VAT and VA Schools Update on Ongoing Discussions on the 2000 Capital Expenditure Threshold

VAT and VA Schools – update on ongoing discussions on the £2000 capital expenditure threshold.

VA schools that have responded to HMRC audit queries at the beginning of the year will be aware that HMRC had notified us that they did not intend to raise any assessments on the VA schools until HMRC/DfE and PfS (Partnerships for Schools) have provided clarity on the position.

Following representations by the CIPFA VAT Committee, HMRC have confirmed the intention to temporarily suspend the issuing of assessments relating to the £2,000 threshold for capitalisation in respect of English and Welsh VA schools. In the event that it becomes necessary to issue an assessment on time limitation grounds, they will assess but then suspend the assessment. They will, however, continue with their requests for information.

The suspension allows for further discussions with the DfE (in England) and the DfES (in Wales), which are planned for June.

In the meantime, until the DfE/HMRC publish some clear and consistent guidance schools must ‘play it safe’ and not recover VATin circumstances whereit is unclear that the expenditure over £2,000 is of a revenue or capital nature.

For your information, you will find an email extract from HMRC below.

Email from Laurence James 01-06-12

We discussed our compliance activities in relation to the £2000.00 capital expenditure threshold at VA schools in England. I explained that our position is that the £2000.00 threshold in the Blue Book seems clear, and whilst we have seen some examples of differing treatment amongst customers, essentially this is a DFE issue, and we follow their rules.

I note that some authorities have cited different rules to the £2000.00 guidance, and you explained the CIPFA members’ view that the use of “proper accounting practices” may give a different answer.

HMRC have been supporting CIPFA in relation to their efforts to get the DFE to review the £2000.00 threshold, although in our view it seems that there are two issues here – (1) whether to amend the position, and (2) if so when any amendment takes effect – but here again, I note your view that it could be an issue of clarification rather than amendment.

Given the above, HMRC will suspend the making of any further VAT assessments in relation to the £2000.00 capital expenditure threshold at VA schools (except for cases where capping is in point, in which case we will assess and suspend the assessment). Note that we will continue to seek information, and so will request that CIPFA members continue to assist us in these interventions. We will continue to work all other aspects of our inspections regarding VA schools and VAT recovery.

Finally, we will do all we can to ensure that this issue is resolved with the DFE as quickly as possible.

Regards

Laurence

Issued by School Funding Team 11-06-12