Tax implications for academies responding to COVID-19

23rd March 2020

The COVID-19 crisis is forcing everyone to think and work differently and with schools now closed, the academy sector is no different.

Academy schools have significant resources which could be diverted to other uses during school closures to either assist their communities or generate revenue for the academy trust.

As charities, academies need to consider whether any new activities being undertaken in light of COVID-19 are within their charitable objects.  Limited operations to provide education to children of workers in key sectors will, of course, be within the existing charitable objects.  However, other activities might not be.

During the closure period it is likely that academies will be sharing resources more widely than usual.

Many academies will have workers in IT, for example, whose time could be utilised elsewhere with the academy charging for the service.  The provision of these staff members could be a trading activity which would fall outside the charitable tax exemptions, and any profits could be subject to Corporation Tax.

There could also be VAT issues to consider.  Although the supply of teaching staff at cost between academies is not subject to VAT, the hire of equipment and the supply of non-teaching staff such as IT and finance people is subject to VAT. Academies with taxable income close to the VAT registration threshold will need to monitor any new income streams carefully to ensure that these new taxable supplies are identified and taken into account.

While VAT payments due between 20 March and 30 June 2020 have been deferred, HMRC will continue to make repayments and refunds of VAT during the deferral period and VAT returns and VAT 126 claims should continue to be filed as usual by academies, trading subsidiaries and VAT groups.

If academies are considering new activities they should review whether they may bring any unintended tax or VAT consequences.  Clients should speak to their usual Bishop Fleming contact for further information.

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