The Government has been called on to stop academies being charged VAT when they provide community activities, a situation that effectively penalises them for offering extended services.

Labour MP Karen Buck recently raised the issue at education questiontime in the House of Commons. "It is extraordinary that existing academyschools have to pay VAT on community activities," she said. "That is anadditional financial penalty and an obstacle to their providingprecisely the extended sports, drama and other facilities that thosecommunities desperately need." She urged ministers to "sort out thesituation immediately".

The problem affects paid-for activities in new buildings such asacademies, which have charitable status. In tax law, renting facilitiesto community groups is defined as a business activity. Academies, unlikelocal authority schools, are liable for VAT on their use, although theyare allowed to use up to 10 per cent of their time or space on suchactivities before charges take effect.

Julian Piper, extended services director at ContinYou, agreed the issuewas a concern. "Academies should be able to function as extended schoolsand this is becoming more of an issue because the sponsors of a numberof academies particularly want to develop extended activities. The issueis what is regarded as a business activity and we need to find someclarity on that."

Responding to Buck's questions on the issue, junior children's ministerParmjit Dhanda told Parliament: "It is an anomaly that we need to workthrough, and our officials are engaged in that process." He added that"we will continue to work with Treasury officials to get it sorted outas soon as possible".

Buck, the MP for Regent's Park & Kensington North, first raised theissue in Parliament last year. Speaking at a debate in July 2006, shesaid: "In other words, the better the academies serve the community, byopening their doors and promoting the use of the buildings for extendedschool activities, the greater the penalty."

A spokeswoman for the Treasury told Children Now its officials wereaware of the issue and were discussing it with the Department forEducation and Skills.

Academies often serve deprived communities, which many believe willbenefit most from extended activities. Buck said: "Extended schools areproving their worth in terms of community links and improving attendanceand attainment. Nowhere is that more important than in academy schoolssuch as those in my constituency, which serve exceptionally deprivedpopulations."