The Department for Education has been left with a £10.3 million hole in its budget over a failure to secure VAT refunds for new free school sites.
New departmental accounts for 2021-22 reveal the millions in losses are a result of potential VAT refunds going unclaimed before HMRC’s deadline.
Trusts are able to reclaim the tax on non-business purchases from HMRC. The DfE said it bought several sites for free schools and paid the VAT itself, on the basis trusts would later claim and repay the department once schools opened.
But it has now accepted this will not happen, saying “several trusts have not reclaimed this acquisition VAT and therefore cannot repay the department”.
The claims for nine trusts’ free school sites are “no longer eligible as they are over the four-year limit set by HMRC”.
The trusts include some of England’s largest, Star Academies and the Harris Federation, with £4.1 million written off over the former and £1.4 million over the latter.
The DfE does not explicitly attribute blame, but appears to be implying responsibility lies with the trusts for the losses – or even HMRC for its deadline.
Free school projects have faced delays
Yet many new free school plans have been plagued by construction and other delays, raising the possibility some trusts were already ineligible by the time their schools opened.
Responsibility for such delays could lie not only with trusts themselves, but with the DfE, construction firms, local authorities or other stakeholders – or events beyond any party’s control.
Both Harris and Star have seen free schools delayed previously, though the report does not confirm which schools the unclaimed refunds relate to.
Other trusts not claiming refunds include several that have closed down, such as scandal-hit Perry Beeches Academy Trust. It was formally dissolved earlier this year after relinquishing all its schools in 2018.
A government probe had found the trust, previously praised by ministers, funnelled £1.3 million to a private company owned by its “superhead” Liam Nolan without following proper procedures.
The Department has now written off £1.1 million in VAT refunds it will not receive for an unspecified Perry Beeches free school site.
Another £500,000 of losses have been accepted by the DfE over the University Cathedral Free School, later renamed the University Church Free School. Its sponsor, the University of Chester Academies Trust, announced it would close for good for financial reasons in 2018.
The DfE, Harris Federation and Star Academies have been approached for comment.