Will Brexit have any effect on academies’ VAT?

12 August 2016

The short answer is no. Until the UK formally leaves the EU nothing will change and, even then, with VAT enshrined into UK law, we will simply continue applying UK VAT law to businesses including academy schools. Over time though, as the UK Parliament amends UK VAT law in line with UK needs and the wishes of the electorate, our law will gradually diverge from the EU legislation.  What will change though is the current reliance on the fundamental principles of EU law, the status of European Court decisions on UK taxpayers, and concepts such as proportionality and fiscal neutrality. Some of these concepts have not been enacted into UK legislation because there was no need to, but it will have to be addressed by the UK Parliament in due course. The loss of status of the European Court is more problematic and means that the UK Courts will no longer have the ability to refer tax or VAT matters to the European Court for guidance,  nor will the UK be bound by any future European decisions.  Although future decisions will remain good guidance, UK Courts can ignore them if they choose to.  We already know, for instance, that there is very little chance of any more current UK VAT disputes being referred to the European Court, therefore, the UK Courts will have to cope on their own. We do not yet know what will happen to previous decisions of the European Court which were binding at the time but may not be from when we leave the EU.  Some commentators think that UK Parliament will try and legislate to keep the EU VAT principles that it feels are important enough, but there is the risk of some past cases being effectively re-run by HMRC but on UK law not EU law.

For the academy sector in particular, much of their VAT treatment is already governed by UK VAT law and the only area where the loss of EU principles may have an effect is in the business vs non-business and partial exemption calculations; where UK law tends to be quite literal without the over-riding EU principles to guide the interpretation.  Hence, why commentators are generally of the view that UK Parliament will have to legislate some of the key EU VAT principles into UK law.

To discuss how this may affect your future VAT position, please get in touch with one of our academy schools specialists at your local UHY office or complete our online contact form. Alternatively, please visit our dedicated academy schools VAT FAQs page here.