Schools and VAT
The topic of VAT and schools was debated recently by the School Administrators' News group, and during this it became clear that on the issue of selling products and services on to parents there were a lot of alternative views on what was correct procedure. Some schools seem to ignore the issue, some said parents were charged VAT, and some said there were special exclusions.
I have been looking into this and my understanding is below. Now I don't suggest you take my word for it, but if you do feel there is a contradiction here between that which you do and my notes below, you might like to get a local authority ruling, just to be on the safe side.
My comments only apply to schools which either themselves or via their local authority are registered for VAT.
In EU legislation, the sale by an educational institution of goods and services closely related to education that is being supplied (i.e. taught for payment) is exempt from VAT. Thus the VAT treatment of the goods mirrors the VAT treatment of the education. The policy has been to provide comparable treatment for any goods sold in local authority schools that are closely related to a subject being taught to pupils in those schools. The sale of these goods is a non-business activity, mirroring the treatment of the education, provided there is no intention to make any profit from the sale proceeds. Otherwise, the goods are subject to VAT.
Let me emphasise that last part - if the sale of the goods results in the school making something for its school funds, then VAT must be charged. Now if the goods are zero rated, such as books, there is no VAT. But almost all other items would be charged at 17.5%.
To prevent VAT from falling as a burden on local taxation, authorities can benefit from refunds of the VAT incurred on their non-business activities. In England and Wales this is done under section 33 of the VAT Act 1994. For Departments of the government in Northern Ireland recovery would be by section 99.
As I looked further into the situation I came up with these areas where according to local authorities problems can arise.
Where the trip is part of the curriculum all income and expenditure must go through official funds. Full VAT recovery is available on all admission fees etc (e.g. theatre tickets and Alton Towers) provided that the school holds a valid VAT receipt. Coach travel is zero-rated so there is no VAT to recover but this should still be accounted for through official funds.
If schools receive a commission from a retailer then this has to be treated as official income and is subject to VAT. There will be no loss of income to schools. An invoice needs to be raised by the school for the amount agreed with VAT added. The supplier will not lose out, as they will be able to recover the VAT charged.
Freely given donations, not based on sales, should be processed through official funds but treated as outside the scope of VAT.
Those schools that purchase items of uniform direct from the manufacturer or supplier and sell them on to pupils should process all income and expenditure through official school funds. These transactions will generally be zero-rated so the VAT implications are negligible even if the items are sold at a profit.
Schools may only process uniform transactions through unofficial funds if there is absolutely no involvement from staff. This would mean that only volunteers or representatives of the PTA collect money, collate orders and distribute the uniform.
School Plays and Performances
This is the problematic area - and local agreements seem to be in force. But be careful - local agreements with Customs can fall apart!
In Primary Schools, typically there are Christmas and end of year performances. Tickets are usually limited to parents and relatives and cost a couple of pounds. Ticket money should be processed through official funds and can be treated as outside the scope of VAT. This is on the basis the plays are all part of the children’s learning experience and further to the course of their education.
If schools do not make a charge for tickets but merely seek donations at the end of the play this money can be treated as a true donation and is thus treated as outside the scope of VAT. This money should still be processed through official funds.
In Secondary Schools, performances tend to be on a larger scale and they are generally outside of school hours. Typically there will be some significant amounts of expenditure incurred in putting on the performances. Income and expenditure should be processed through official funds with VAT recovery available on expenditure but also VAT has to be declared on ticket sales.
Only if the performance is totally promoted by the PTA or other fundraising body can funds raised be processed through unofficial funds. If that is the case then all expenditure must be processed through unofficial funds and no VAT recovery is available. Schools should be aware that they might need to register their unofficial funds for VAT purposes if they exercise this practice.
There appears to be a misconception that the VAT liability of a letting is dependent on whether it is an adult let or a junior let. This is not the case, and the whole issue centres on how many lets are involved. Under 10 lets and it will almost certainly be taxable.
General Room Hire
The hire of a classroom or multi purpose hall with no equipment is exempt from VAT. If there is a separately identifiable charge for the use of equipment then this element becomes taxable e.g. projectors or computer equipment.
Before and After School Clubs
If the room is let to a private operator then the charge is exempt from VAT. If the school itself runs the club then the income can be treated as being non-business and thus outside the scope of VAT. Income should be processed through official funds. Full VAT recovery is available on all expenditure.
Sale of Tea Towels
This is typically in Primary Schools where the children design tea towels with all their names on them. All income should be processed through official funds. VAT recovery is available on the purchase from the supplier but VAT does not need to be declared on the income from their sale as it is deemed incidental to the provision of education.
Car Mileage Claims
Schools can currently reclaim a small amount of VAT back in respect of the petrol element of car mileage claims. However, due to a change in UK legislation, with effect from 1 April 2006, in order to continue to be able to reclaim VAT, a VAT receipt must support all mileage claims. VAT receipts are readily available from petrol stations on request.
I hope that might help - but I do appreciate this is a very confusing area.