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HMRC internal manual

VAT Government and Public Bodies

Local authority education services: voluntary aided schools: paragraphs 1 to 4 of guidance on section 33 recovery agreed with the Department for Education

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Introduction VATGPB7520

HMRC Guidance for Local Authorities (LA) and Voluntary Aided (VA) Schools - VAT recovery under section 33 VAT Act 1994

1. Section 33 VAT Act 1994

S33 of VAT Act 1994 is a special refund scheme which allows specified bodies, including local authorities, to recover VAT incurred on their non-business activities. In order to be considered by HM Treasury for inclusion in s33, a body must:

  • undertake a function ordinarily carried on by local government; and
  • have the power to draw its funding directly from local taxation.

In all maintained schools, the LA has a statutory requirement relating to the provision of free education, a non-business activity of the LA.

2. Maintained schools and delegated budget

All maintained schools, including VA schools, receive recurrent funding from their LA under arrangements set out in sections 45-53 of the School Standards and Framework Act 1998 (SSFA), which allows that every maintained school shall be financed by their LA by means of a ‘budget share’ (the school’s delegated budget).

3. Governing bodies (GB) and VAT recovery

Under section 36(1) of SSFA, governing bodies (GB) of maintained schools are separate legal entities. GBs are not bodies specified in s33 VAT Act 1994 and therefore VAT incurred by GBs in respect of their non-business activities may not be recovered under s33.

However, s49(5) of SSFA allows that ‘any amount made available’ by a LA to the GB of a maintained school shall remain the property of the LA until spent by the GB and when spent by the GB shall be taken to be spent by them as the LA’s agent. This generally allows the LA to recover VAT on expenditure made from the delegated budget.

4. Voluntary Aided schools and GB responsibilities

In the case of VA schools though, s49(6) SSFA stipulates that the GB does not act as the LA’s agent when spending amounts from the delegated budget to meet expenses payable by the GB in relation to work for which the GB is responsible. VAT may therefore not be recovered on such expenditure.

In return for a continuing degree of autonomy over pupil admissions, hire of staff and contents of religious curriculum, GBs of VA schools retain responsibility for certain capital work. At the time of publication of this guidance, these responsibilities and definition of capital expenditure are contained in the following legislation:

  • School Standards and Framework Act 1998 (SSFA)
  • the Regulatory Reform (Voluntary Aided Schools Liabilities and Funding) (England) Order 2002 (RRO) (applies in England only)
  • the Education and Inspections Act 2006 (EIA), and
  • the Capital Expenditure in respect of Voluntary Aided Schools (England) Regulations 2007 (applies in England only).

The SSFA (as amended by the RRO) makes the GB of a VA school responsible for all capital expenditure in relation to school premises, with the exception of playing fields and related buildings on those fields (for which the LA is responsible). The EIA contains the current definition of capital expenditure (see para 5).

In England, DfE, and in Scotland and Wales, the Scottish and Welsh Assembly, may make grants to GBs of VA schools in order to help them meet these responsibilities (SSFA Sch 3 Para 5). (The situation in Northern Ireland differs in that the Department of Education and newly established Education and Skills Authority are responsible for the delivery of education. Separate guidance for Northern Ireland to be issued in due course.) In England, DfE fund 90% of a GB’s qualifying expenditure (the RRO increased the maximum grant prescribed by the SSFA from 85% to 90%), whilst in Wales and Scotland this remains at 85%. DfE and the Education Departments in Scotland and Wales understand that VAT will not be recoverable by the GB in respect of this expenditure and therefore their grant includes funds to cover the irrecoverable VAT costs. VA school GBs are expected to meet the remaining 10%/15% of costs from their own resources although para 8 of Sch 3 SSFA allows LAs to contribute to the GB’s 10%/15% contribution, if they so wish.

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paragraph 5 VATGPB7540 paragraph 6 VATGPB7550
Paragraph 7 VATGPB7560 Annex A VATGPB7570
Annex B VATGPB7580