VAT and Private Schools

As has been well-publicised, the government is now making good on its promise to apply VAT to fees charged by private schools. It is doing so by removing education and vocational training provided by a private school (other than education in a nursery class) from the VAT exemption.

It is intended that the new law will apply to fees charged in respect of terms starting on or after 1 January 2025.  Although various regulatory bodies are asking HMRC to consider delaying this change until the end of the next school year, for now, private schools need to work towards the 1st January 2025 date and begin to implement the necessary changes to its systems ahead of this date.

In terms of payments made prior to the change in law by parents, the position is as follows:

• If a fee was paid prior to 29 July 2024, technically this fee is exempt from VAT (even if it relates to education provided after 1st January 2025) if the fee rate for the relevant term had been set and was known at the time that the payment was made.  If not, the payment is subject to VAT to the extent that it relates to education supplied after 1st January 2025.
• If a fee is paid after 29 July 2024, it is subject to VAT to the extent that it relates to education supplied after 1 January 2025.  Fees paid for the 24/25 school year after this date will therefore need to be apportioned between the first term (VAT exempt) and the other terms within the year (VATable).

In addition to the above, private schools will need to bear in mind the following:

• Most affected schools will need to be registered for VAT with effect 1 January 2025.  Applications should therefore be submitted to HMRC well in advance of this date.
• VAT will be recoverable on expenditure to the extent that the costs in question support the VATable activity of the school.  If the school will continue to generate an element of income that is exempt from VAT, systems will need to be implemented to enable the school carry out the required partial exemption calculations and identify the proportion of VAT on expenditure that is recoverable.  In addition, significant property/building related costs incurred in the ten years prior to VAT registration should be identified as an element of the VAT on such costs might now be recoverable.
• In a strange quirk of the new rules, certain supplies that are “closely related” to supplies of education will remain exempt from VAT.  This will include charges for school meals, transport to and from school, books required for school and stationery.

The team at The VAT People Limited are experts in the education sector.  Affected schools are urged to contact our team on 0161 477 6600 or enquiries@thevatpeople.co.uk for further guidance.