
Schools with taxable turnover below £85,000 can reclaim input VAT on supplies and services related to educational or non-business activities. Simply keep invoices, allocate them to educational activities, and use the Section 126 Online Claims Portal for online submission. While generally straightforward, gathering all required information may pose some challenges if information is not correctly recorded.
Ensure income is categorised
Partial
Exemption
Unlike standard businesses, partial exemption complicates VAT processes for educational institutions. It requires meticulous recording and proof of recoverability for partially exempt VAT. Categorising income, such as grants and premiums, is crucial—some streams are non-business, while others, like nursery receipts and holiday clubs, fall under exempt activity.
Understand different requirements
VAT Considerations
School dinners and sales of items like stationery and uniforms have varying VAT considerations. Standard-rated supplies like stationery require VAT if partially exempt, while school uniform VAT depends on the age group. Determining VAT treatment for pre- and post-14 uniforms may require careful consideration, especially for secondary schools or sixth forms.
The De Minimus Limit
Now, let’s talk about the de minimis limit, set at £625 per month. After attributing your input VAT to business or non-business activity and excluding amounts only attributable to exempt activities, you calculate the remaining residual VAT, apportioning it between business, non-business, taxable, and non-taxable. It’s possible that the leftover amount, which isn’t directly attributable, might be so small that HMRC allows you to claim it back.
Trading Activities
Beyond educational tasks such as teaching, many institutions engage in additional business activities, often involving lettings of facilities like sports halls or school spaces. Understanding the impact of these on VAT is crucial when it comes to getting your finances right.
Let’s break it down:
Typically, lettings are standard rated, but sports lettings have a twist. If they span more than 10 sessions with a break of no more than two weeks between sessions, they can become exempt supplies. This adds complexity to your partial exemption calculation.
Accurately identifying and recording these supplies at the point of entry is vital. Whether it's letting out spaces or offering consultancy services for non-educational purposes like HR or finance, proper categorisation is key.
Catering supplies are closely related unless they're for external events. For example, selling school dinners to another institution is closely related and not VAT chargeable, while catering for events in your school hall is standard rated.
Assigning the correct VAT treatment to each income stream is essential. Sage Intacct provides users with accurate recording, ensuring a precise partial exemption calculation. Remember to categorise income into business and non-business, with closely related supplies falling into the non-business category.
In summary, understanding VAT implications and properly categorising income streams will help you in navigating VAT in Education, ensuring compliance and optimising financial operations.
Elevate your school's processes
Categorising Incomes
Efficiently categorising your institution’s income is essential for accurate financial management and VAT compliance.
By streamlining income categorisation and VAT management processes, you can ensure compliance and optimise financial operations.
Let’s simplify the process:
Non-Business Income
Partial Exemption Calculation
Business Activites
Input VAT Management
Standard-Rated Supplies
Recoverable VAT
Meet our education team
Ryan Gryniewicz
Sales Consultant
Barry
Thomas
Sales Consultant
Katrina Coombes
Sage Consultant
Patrick
Harden
Customer Success Manager
Ausley
Mafusire
Customer Success Manager
