Academy energy bills - VAT reductions and prices

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Understanding academy energy bills

As part of the Conservative government’s plans for education, more schools in the UK are to be converted to academy status. Their target is to convert 1,000 underperforming, local authority-run schools to academy status by 2020. This process currently takes up to 13 months, but under the government’s new plan, the change will be fast tracked to taking just 2 or 3 months. 

What does academy status mean?

Academies are state-funded institutions, and rather than being under local authority control, they are run by independent academy trusts – many of which are charities or non-profit organisations. Academy status is typically granted to schools that are deemed to be failing – i.e. rated ‘inadequate’ by Ofsted – under the control of local education authorities.

Converting to academy status has a number of associated financial benefits, it allows head teachers and staff greater control over the way their school is run, and it provides the opportunity for specialisation in one or more subjects. However, there are sometimes also downsides to gaining academy status, such as the fact that schools may end up unwittingly paying more for their energy bills than they need to.

Academy energy VAT reduction

Where business energy is concerned, academies are granted charity status in the eyes of suppliers, meaning they are entitled to a reduced VAT rate of 5% on some or all of their energy, as well as exemption from paying the Climate Change Levy (CCL). However, many academies are mistakenly not awarded this reduction, and end up paying more than they need to.

Paying the full 20% VAT and CCL usually equates to around one-fifth of a school’s total energy bill – a reduction that academies could benefit from by rectifying the error. Existing academies can also claim a VAT rebate backdating a maximum of four years if they have been paying too much. For instance, if a school converted to academy status three years ago, and had been paying the full 20% VAT rate for that time, they would be able to claim back three years’ worth of rebate. Click here for more details.

How to apply for a VAT reduction or rebate

If you want to apply for a reduction in energy VAT, or a rebate for overpayment, then you will need to fill out a VAT Declaration Form. Click your supplier below to download the appropriate form:

By successfully applying for a VAT reduction, you will automatically be granted exemption from paying the Climate Change Levy.

It’s worth noting that you may not receive a VAT reduction on all of your energy usage, depending on what activities your school is involved in outside of standard education. For example, if you let rooms in the school for evening classes, then you may have to pay full VAT on energy consumed during this time.

Other issues with academy status

There could also be a few other difficulties that schools encounter in the process of converting to academy status. These may include:

  • Unable to convert:
    As previously mentioned, it is usually underperforming schools that are selected for academy status. If these schools are in significant debt, then it could block their ability to become academies. Often, one considerable contributing factors towards a school’s financial debt is the cost of their energy bills. Schools who are unable to convert to academy status due to debt may be able to rectify the problem by reducing the cost of energy bills – and thus reducing their debts – which can be done through switching to a cheaper energy deal
  • Out of contract rates:
    When a school converts to academy status, they are effectively viewed as a new organisation by energy suppliers. This is registered as a change of tenancy on the school’s energy accounts, and as a result, the supplier will place the academy onto ‘out of contract’ rates – as they do with all new customers. These rates are typically much higher than the best on the market, and schools should endeavour to switch to a better deal as soon as possible in order to avoid overpaying.
  • Credit score restrictions:
    Because a newly converted academy is treated as a new business, it’s likely that it will not have a good credit score – if it has one at all. This may restrict the choice of suppliers available to the academy when it comes to arranging energy contracts – which is something that all prospective academies should be aware of.

    It’s worth noting that if the school is part of a group of academies, then it will not be affected by a low credit score. This is because suppliers will consider the score of the group – an already existing body – rather than the individual academies. 

How Make It Cheaper can help

Our energy experts can provide assistance with your VAT reduction or rebate application – should you need it. We can also help you to find out if you are paying too much VAT, and if you are on out of contract energy rates. By comparing the current rates that you pay, we could help you to find a better deal for your academy’s energy. Call 0800 140 4692, Monday to Friday, 9am to 5.30pm.

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