The Department for Education (DfE) has defended its continued refusal to exempt sixth form colleges from VAT after a controversial move to give academies borrowing powers.

The borrowing powers of sixth form colleges have long been seen by government as a justification for their continued payment of VAT, but an announcement that academies — and also colleges — will be allowed to borrow from the DfE’s condition improvement fund (CIF) has prompted the Sixth Form Colleges Association (SFCA) to renew its call for change.

SFCA deputy chief executive James Kewin said he was pleased sixth form colleges would also be able to take advantage of the low levels of interest offered by the DfE scheme — ranging from 1.5 per cent to 2.5 per cent — but said the inclusion of non VAT-paying academies in the deal was unfair.

Mr Kewin said: “The government’s position on the VAT treatment of sixth form colleges has always been shaky, but this latest development means it is now completely indefensible.

“We urge the government to drop this tax on learning that sees the average sixth form college redirect £335,000 a year away from the front line education of its students to pay VAT. Young people should receive the same level of investment in their education, irrespective of where they choose to study.”

He welcomed the fact sixth form colleges would have access to the CIF loans, adding: “We have been making the case to government for some time that the ability to borrow money has become an increasingly theoretical freedom for many sixth form colleges — many of our members are unable or unwilling to take out new loans as the ongoing reduction in funding hinders their ability to make repayments.

“So we are pleased that the Government has responded to our concerns and allowed Sixth Form Colleges to access loans for capital projects at the same non-commercial rates as schools and academies.”

A DfE spokesperson said: “To help schools get access to the funding for maintenance and improvement of buildings they can now choose to borrow from the
CIF at a favourable rate — with zero interest for energy efficiency projects. All loan repayments will be cycled back into the fund, meaning other schools will continue to benefit once the loan has been paid.

“The ONS categorises sixth form colleges as private sector organisations and, as such, they are liable for VAT. Academies are classed as public sector organisations and are not.

“Although academies are now able to borrow fixed sums of money from the CIF, they cannot borrow from the private sector. Sixth form colleges are still able to borrow from the open market.”