Login
Further to our previous article published in August 2024 about VAT on Private School Fees, further guidance has now been provided by HMRC to clarify checking if you must register for VAT if you receive private school fees and charging and reclaiming VAT on goods and services related to private school fees.
Paula Mason, Scrutton Blands’ VAT Manager, summarises the changes and the impact on private school’s VAT registration, invoicing and any exemptions.
Check if you must register for VAT if you receive private school fees
This confirms that from 30 October 2024, school and boarding fees for terms starting on or after 1 January 2025 are subject to VAT at the standard rate of 20%.
A private school is defined as any school or institution that provides full time education for a fee to either pupils of compulsory school age or 16–19-year-olds, where that institution is primarily concerned with providing education suitable to that age range. Therefore, this covers private schools, independent schools and private sixth form colleges.
Any applicable private school or connected person* must register for VAT if either:
- Total taxable turnover* for the last 12 months is over the VAT registration threshold of £90,000 – if this is the case, an application to register must be made within 30 days of the end of the month in which the threshold was exceeded and the effective date of registration (EDR) will be the first day of the second month after exceeding the threshold.
- Total taxable turnover is expected to go over the VAT registration threshold of £90,000 in the next 30 days – if this is the case, an application to register must be made within 30 days and the EDR will be the date it was realised the threshold will be exceeded.
Businesses affected can voluntarily register from 30 October 2024 but the date required to be registered will depend on the value of fee payments received for terms starting on or after 1 January 2025 and the date the payments are received.
VAT will not be due on prepayments of fees paid before 29 July 2024.
Payments made between 29 July 2024 and 29 October 2024 will be subject to VAT from either the first date of the school term that the fees have been paid for, or 1 January 2025, whichever is later.
Payments made on and after 30 October 2024 will be subject to VAT on the date the payment is received.
If VAT registration is required, it must be remembered that VAT cannot be included on invoices until a VAT registration number has been provided, but prices can be increased to account for the VAT due to HMRC.
Here are some examples to help understand this further.
Example 1
A payment of £95,000 is received on 30 August 2024 for a school term commencing 8 January 2025.
The payment is subject to VAT on the later of the first date of the school term or 1 January 2025, therefore in this case it will be 8 January 2025.
As the amount received is over the VAT threshold of £90,000 and the education provider was aware it was over the threshold on 10 December 2024, i.e. 30 days before 8 January 2025, they must register for VAT within 30 days of 10 December 2024 and this will be their effective date of registration.
VAT will be due on all payments received from 10 December 2024.
Example 2
A payment of £95,000 is received on 31 October 2024 for a school term commencing 8 January 2025
The payment becomes subject to VAT on the date the payment is received.
As the education provider is aware they will exceed the VAT threshold they must register for VAT within 30 days.
So, 31 October 2024 will be their effective date of registration and VAT will be due on all payments received from 31 October 2024.
Example 3
Payments for the school term commencing 8 January 2025 do not go over the VAT threshold of £90,000 until 31 January 2025.
As the education provider has now exceeded the £90,000 VAT threshold in the previous 12 months, they must register for VAT within 30 days of the end of the month in which they exceeded the threshold.
So, 1 March 2025 will be their effective date of registration and VAT will be due on payments received from 1 March 2025.
Charging and reclaiming VAT on goods and services related to private school fees
This guidance explains how to treat the various education supplies from a VAT perspective. It explains the difference between single and multiple supplies and the importance of establishing whether VAT applies to the whole transaction.
A package of education for one fee to cover education and boarding, as well as meals and transport, would be considered a single standard rated supply.
Whereas a supply of education and boarding for one fee plus a supply of school meals for another fee will normally be treated as separate supplies, with the education and boarding being standard rated and the school meals being exempt if considered a closely related service.
The guidance also refers to the case where education is provided together with welfare services. VAT exemption may apply if the main part of the supply is welfare and the education element is ancillary.
An example of where welfare could be considered the main part of the supply would be where a vulnerable person is supervised and guided to develop a capacity to live independently and complete everyday tasks.
Day care services including those provided by a nursery, playgroup or after school club also fall within the welfare exemption as they relate to the care and protection of children.
In relation to grant funding, block grant funding not relating to individual pupils would be considered outside the scope of VAT. However, a grant to cover a specific pupil’s fees will be subject to VAT.
Where local authorities fund the place of a student, VAT will be chargeable however, the local authority can include this input VAT in their VAT return . VAT will also apply to bursary payments unless the school provides a bursary payment to itself, in which case it will be outside the scope of VAT.
Partial exemptions & the Capital Goods Scheme
Due to the VAT changes in relation to private school fees, it is likely that private schools will be making both taxable and exempt supplies. This will mean they will be partially exempt businesses. As such, they may not be able to claim back all the VAT they suffer on their purchases, and a partial exemption calculation will need to be calculated for each VAT period and on an annual basis, referred to as the annual adjustment.
VAT suffered pre-registration can also be reclaimed as follows:
- Goods – received not more than 4 years before registration that are still on hand at registration.
- Services – received not more than 6 months before registration that relate to business activities carried out after registration.
In relation to goods, the VAT suffered may need to be apportioned over their economic life – normally five years – and be based on both the taxable and exempt periods of use.
For large capital items, such as land and building works over £250,000 or an item of computer equipment over £50,000, the Capital Goods Scheme will apply if either the works were carried out up to 10 years ago, or the computer equipment was purchased up to 5 years ago.
This scheme spreads the initial VAT claimed over either 10 or 5 years based on taxable use. This could mean that a private school could recover VAT suffered on capital goods as they are now used for taxable supplies of education rather that exempt supplies of education.
This new guidance is both complex and delicate especially when communicating with parents. For further advice in relation to your private school VAT registration, invoicing, partial exemption or the Capital Goods Scheme, please don’t hesitate to contact our VAT Manager, Paula Mason on 0330 058 6559 or by emailing hello@scruttonbland.co.uk
*A connected person is a body closely bound to a private school by financial, economic and organisational links.
Back