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Stay compliant with VAT rules for academy trusts.
30 March 2026
In this article, Zach Annette invites Academy Trusts to go back to school to learn about common VAT issues we are currently seeing across the sector.
A key aspect of managing your VAT position is understanding the VAT liability of the income you do earn. This helps Trusts to understand whether it counts towards the threshold and what VAT recovery adjustments may be required. As budgets are squeezed, we’ve seen Trusts seek to exploit their available assets to make up funding shortfalls. For example, Trusts may make their sporting facilities available for increased lettings income or even completing long-term leasing or sale and leaseback arrangements with third parties. Larger Academy Trusts often employ experienced executive management teams, who can provide paid for strategic consulting to other Trusts.
What processes are in place for determining the correct treatment of new, complex, or one-off income streams?
All companies and businesses, even charities and Academy Trusts, must monitor taxable turnover levels against the registration threshold. The current threshold is £90,000 of taxable turnover earned in any rolling 12-month period. The monitoring against the threshold is not limited to financial or even calendar years.
Do you have processes in place that regularly review the level of taxable income received by the Trust?
Unfortunately, even Academy Trusts are not allowed to recover all the VAT they incur. HMRC will expect that steps are taken each time a submission is prepared to determine whether a Trust is entitled to recover VAT it has incurred. There are various scenarios in which an Academy Trust’s VAT recovery may be limited, for example:
HMRC have recently bolstered their repayment verification team, and we’ve seen significant activity from HMRC officers opening enquiries into both VAT126s and VAT returns submitted by Trusts before releasing repayments. HMRC will ask a number of questions and request copies of calculations that were used to arrive at the repayment amount. HMRC will not release a repayment until their enquiries have been answered, and they have received satisfactory responses. If a Trust is found to have over-recovered VAT, the amount to be repaid will be adjusted and may be liable to penalties on any amount that HMRC deduct from the claim.
A common difficulty for Academy Trusts is to determine whether a supply would be seen by HMRC as “closely related” to a pupil’s education. If it is, a Trust gets the benefit of not charging VAT to the pupil but still being able to recover VAT on associated costs. For a sale to a pupil to be seen as “closely related” by HMRC, it must be both:
It is easy for a Trust to consider that everything pupils are supplied with must be related to their education in some way, but HMRC are strict to say the supply must be “necessary” for the education before the preferential VAT treatment is applied. By misapplying these rules, Trusts run the risk of not registering for VAT on time and over-recovering VAT on purchases.
These rules should be consulted whenever sales are made to pupils, with common examples of impacted sales ranging from catering and transport to school trips, proms, and events.
VAT can be complex, but you don’t have to navigate it alone. Our VAT MOT service is designed to give Trusts peace of mind and confidence in their compliance. Reach out to our team today.
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