HM Revenue & Customs (HMRC) have set out a business brief removing the VAT Exemption for Private School fees and boarding fees.
This was an anticipated change following pledges in the new government’s election manifesto. It is being introduced a little earlier than some expected. With effect from 1 January 2025, all education services and vocational training supplied by a private school for charge will be subject to VAT at the standard rate of 20%, this is also set to include boarding services.
Furthermore, there are some anti forestalling provisions also. Many independent schools have been inviting fee payers to pay their school fees in advance to secure a more favorable VAT treatment. We now have clarification as to how advance payments will be treated:
- With effect from 29 July 2024 any fees invoiced or paid that relate to school terms after 1 January 2025 will be subject to the Standard Rate of VAT at the beginning of that term (i.e. January 2025)
- School fees paid before 29 July 2024, will not be affected by the above and will follow the old rules, meaning prepayments prior to this date will not result in a charge to VAT at the standard rate.
It has also been confirmed that these changes will not impact pupils with the most acute special educational needs, where their needs can only be met in private schools. As these are most likely paid for by Local Authorities, the plan is for the Local Authority to reclaim the VAT they are charged by the school so the pupil is able to get the education that meets their need.
Draft legislation has been released, and a consultation will now run until 15th September 2024 after which any changes will be enacted.
Interestingly, whilst this would in theory require such institutions to register for VAT with HMRC, the announcement suggests that private schools not currently registered for VAT should not apply to HMRC to register in respect of the announcement at this time and that detailed guidance on how and when to register for VAT will be published in due course. We hope that further announcements are made in sufficient time to allow entities affected to deal with the consequences and register accordingly.
Finally, as an addition, the Business Rates relief that would have also applied to this type of organisation are also planned to be removed, adding an additional burden to this sector.
Understanding tax liability can be daunting so we have a dedicated team on hand to offer expert advice. Contact us at tax@randall-payne.co.uk or call 01242 776000 and one of the team will call you back.
