Michelle Donelan urges Chancellor to address “unintended consequence” of decision to allow Sixth Form Colleges to become academies.
Michelle Donelan joined a cross-party group of 52 MPs who have written to Chancellor of the Exchequer George Osborne, urging him to address an “unintended consequence” of the recent decision to allow Sixth Form Colleges to become 16-19 academies. In November’s Spending Review and Autumn Statement, the Chancellor announced that Sixth Form Colleges would have the opportunity to become academies “so they no longer have to pay VAT”. But the group of cross-party MPs has pointed out that under HMRC rules, colleges that become academies could actually end up paying more VAT.
The letter has been co-signed by Kelvin Hopkins MP, Chair of the All Party Parliamentary Group for Sixth Form Colleges, with support from Neil Carmichael MP, Chair of the Education Select Committee and Meg Hillier MP, Chair of the Public Accounts Committee, along with 49 other MPs.
According to the Sixth Form Colleges’ Association (SFCA), the average Sixth Form College currently pays an average of £317,964 per year in VAT. SFCA describe this as a tax on learning that redirects funding away from the front line education of students. By becoming an academy, Sixth Form Colleges would have their VAT costs refunded to bring them in line with all other schools and academies. But under HMRC rules, academisation could also trigger the repayment of VAT relief that colleges have received on buildings completed after March 2011.
The MPs, many of whom represent constituencies that either contain or are served by a Sixth Form College, write that “this appears to be the result of an unforeseen technicality” but urge the Chancellor to clarify the situation as a matter of urgency “to enable Sixth Form Colleges to make an informed choice about their future”. Sixth Form Colleges only have the opportunity to academise through the Government’s one-off restructuring of post-16 education and training, and this process is already drawing to a close in some areas.
Michelle Donelan said: “For some Sixth Form Colleges, the cost of having to repay the VAT relief received on science blocks, sports halls and other buildings would run into millions of pounds and would dwarf the financial benefits of having their annual VAT costs refunded. We do not believe the Government wants Sixth Form Colleges to pay more VAT but the Chancellor needs to clarify the situation as soon as possible”.
James Kewin, Deputy Chief Executive of the Sixth Form Colleges’ Association said: “It would make little sense if a policy introduced to reduce the VAT burden on Sixth Form Colleges actually saw them pay more VAT. We are pleased that so many MPs have urged the Chancellor to address this issue, and a swift resolution is essential if Sixth Form Colleges are to make sensible, well-informed decisions about their future.
A copy of the letter sent to the Chancellor of the Exchequer from MPs, along with a list of co-signatories can be found here.