HMRC Guidance for Local Authorities and Voluntary Aided Schools - VAT recovery under section 33 VAT Act 1994 (continued)
5. Determining whether expenditure is capital or revenue
The Department for Education in England and the Welsh Government determine whether expenditure is classified as capital or revenue.
For the purposes of VAT any expenditure under £2000 is treated as revenue expenditure in line with regulation 2 of The Capital Expenditure in respect of Voluntary Aided Schools (England) Regulations 2007. The same principle applies if a VA school governing body and the local authority have set a higher limit, e.g. £5,000. In these circumstances, HMRC will treat all such expenditure as revenue for VAT purposes.
General guidance on capital funding for VA schools in England can be found in the DfE’s “Blue Book” , which can be downloaded from . The Blue Book specifies who is responsible for certain expenditure at VA schools. These are set out below.
A) Capital expenditure for which governing body is responsible
- The existing buildings (internal and external)
- Those buildings previously known as “excepted” (Kitchens, dining areas, medical/dental rooms, swimming pools, caretakers’ dwelling houses)
- Perimeter walls and fences, even if around the playing fields
- Playgrounds
- Furniture, fixtures and fittings - including Information and Communication Technology (ICT) infrastructure (see below for loose ICT equipment). Wholesale replacement of furniture.
- Other capital items (which can include capital work to boilers or other services)
B) Capital expenditure for which LA is responsible
- Maintenance of playing fields (including sports pitches and hard surfaced games areas)
- Buildings on those fields and related to their use
- Capital expenditure below £2000 or locally set capitalisation de minimis limit (see C) below)
C) Revenue expenditure for which local authority is responsible
- Day to day running costs of the school e.g. costs of staff, training, consumables, teaching resources, utilities etc
- Additionally, there is a threshold below which any expenditure of £2,000, or a local higher capitalisation de minimis limit if set, net value or less, regardless of the use to which it is put, is deemed to be revenue (see B) above)
The Blue Book also specifies whether expenditure over the specified limit, e.g. £2,000, should be treated as capital or revenue. The following examples (reproduced from the Blue Book) are intended to provide guidance on how to decide what might be regarded as revenue (paid for from revenue budgets) and capital expenditure (which can be met from either capital grant or delegated revenue budgets).
- Localised repairs to a roof (patching or mending) should usually be met from revenue funds, because this would be regarded as normal repair and maintenance work. If the whole roof, or a substantial part of a large roof, needs to be replaced, then this could reasonably be regarded as a capital.
- Small repairs to playgrounds (filling individual potholes etc.) should usually be met from revenue funds, because this would be regarded as normal repair and maintenance work. If the whole of the playground needs to be resurfaced, then this might reasonably be regarded as a capital item.
- A boiler has unexpectedly broken down, and requires a new part which will cost £1,800. This could have been regarded as either revenue (because it is repair and maintenance) or capital. The cost, however, dictates that it must be revenue because it is below the ‘de minimis’ threshold of £2,000.
- Replacing a few damaged chairs or desks would be regarded as a revenue cost because it is normal wear and tear. If, however, as part of a refurbishment of a whole classroom, all of the furniture is to be replaced then it can be included as part of the capital project.
It is important to note that the statutory or local capitalisation de minimis limits described above should not be used to attempt to artificially disaggregate capital expenditure in order to recover VAT. For example, a single supply of construction works should not be split into smaller contracts for individual works, the value of each being below the capitalisation de minimis limit in order that, when invoiced separately, all the works could be treated as revenue expenditure.
The Following table provides examples of Capital / Revenue expenditure
The following indicative table is provided to assist in determining how some examples of commonly incurred premises expenditure might be treated. Where expenditure is shown as capital, the remainder of the guidance will still need to be considered in order to determine the responsibility.
