(2) what criteria are used to decide what type of education capital projects are VAT exempt;
(3) what representations he has received from the further education sector about the VAT status of further education capital projects;
(4) what assessment his Department has made of the impact of VAT on further education capital projects;
(5) if he will take steps to ensure that further education and schools capital projects receive the same treatment.
VAT is chargeable on the construction of all buildings in the education sector, except those that will be used at least 90 per cent. for a relevant charitable purpose, such as the provision of free-of-charge education by a charity. In such cases, construction of the building is VAT zero rated. VAT agreements with our European partners mean that, while we can maintain this relief for the construction of charitable buildings, it cannot be extended further.
However, where VAT is chargeable on capital projects, it can be reclaimed from HMRC to the extent that it relates to taxable business use of the facilities. In addition, local authorities can usually reclaim from HMRC all VAT costs relating to the educational institutions that they maintain.
Refund arrangements for local authorities reflect a commitment, made when VAT was first introduced, that VAT would not fall as a burden on local taxation. Accordingly, since 1997, bodies have been admitted to these refund arrangements only where they undertake a function ordinarily carried on by local government and have the power to draw their funding directly from local taxation. Unlike local authority maintained institutions, further education colleges do not meet the second of these conditions.
It is reasonable to expect that bids for public funding by further education colleges should take into account that they are not eligible for the VAT refund arrangements that apply for local authority maintained institutions. However, no detailed assessment has been made of the impact of VAT on further education capital projects.
Representations are regularly made to Treasury Ministers by MPs and stakeholders on a wide range of issues, including VAT and extended use of educational facilities.