VAT Status of FE Colleges – Renewed Political Attention
Stuart McKay · Posted on: March 3rd 2026 · read
The VAT position of FE colleges has once again moved into the political spotlight following a recent session of the Public Accounts Committee, attended by the Prime Minister.
During the hearing, questions were raised about the disparity between the VAT treatment of FE colleges and that of academies. As readers will be aware, academies benefit from access to VAT refund arrangements that broadly remove the VAT burden on their non-business activities. FE colleges, by contrast, do not have equivalent refund status and must instead rely on partial exemption and business/non-business recovery methodologies. This often results in significant irrecoverable VAT costs, particularly on capital projects, estates maintenance, and certain overheads.
In response to questioning, the Prime Minister stated that he would “look into” why FE colleges have a less favourable VAT position than academies. While this does not represent a policy commitment, it is notable that the issue has been raised at this level of government.
"The financial implications for the sector are material. Irrecoverable VAT continues to place pressure on already constrained budgets and can influence investment decisions, particularly in relation to estates development and infrastructure modernisation. The issue also sits alongside the ongoing uncertainty created by the Colchester Institute litigation and the wider question of whether government funding constitutes consideration for VAT purposes."
In response to questioning, the Prime Minister stated that he would “look into” why FE colleges have a less favourable VAT position than academies. While this does not represent a policy commitment, it is notable that the issue has been raised at this level of government.
We will continue to monitor developments closely. If you would like to explore how your current VAT recovery position compares to sector benchmarks, or to review planning opportunities in light of recent case law and policy discussion, please speak to a member of our FE VAT team.
