From January 1, 2025, significant changes to the VAT treatment of private school fees will take effect. Marking a major shift in how educational services are taxed in the UK. We’ve summarised these changes below, and addressed potential concerns schools and a parent/ guardian may have.
Summary of changes to private school fees
Private school fees will be subject to VAT at the standard rate of 20% from the 1 January 2025. These changes are aimed at educational services and vocational training provided by a private school, but some things that are closely related to educated, such as accommodation, catering and transport will remain exempt from VAT.
Schools not yet registered for VAT will need to register and are encouraged to do this as early as possible. Schools will also be able to reclaim VAT on costs that they are currently unable to. But the fact they will have both taxable and exempt supplies will mean they are partially exempt and must keep calculations to ensure the correct amount of VAT is claimed.
School and parent/guardian concerns
Arguably the biggest concern these changes have will be on the fees payable to the school. Some schools may wish to absorb some of the increase, but current margins may mean this is only a short-term solution. Given schools will be able to reclaim some VAT on costs, they may wish to understand what fee increases are necessary to maintain existing profits.
Understanding what activities will be liable to VAT and which will remain VAT-free will also be key, as schools want to ensure they do not over or under charge parents.
Many schools offer pre-payment schemes and HMRC are aware that these have become more popular in anticipation of the VAT changes. As a result, any fees prepaid on or after the 29 July 2024 will be subject to VAT, unless they relate to the term starting September 2024. Some school may need to collect additional fees even when parents have already paid in advance.
VAT is both a complex and self-assessed tax. The penalties for getting things wrong can quickly amount to significant sums. Failure to charge VAT correctly will lead to unnecessary bills payable to HMRC. In many cases, HMRC take several years to resolve tax disputes with businesses so schools may end up in a position where they are unable to charge parents of former students underpaid VAT. For these reasons it is vital schools are ready for these changes as soon as possible.
How we can help
Many of the private schools we are talking to are unfamiliar with VAT. Working with schools, we can provide advice, explaining how the changes will impact the school financially and assist communicating information to parents.
Partial exemption calculations and the Capital Goods Scheme are complex parts of VAT law which are likely to affect private schools. We can help with these.
The team at DJH can produce forecasts to help schools understand how much they will be able to reclaim on their costs and what effect different fee increases will have on their margins.
We offer to liaise with HMRC on behalf of private schools. Assist with the VAT registration process, preparation and submission of VAT Return’s and provide training to in-house staff when required.
In summary, we can take away some of the stress these changes will bring allowing you to focus on your normal day to day operations. If you need our support, contact our team.