Roofs
| Capital |
Revenue |
| Structure. New (not replacement) structure. |
Repair/replacement of small parts of an existing structure |
| Structure. Replacement of all or substantial part of an existing structure to prevent imminent or correct actual major failure of the structure. |
Replace small areas of rotten or defective timber, make good minor areas of spalling concrete where reinforcing bars are exposed. Replace/repair small areas of rotten/defective joists, rafters, purlins, etc. Not complete trusses. |
| Screed/insulation in a new building/extension |
Repair/replacement of screed/insulation where defective. |
| Screed/insulation. Replacement/repair of substantially all. Improve effectiveness of insulation. |
Work to improve insulation standards, during work to repair/replace small areas of roof. Repair/replacement/increasing thickness of insulation in an existing roof. |
| Finish on new build. Replacement of all/substantially all on existing roof. |
Replacement of roof finish on existing building. Re-coating chippings to improve life expectancy. Replace missing/damaged small parts. |
| Bargeboard/edge trim/fascia on new build |
Repairs/replacement/repainting. |
| Bargeboard/edge trim/fascia, replacement of all/substantially all on existing roof. |
Repairs/replacement/repainting. |
| Drainage on new build/extension. Replacement of all/substantially all on existing roof. |
Clearing out gutters and downpipes. Replacement/repair of individual gutters/pipes. Repainting gutters/pipes. |
| Other items e.g. flashings, rooflights/windows on new build/extension. Replacement of all/substantially all items on existing roof. |
Repair/replacement/cleaning of individual items |
| Provide new covered link etc. between existing buildings |
Minor repairs, maintenance to existing covered link. |
| Rebuild or substantially repair structure of existing covered link. Add porch etc. to existing building |
Minor repairs, maintenance to existing structure. |
| Rebuild or substantially repair structure of existing porch. |
- |
Floors
| Capital |
Revenue |
| Structure and damp proof course (dpc) in new building |
Repair/replacement of small parts of an existing structure |
| Structure and dpc – replacement of all or substantial part of an existing structure to prevent imminent or correct actual major failure of the structure |
- |
| Screed and finish in new build, replacement of all/substantially all on existing floor – e.g. replacement of most carpet/tiles in a room. |
Replacement and repair of screed and finishes/replacement of mats/matwells. Maintenance e.g. re-varnishing wooden floors. |
Ceilings
| Capital |
Revenue |
| Suspension |
Repair/replacement incl. from water damage & necessary decoration |
| Membrane |
- |
| Fixed |
Repair/replacement incl. from water damage. |
| Access panels |
Repair replacement |
| Specialist removal/replacement of damaged/disturbed Asbestos based materials, planned or emergency |
Inspection/air testing. Applying sealant coats to asbestos surfaces for protection |
External Walls - masonry/cladding
| Capital |
Revenue |
| Structure. Underpinning/propping for new build. External finish on new build |
Repairs/preventative measures e.g. tree removal. Repairs/replacement of small parts of an existing structure e.g. repointing/recladding a proportion of a wall where failure has occurred. |
| External finish on existing build where needed to prevent imminent (or correct actual) major failure of the structure e.g. repointing/recladding work affecting most of a building/replacement build. |
- |
Windows and Doors
| Capital |
Revenue |
| Framing – new build |
Repair/replacement of individual frames. Repainting frames. |
| Framing – structural replacement programme |
Repair/replacement of individual windows. Repainting frames. |
| Glazing – new build |
Replacing broken glass |
| Glazing – upgrading existing glazing |
- |
| Ironmongery |
Repair/replacement |
| Improved security |
Upgrading locks etc. |
| Jointing including mastic joints |
- |
| Internal and external decorations to new build |
Internal and external decoration to include cleaning down and preparation. |
Masonry Chimneys
| Capital |
Revenue |
| Structure |
- |
| Jointing including expansion and mortar joints/pointing/dpc |
Repair/repointing |
Internal Walls
| Capital |
Revenue |
| Solid walls - complete including various internal finishes, linings and decorations |
Repairs and redecoration to internal plaster/linings, pin boards, etc. |
| Partitions - complete structure including linings, framing, glazing, decoration, etc. |
Repairs and redecoration |
| Refurbishment and alterations |
Minor alterations |
| Glazing to meet statutory Health and Safety requirements |
Replacement of broken glass |
Sanitary Services
| Capital |
Revenue |
| In new buildings - provision of all toilet fittings, waste plumbing and internal drainage. |
Repair/replacement of damaged sanitary ware, fittings, waste plumbing, etc. |
| Large scale toilet refurbishment |
Small areas of refurbishment |
| Provision of disabled facilities and facilities related to pupils with statements |
Repair/replacement of damaged fittings, waste plumbing etc. |
| Kitchens in new buildings, complete with fittings, waste plumbing and internal drainage. Internal finishes and decorations. General refurbishment. Large and costly items of equipment. |
