VAT rise could cost Welsh universities £3.5 million

A new survey carried out amongst Welsh universities has shown that the 2.5% VAT rise on 4 January 2011 will lead to an increase of £3.5 million to the universities’ annual VAT bill.

The survey was carried out by Newport-based Centurion VAT following their Annual Welsh University VAT Forum, as they were keen to find out the impact the VAT rise would have on this key public service in Wales.

Crucially, the results have shown that the increase in VAT could see Welsh Assembly Education Minister Leighton Andrews’ university merger plans coming to fruition, with sixty four percent of the universities who completed the survey concerned that in the wake of the added financial pressure, mergers could become inevitable.

Fifty four percent of establishments questioned also said that one of the major knock on effects of the VAT increase would be budget cuts that would be likely to lead to a delay in refurbishment work and equipment purchases. A consequence that would undoubtedly have an impact on a large number of Welsh businesses.

Alan Maher, director of Centurion VAT said, “The VAT rise in January will obviously impact on a huge number of organisations in Wales but it is particularly significant to the Higher Education sector given the current scrutiny they are under.

“As well as the suggestions of mergers and the debate surrounding fee increases, universities have been under added pressure from HM Revenue & Customs to revise the amount of VAT they can recover. Sixty four percent of universities have seen a loss in their VAT recovery rate from the move to a new VAT method introduced by HMRC, with the majority of those seeing a three percent reduction. The VAT increase coming so swiftly after this change mean that universities are facing testing financial times.”

The recent financial crisis has put real pressure on the universities in Wales who are seeing the effects in many different ways. A 2.5% increase will strip tens of thousands of pounds from university budgets and dramatically limit spending power. It is highly likely that cuts will have to be made and students and staff are the ones who will bear the brunt of the impact.

Mr Maher added, “Although the majority of universities have started to prepare for the VAT rise I would urge those who haven’t to do so immediately. The impact of this rise will be felt across the sector and it is vital that organisations do as much as possible now to mitigate the effects.”

Centurion VAT, which reviews the VAT practices within corporate, public sector, and charitable bodies, was originally set up by the University of Wales, Newport, in 1998, in order to help the higher education sector handle the complexities of VAT.

In 2007 it became an owner managed consultancy and has since expanded its VAT service offering across the public and corporate sector in Wales, identifying ways in which VAT can be used to improve cash flow and create savings for businesses on a contingency fee basis.