Academies generally have to deal with taxation at four basic levels: VAT, PAYE and National Insurance, Corporation Tax and Tax on trading activities.
Single academy trust tax considerations apply to the individual school only, but in a multi-academy trust, most of the tax considerations are likely to be pooled. This means that VAT registration for example is more likely to be a requirement in a multi-academy trust than a single academy trust. When it comes to payroll responsibilities, in a multi-academy trust, payroll management and control is highly likely to be centralised, as is registration with HM Revenue & Customs (HMRC). This way the academies can benefit from economies of scale, but nonetheless, each academy will be required to have its relevant payments apportioned to enable an accurate view of overall performance.
Academies are entitled to reclaim VAT on expenditure that relates directly to the provision of education. If the academy is VAT registered it is obliged to charge VAT on services supplied, and is entitled to reclaim VAT paid. Section 33 claims enable an academy to apply to have VAT paid on school running costs refunded. When making a Section 33 claim it’s important to assess any potential downside, whereby any taxable supplies exceeding the VAT threshold could mean that the academy is then forced to register for VAT.
PAYE (Pay As You Earn)
Single academy trusts should register with HMRC for PAYE on an individual basis. Multi-academy trusts should register under one account. If you have the skills in-house to carry out your payroll obligations, there is no reason not to do so, however, many academies are finding that outsourcing payroll is the ideal solution all round.
Read more about Payroll
Because academies are classified as exempt charities there is no obligation to pay corporation tax on central government income. As a result, academies will only become due to pay corporation tax if their trading activities give rise to significant additional income. Academies can achieve exempt status for corporation tax by completing form CHA1.
Tax on trading activities
While trading income opportunities are restricted for charities (currently to a maximum of £50,000 per year) there remains nonetheless selected opportunities for academies to generate additional income. Activities such as the provision of catering services to other schools, or the letting of parts of the school can often result in significant income, particularly for some of the smaller academies.
If these activities mean that the academy earns more than the permitted maximum, there will become a need to set up a subsidiary company which will then take responsibility for the organisation and management of those activities. This company will then have the opportunity to subsequently donate any profits to the academy, allowing them to make a claim for corporation tax relief.
If you are finding your academy taxation too taxing, then let us share the load. Get in touch and we can help demystify academy tax obligations.