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HMRC internal manual

VAT Government and Public Bodies

HM Revenue & Customs
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Local authority education services: voluntary aided schools: paragraph 5 of guidance on section 33 recovery agreed with the Department for Education

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Introduction VATGPB7520 paragraphs 1 to 4 VATGPB7530

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

5. Definitions of capital and revenue expenditure

The legal definition of “capital expenditure” contained in the SSFA in relation to GBs’ responsibilities is subsequently amended by the EIA (s35) to be expenditure of a GB “which falls to be capitalised in accordance with proper accounting practices”. However, regulation 2 of The Capital Expenditure in respect of Voluntary Aided Schools (England) Regulations 2007 qualifies this definition by providing that any expenditure incurred by a GB of a VA school shall not be treated as capital expenditure if it is an amount which is less than £2000.

Responsibility for issues regarding funding for capital and revenue expenditure and determining what should be interpreted as capital, and what revenue, expenditure lies with the DfE (in England) and education departments in the devolved administrations. General guidance on capital funding for VA schools in England is issued by DfE in their “Blue Book” which can be downloaded from The Blue Book sets out who is responsible for expenditure at VA schools as below, followed by some examples to illustrate the points, adding that, in cases of doubt, there will be scope for VA schools and their advisers to determine whether expenditure is of a revenue or capital nature. This guidance also explains that these responsibilities are not specifically related to ownership. For example, GBs may own the playing fields and associated buildings, but the LA will still be responsible for any work on them.

A) Definition of capital expenditure for which GB is responsible (as per Blue Book)

  • The existing buildings (internal and external)
  • Those buildings previously known as “excepted” (Kitchens, dining areas, medical/dental rooms, swimming pools, caretakers’ dwelling houses)
  • Perimeter walls and fences, even if around the playing fields
  • Playgrounds
  • Furniture, fixtures and fittings - including ICT infrastructure and equipment
  • Other capital items (which can include capital work to boilers or other services)

B) Definition of capital expenditure for which LA is responsible (as per Blue Book)

  • Maintenance of playing fields (including sports pitches and hard surfaced games areas)
  • Buildings on those fields and related to their use
  • Capital expenditure below £2000 (see C) below)

C) Definition of Revenue expenditure for which LA is responsible (as per Blue Book)

  • Day to day running costs of the school e.g. costs of staff, training, consumables, teaching resources, utilities etc
  • Additionally, there is a threshold below which any expenditure of £2,000 net value or less, regardless of the use to which it is put, deemed to be revenue (see B) above)

Therefore whilst any expenditure of £2000 or less is always to be classified as revenue expenditure, any expenditure above £2000 will need to be considered and a view taken as to whether this is revenue or capital expenditure. The following examples are intended to provide guidance on how to decide what might be regarded as revenue (paid for from revenue budgets) and capital expenditure (which can be met from either capital grant or delegated revenue budgets).

  • Localised repairs to a roof (patching or mending) should usually be met from revenue funds, because this would be regarded as normal repair and maintenance work. If the whole roof, or a substantial part of a large roof, needs to be replaced, then this could reasonably be regarded as a capital.
  • Small repairs to playgrounds (filling individual potholes etc.) should usually be met from revenue funds, because this would be regarded as normal repair and maintenance work. If the whole of the playground needs to be resurfaced, then this might reasonably be regarded as a capital item.
  • A boiler has unexpectedly broken down, and requires a new part which will cost £1,800. This could have been regarded as either revenue (because it is repair and maintenance) or capital. The cost, however, dictates that it must be revenue because it is below the ‘de minimis’ threshold of £2,000.
  • Replacing a few damaged chairs or desks would be regarded as a revenue cost because it is normal wear and tear. If, however, as part of a refurbishment of a whole classroom, all of the furniture is to be replaced then it can be included as part of the capital project.

It is important to note that the £2000 de minimis limit described above should not be used to attempt to artificially disaggregate capital expenditure in order to recover VAT. For example, a single supply of ICT equipment should not be split into smaller contracts for individual IT items of £2000 or less, or construction works similarly split, in order that, invoiced separately, this could be treated as revenue expenditure.

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paragraph 6 VATGPB7550 paragraph 7 VATGPB7560
Annex A VATGPB7570 Annex B VATGPB7580