HMRC VAT inspections for academies

VAT compliance reviews

Being notified of a VAT inspection can be very stressful but it doesn't need to be. The purpose and aim of the review is to ensure the correct amount of VAT is being declared at the correct time.

What to expect

Following on from the pandemic the majority of VAT visits are now carried out remotely. This involves an initial call with HMRC, usually lasting between two and three hours during which HMRC will ask you to talk through your VAT return process, the different income and expenditure streams and discuss the more complex areas of VAT where there is potential for errors.

During the call the HMRC officer should not put you under pressure and, if you do not have the answer to hand, it is perfectly acceptable to offer to check and get back to them at a later date. It is important to be aware that helping HMRC with the review may help to reduce the amount of any penalties if any errors are found.

Risk areas

There are several areas of VAT that may cause difficulty for academies. Currently we are seeing issues with academies not completing business and non-business, partial exemption and capital goods scheme adjustments. The amount of any required adjustments could be significant, so it is important for academies to ensure these are being carried out correctly to avoid any potential penalties.

Transactions involving property are generally high risk from a VAT perspective due to the complex nature of the rules and the amounts involved. During an enquiry HMRC will likely review a sample of the larger VAT costs incurred in relation to capital expenditure.

Academies will occasionally expand their income streams, either through choice or through necessity. Due to the complex rules within this sector the VAT treatment of the new income streams may not be clear. As part of the inspection HMRC will likely discuss any changes to the income of the academy with you, and review the VAT liability of any new income streams. If the treatment is unclear, we would recommend advice should be sought from the onset. 

Academies can be part of Multi Academy Trusts (‘MAT’s) which can have complex structures and use trading subsidiaries. Extra care should be taken when making recharges between entities to ensure the VAT treatment is correct. If structured incorrectly this could lead to a significant VAT cost in one or both entities.

How we can help

If you are notified of an upcoming VAT inspection or would like to prepare in advance for a potential enquiry, please contact a member of the indirect tax team. We can either assist with an active enquiry or provide a VAT review where we can replicate a HMRC visit and look for any potential risks or opportunities for the academy.

We also have colleagues who specialise in liaising with HMRC and have had excellent success in the past helping to reduce assessments and penalties raised in relation to VAT inspections.

By putting in place controls, processes, seeking advice and support demonstrates to HMRC that the academy takes its VAT responsibilities seriously and is trying to ensure it is compliant from a VAT perspective.

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