From 1st January 2025, VAT at the standard rate of 20% must be charged on private school fees. New draft legislation removes the existing exemption contained within Schedule 9 of the VAT Act 1994. It is confirmed VAT will be due on upfront fees paid on or after 29th July 2024 for the supply of education from January 2025. VAT will also be due on the provision of boarding and vocational training if supplied by a private school.
What has been published?
- HM Treasury Update and Technical Note
- Draft Finance Bill Measure titled ‘Removal of VAT exemption for private school fees’
- An Explanatory Note
- VAT Revenue and Customs Brief 08 (2024).
Key points:
- The initial legislation defines ‘private schools’ as providers of education for school age children up to 19 for which a fee is charged.
- Despite term fees, vocation training and board being standard rated. Other goods and services closely related to the provision of education will remain VAT exempt, such as, catering, schoolbooks, transport and field trips.
- Nursery and wrap around care (breakfast and afterschool clubs) are likely to remain exempt under the welfare relief.
- Fees received prior to 29 July 2024 will remain exempt so long as it can be allocated to a set fee structure for a specific term. Where a school has received unallocated funds from parents and carers this would leave them open to challenge by HMRC.
- The supply to pupils with special educational needs will be subject to VAT, irrespective of the pupil having an education, health and care plan (EHCP). Local authorities who pay for the education for those pupils with an EHCP are entitled to recover the VAT.
- Other potential taxable supplies private schools will make will include, sales of uniforms, school photographs, tuck shops, charges for providing non-educational based clubs.
- HMRC’s current advice to private schools that are not yet VAT registered is to delay registration until further instruction. Those who make taxable supplies may register voluntarily.
VAT registration, admin/system changes, re-assessing income streams and conducting partial exemption calculations will be uncharted territory for schools who will be registering for the first time.
Those who already VAT registered will be burdened with an array of changes such as reallocation of resources to prepare for the new measures, upgrade of current software/systems and a review of partial exemption methods.
As schools will be reviewing their price points for school terms, increases are likely to depend on the amount of VAT they can recover on their purchases. It is a worthwhile exercise for schools to review capital expenditure on land and property in the last 10 years to check if a percentage of previously irrecoverable input tax can now be recovered.
If you would like more information or any advice on this article, then please contact us by emailing solutions@ellacotts.co.uk or call us on 01295 250401.
Information for readers: This material is published for the information of clients. It provides only an overview of the regulations in force at the date of publication, and no action should be taken without consulting the detailed legislation or seeking professional advice. Therefore, no responsibility for loss occasioned by any person acting or refraining from action as a result of the material can be accepted by the authors or the firm.
