Understanding the impact of the removal of VAT exemption for private school fees

Overview

On Monday 29 July, Chancellor Rachel Reeves announced significant changes to VAT on private school fees and boarding services. Effective from 1 January 2025, all education services, vocational training, and boarding services provided by private schools or connected entities will be subject to VAT at the standard rate of 20%.

Classes for children of nursery school age will continue to remain exempt from VAT. 

Details of the change

The government also introduced anti-forestalling measures outlining that fees invoiced or paid on or after 29 July 2024 and connected to school terms starting from 1 January 2025, will be subject to the standard VAT rate at the beginning of that term.

School fees paid before 29 July 2024 will be subject to the VAT treatment applicable at the time of payment, provided that the fee rate for the relevant term was established and known at the time. As the VAT exemption was removed from 29 July onwards, payments made before this date will not be subject to the new VAT rules.  However, it is understood that HMRC may look to challenge prepayment schemes that were put in place by private schools trying to get ahead of the introduction of VAT, where they believe the advance payments received did not create a valid tax point occurring before 29 July 2024 because it did not relate to a fully identified and costed future supply.  We are awaiting further details on how HMRC will address this issue.

Under the proposed legislation, all other goods and services provided for the direct use of pupils, and which are closely related to education or vocational training will remain exempt from VAT when provided by a private school or by another eligible body to a private school.

The Government will also bed business rate relief for private schools with effect from April 2025.  Independent schools were eligible for 80% charitable rates relief.

HMRC have launched a consultation which runs until 15^th September and invites comments from stakeholders so if you are interested in discussing a response to the questions posed and would like to talk it through, please get in touch using the contact details below. 

Full details of the technical note can be found in Chapter 5 on page 21.

Impact on Private Schools

Private schools that are not yet VAT-registered will need to register with HMRC by1 January 2025. Schools that do not currently make any taxable supplies will be able to register with HMRC from 30 October 2024; however, schools that do make taxable supplies can voluntarily register for VAT ahead of this date.  

How HB&O can help you

The removal of the VAT exemption on private school fees shows a significant change in the taxation landscape for private education in the UK. The new regulations, which will take effect from 1 January 2025, will require both schools and parents to prepare for this adjustment, and the long-term effects on the sector are yet to be fully understood.

If you would like advice and support with the VAT registration process or would like to discuss the information above in more detail, please get in touch with our specialist VAT department, and a member of the team will be able to assist you with your queries.

Email: [email protected]  

Phone: 01926 422292