Maintenance of kitchen to requirements of local authority. Cleaning out drainage systems. Redecoration. Repairs/replacement parts. |
Mechanical Services
| Capital |
Revenue |
| Complete heating and hot water systems to new projects, including fuel, storage, controls, distribution, flues, etc. |
General maintenance of all boiler house plant including replacement of defective parts. Regular cleaning. Energy saving projects. |
| Safe removal of old/damaged asbestos boiler and pipework insulation, where risk to Health and Safety. |
Monitoring systems. Health and safety issues |
| Planned replacement of old boiler/controls systems past the end of their useful life. |
Replacement of defective parts |
| Emergency replacement of boiler plant/systems |
- |
| Provision of cold water services, storage tanks, distribution, boosters, hose, reels etc. in major projects. |
Maintenance and repair/replacement of defective parts such as servicing pipes. Annual servicing of cold water tanks. |
| Gas distribution on new and major refurbishments, terminal units |
Repairs, maintenance and gas safety. All servicing |
| Mechanical ventilation/air conditioning to major projects. |
Provision of local ventilation. Repair / replacement of defective systems / units. |
| Swimming pool plant and its complete installation, including heat recovery systems |
Repair/replacement of parts to plant, pumps and controls. Water treatment equipment and all distribution pipework. Simple heat recovery systems. |
Electrical Services
| Capital |
Revenue |
| Main switchgear and distribution in major projects |
Testing/replacement of distribution boards. The repair and maintenance of all switchgear and interconnecting cables including that in temporary buildings. |
| Control gear, distribution, fixed equipment, protection, etc. |
All testing, repair and replacement of small items of equipment |
| Provision of luminaries and emergency lighting |
Replacement of luminaries, all testing, adjustments and improvements to emergency lighting. |
| Lightning protection in new build. |
Repair/replacement |
| Alarm systems, CCTV, lifts/hoists, etc. |
Repair and maintenance |
| New installation of communication systems, radio/TV, call, telephone, data transmission, IT etc. and provision in new build |
Repair/replacement/maintenance, including all door access systems |
External Works
| Capital |
Revenue |
| Provision of new roads, car parks, paths, courts, terraces, play pitches, steps and handrails, as part of major project, including disabled access |
Maintenance and repair. Car park and playground markings |
| Provision of walls, fencing, gates and ancillary buildings as part of major project |
Maintenance and repair of all perimeter/boundary/retaining walls, fencing and gates. |
| Drains, soakaways, inspection chambers and sewage plant as part of new projects |
Maintenance and repair of drains, gullies, grease traps and manholes between buildings and main sewers. Cleaning of the above and unblocking as necessary. |
| Open air pools - structure, hygiene/safety in new build |
Hygiene, cleaning, maintenance and repairs, including replacement parts. Simple energy saving systems |
| Services distribution - heating mains, gas mains, water mains, electricity mains, renewal of any of the above |
Annual servicing. |
Moveable Equipment – most commonly, Information and Communications Technology.
With the exception of playing fields, pitches and related buildings, the governing body’s responsibility extends only to premises expenditure. This includes “fixed” furniture (e.g. laboratory table), and fixtures and fittings that form part of the infrastructure. It does not include moveable items, for example freestanding desks and freestanding educational equipment e.g. PCs, laptops, projectors, kindles, tablets etc. and this applies even if they are be bolted to benches/ceilings for security and/or safety.
The following table provides guidance on what ICT expenditure is regarded as premises related:
| Premises (governing body responsibility) |
Non-Premises (local authority responsibility) |
| Note: VA Schools are allowed to use capital grant funding to pay for ICT equipment, but VAT will not then be recoverable |
- |
| Building of ICT Suite - including construction works and all equipment, furniture & fittings installed. These become part of the premises. Installation of: ICT cabling; Wi-Fi systems, incl. Ethernet & routers; Security systems, incl. proximity cards. These are purpose built for premises, and not removable for use elsewhere. |
PCs, servers, interactive electronic whiteboards, projectors, printers and fax machines installed individually (not as part ICT suite). Laptops, kindles, iPads and other ‘hand held’ equipment used in the classroom * Laptop trolleys (storage / connection facilities). Electronic tills and biometric identification scanning devices. All of the above are not part of premises as removable and available for use elsewhere. * VAT recoverability on such items used by teachers is as non-VA schools. |
| For… |
go to… |
| Paragraph 6 VAT & expenditure |
VATGPB7550 |
| Paragraph 7 insurance |
VATGPB7560 |
| Annex A Flowchart to determine VAT recovery on revenue and capital expenditure |
VATGPB7570 |
| Annex B Examples of when VAT is recoverable by local authorities under section 33 |
VATGPB7580 |