£1.8bn Extra Capital Funding for Colleges – Budget 2020
Last week’s Budget included good news for our Further Education College network with additional funding allocated to improve the physical estate of Colleges across England and the devolved countries through the Barnett formula.
Due to the VAT complexities in the FE sector, which can bring into play VAT reliefs on construction services on certain new works, it’ll be vital to ensure these funds are maximized to their fullest extent by considering the VAT impact on planned projects.
With the continuing reporting of financial pressures across the college sector it is clearly important to ensure that all available investment delivers real value and that, in the context of VAT, all available VAT reliefs are secured on a basis that can bring peace of mind, should a question from HMRC ever arise.
It’s works on buildings for non-fee paying student use where the greatest extent of VAT relief can be achieved but again this is in the context of “new” build rather than refurbishments. This, in itself, may influence the initial plans of the Estate teams – a budget that would bear the addition of irrecoverable VAT on a refurbishment as opposed to a budget that may achieve VAT relief in full or part if the project were to be a demolish and new build?
This illustrates the importance to include an evaluation of the VAT implications of projects at the earliest point, to ensure the VAT implications and options are clearly understood.
This early intervention is as much about maximizing any VAT reliefs at the outset but also recognising that the interaction of the estate management is closely tied into financial management long after the project is completed. By this we mean the impact of the Capital Goods Scheme and the change of use provisions. These regulations will trigger VAT adjustments relating to the use in a building where VAT had originally been relieved on the construction costs but that use has since ceased to be for the provision of support to non-fee paying students.
Such a change of use may occur in a period of up to 10 years after the building is completed and highlights the need to have regular communication between finance and estate teams to ensure the levels of VAT management that HMRC expect to see within organisations are being applied.
With the need for improvements in college infrastructure combined with this additional funding announcement and the challenges being created from shared and changing use of buildings across colleges, either on a collaborative basis or through mergers, we think it important to ensure that VAT is proactively considered.
This would have been an issue for our VAT session at the next AOC Finance conference but with the understandable news of its postponement we thought a topical Newsbyte appropriate.
We always discuss the plans for campus’s during our VAT Management Programme (VMP) meetings with our college clients. If your college is not a Centurion VMP subscriber but would welcome a chat with the Education VAT team specialists on your property plans then call Louise or Liz on 01633 415390 or use firstname.lastname@example.org to make that connection.
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