Ahead of the General Election, Matt Orange, Head of Indirect Tax, outlined Labour’s intention to remove private schools’ VAT exemption and business rates relief.
Now that it has been confirmed VAT will apply to educational services, Matt’s back to explain how these rules will impact both schools and parents.
Take it away Matt
On the 29 July, a technical note and draft legislation were issued confirming that VAT will apply to educational services and vocational training supplied by a private school, or a connected person, from the 1 January 2025.
Furthermore, any fees pre-paid on or after the 29 July 2024 will be subject to VAT. On the surface of it, it may appear that all fees paid in advance before this date will escape VAT, however HMRC are aware that some pre-payment schemes are structured in a way that means a tax point has not yet been triggered. This occurs when a sum is paid in advance, but it could be used for one of several purposes at a later date.
The technical note confirms HMRC are likely to challenge these schemes and will seek to collect VAT if they assess it is due.
Exemptions and special cases
The changes won’t affect everything supplied by private schools. Charges for supplies “closely related” to education, such as accommodation, catering, transport and school trips, will remain exempt from VAT on the basis these are for the direct use of the students and are necessary for delivering the education services.
Some before and after school childcare clubs will also remain exempt from VAT on the basis they are welfare rather than education services.
VAT registration and reclaiming VAT
VAT registration for private school who are not currently entitled to register for VAT will open on the 30 October.
Once VAT registered, private schools will be able to reclaim some VAT on costs they incur. Given that the majority of private schools are likely to have a mixture of taxable and exempt income, they will also be partially exempt, so will need to calculate how much VAT on their costs they are entitled to reclaim.
It’s clear to see that the VAT position for private schools is about to become very complex. I’d encourage these schools to start planning and considering the full effects these changes will have as soon as possible.
Here to help
Navigating these changes can be challenging, and we understand that private schools may need additional support. Our team is here to assist with any questions or concerns you may have regarding the new VAT regulations.
Whether you need help understanding how the changes will affect your school’s finances, guidance on VAT registration, or advice on reclaiming VAT, we can provide expert advice.
