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VAT: Schools

Volume 487: debated on Tuesday 10 February 2009

To ask the Chancellor of the Exchequer if he will make it his policy that the liability for value added tax in respect of construction projects should be the same for (a) maintained schools and (b) further education institutions. (255815)

Construction projects undertaken by both maintained schools and further education institutions are liable to VAT at the standard rate.

The only exceptions are those projects which involve the construction of buildings intended for use by a charity solely for a non-business purpose. In such circumstances, the projects are liable to VAT at the zero rate.

However, local authorities can usually reclaim from HMRC all VAT costs relating to the educational institutions that they maintain. These 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. Since 1997, bodies other than local authorities have been admitted to these refund arrangements 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 institutions do not meet the second of these conditions.

Bids for public funding by further education institutions are therefore expected to take into account that they are not eligible for the VAT refund arrangements that apply for local authority maintained institutions.