HI

Can an independent school recover VAT it is charged for services i.e supply teachers, office equipment etc?

If yes do we need to set up as a business?

thanks
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You really need professional advice, as this is a minefield.

Education is generally VAT exempt, which means you should not be registered for UK VAT and you cannot recover the VAT suffered on purchases.

Even if you did register, it would be for a VATable business. What would you be supplying? Would 17.5% be charged on each supply? Even then, you could only reclaim the VAT on purchases that related to those VATable supplies. Recovery of VAT on purchases relating directly to any VAT exempt supplies would be blocked. True, you could reclaim some residual VAT (e.g. if 1% of your income were from the tuck shop, you could recover 1% of the VAT on purchases which are not dircetly related only to exempt or VATable supplies), but you would also have a battle on your hands with HMRC.

But there have been some education-related VAT cases recently which HMRC have lost in the courts, so never say never! Seek professional VAT advice on this one if you want to go forward. Otherwise, if you cannot afford advice, try calling HMRC's National Advice Service - though they will not always be up to speed with latest cases or take kindly views of the school's VAT status ...

Hope it helps?
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One of the main things that will affect the ability to recover VAT is whether you are a profit making independent school or have a charitable status.

If you're entirley fee supported then there is likely to be minimal recovery if any, depending on what non-educational supplies you make. If you are a charity, or the fees are part funded by Govt. grant etc. then you may be in a better situation. Especially following a 2006 decision in relation to Edinburgh Telford College, which was to do with funding and whether it was exempt business income (bad from your point of view) or non-business income (not brilliant but better than being exempt).

If you are a charity then you may also be able to get certain capital works (new school buildings) zero rated by developers, and qualify for reduced rate supplies of fuel and power.

But if you do register for VAT then there will be some complex administration involved, including quaterly partial exemption calculations, with an annual adjustment, and if you arrange any school trips/holidays then you may also fall under the Tour Operators Margin Scheme, which involves further hideous calculations.

So basically as per Kevins suggestion you probably either need an education sector specialist or a VAT specialist, and unless you are of a fairly substantial size then the cons of being registered may well outweigh the pros.

Calling the helpline probably wont garner much useful information as they wont deal with overly complex matters over the phone, and if you write in with such a general query as 'how does VAT affect independent schools' then they'll just send you the education leaflet which can be found on the HMRC website (which you should probably review so that you have a better idea of what specific questions you'd need to ask if you do decide to write...it can be found at customs.hmrc.gov.uk/channelsPortalWebApp/channelsPortalWebApp.portal?_nfpb=true&_pageLabel=pageLibrary_PublicNoticesAndInfoSheets&propertyType=document&columns=1&id=HMCE_CL_000117 )
Good luck
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