VAT rules: letting out your school building

Many independent schools will be considering ways to increase revenue, to offset the potential VAT changes facing the sector. From a VAT perspective, lettings activity for independent schools can be tricky to get right, which can sometimes leave schools with an unexpected bill. Understanding the details and impact can help avoid unnecessary costs.

General lets

The letting of bare land and rooms in buildings is VAT exempt, providing there is no option to tax in place.

Therefore, where school facilities such as classrooms and halls are let to a third-party, the VAT treatment will be exempt (unless there is an option to tax in place).

Care should be taken when applying the land exemption to ensure that any facilities which may be provided alongside the land do not outweigh the principal supply. Some areas to look out for are the hire of theatre facilities and birthday parties, which usually attract VAT at the standard rate on the basis that the additional facilities provided outweigh the supply of land.

Please note that there are separate rules for sporting facilities, which we have covered below.

Sports lets

Many schools will look to hire out their sports facilities to third party customers, who can range from local sports clubs to activity camp providers.

There are two areas in which sports lets can be VAT exempt for schools, either as Group 1 (land) or Group 10 (sports services).

Group 1 (land) exemption

Group 1 allows VAT exemption where the following conditions are met:

• a) a continuous period of use exceeding 24 hours, or
• b) a series of ten or more periods, whether or not exceeding 24 hours in total, where the following conditions are met:
  • i. the same activity is carried out at the same place;
  • ii. the interval between each session is not less than one day and not more than fourteen days;
  • iii. consideration is payable by reference to the whole series and is evidenced by a written agreement;
  • iv. the hirer has exclusive use of the facilities; and
  • v. the hirer is a school, a club or organisation representing affiliated clubs.

Due to the onerous nature of these conditions, the exemption in group 1 can sometimes be difficult to operate. As such, schools may opt to focus on the group 10 exemption as detailed below.

Group 10 (sports services) exemption

Group 10 allows VAT exemption for supplies by an eligible body to an individual, of services closely linked with and essential to the sport, in which the individual is taking part.

Care must be taken to ensure that the exemption is only applied to supplies made to ‘individuals’. One area schools should pay particular attention to is where the hire is to a coach, who charges individuals to take part in the coaching, such as a swimming instructor. In this instance, the supply by the school and the coach is taxable, as the supply is not being made to the individual taking part in the sport and therefore the exemption does not apply. Another is lets to commercial entities that use the resources to generate profits from sporting / childcare activities.

Lets to TEFLs

Schools may also look to hire out a number of their facilities to summer school providers – namely English as a foreign language (“EFL”) providers. These hires will usually see schools granting access to student dormitories, academic facilities and in certain cases the sports facilities.

There is scope for the supply of these facilities by schools to fall within exemption where provided to EFL providers. This is on the basis that these services are closely related to the supply of education and they are provided by an eligible body (the school) to an organisation making the principal supply of education (the EFL provider). Again, it is important here to verify that the user is an EFL and schools could look to request a warranty to that effect as part of the agreement.

For all of the supplies listed above, it is important that care is taken, especially if they are provided by a trading subsidiary, (rather than the school), as this can often mean that the eligible body condition is not met.

Organisations should review their lettings activities and ensure that the correct VAT treatment has been applied.

This article can be read alongside our decision-making chart, which can be accessed here. For further information, please contact Kieran Smith or your usual Crowe contact.