HM Revenue & Customs (HMRC) have released a technical note and draft legislation outlining the new government’s plan to implement VAT on private school fees, fulfilling their recent pledge.
What the HMRC technical note confirms
- VAT is to be charged on all private school fees relating to education and vocational training provided after 1 January 2025.
- VAT will be charged on fees paid for any education and/or vocational training provided to school aged children, including six forms, but not it seems to nursery or other preschool age provision.
- VAT will be charged on accommodation and associated board and lodging fees, even if these are separately identified or charged by organisations closely connected to the school.
- The provision of catering to pupils during normal school hours will remain VAT exempt.
- Any payments made after 29 July 2024 for education provided after 1 January 2025 will automatically be subject to VAT.
- Any fees paid before today for education provided after 1 January 2025, will potentially continue to benefit from the VAT exemption. However, HMRC will scrutinise such prepayment arrangements carefully. The note makes it clear that HMRC/HM Treasury are of the view that simply because fees were paid before today, does not automatically mean they will not be subject to VAT. In particular the note refers to the requirement that to be free of VAT, such payments must be for specified supplies identified at the time of payment, rather than being a lump sum payment for services which were not specified or identified at the time the payment was made.
- Schools which currently make no taxable supplies will be allowed to register for VAT from 30 October 2024.
- Schools which make some taxable supplies but are not currently VAT registered, can register on a voluntary basis from a current date.
- There is one potentially positive note. Fees paid by Local Education Authorities (LEAs) and the devolved administrations for the education of children with support needs will also become subject to VAT. The LEAs will be able to recover this VAT from HMRC/HM Treasury, giving such schools the opportunity to recover VAT on their costs at no additional economic cost to their customers.
This policy has already caused immense concern within the sector, but the speed at which the current Government wish to impose the change will cause added angst as many schools will not be VAT registered nor will they be set up to deal with the VAT.
If you have any further questions about how the new VAT rules will affect your school fees or need additional support, please don’t hesitate to contact our VAT specialists.