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Details of the new Government’s pledge to remove the VAT exemption for the provision of education by private schools has now been received. It has been confirmed that, as of 1 January 2025, supplies of all education services and vocational training supplied by a private school, or a “closely connected person”, for a charge will be subject to VAT at the standard rate of 20%. Boarding services closely related to such a supply will also be subject to VAT at 20%. Education services provided to local authority funded pupils will be subject to VAT at 20% but the funders will be compensated for the VAT they incur. Nursery fees for pre-school age children will remain exempt.
In relation to fees paid in advance, the technical note released states that any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT.
The “closely connected person” wording is an anti-avoidance measure to cover instances whereby private schools may contract out certain supplies in order to still benefit from VAT exemption.
What has also been confirmed is that other goods and services “closely related” to education, other than boarding, such as school meals, transport, and books and stationery will remain exempt from VAT. “Closely related” goods and services are defined as those provided for the direct use of the pupil and that are necessary for delivering their education.
All the above means that if private schools are not already VAT registered, they will be required to register before 1 January 2025 (the earliest date they will be able to register from being 30 October 2024).
When approaching us for advice, we suggest that private schools should consider the following:
- Possible benefits of an earlier voluntary VAT registration where already making taxable supplies, e.g. zero rated transport.
- VAT recovery on costs incurred and capital expenditure, e.g. new buildings, including projects completed before change of VAT treatment and planned expenditure.
- Reviewing terms and conditions of their contracts.
- Adding additional revenue flows to improve VAT recovery.
- Advanced payments received, whether they meet the tax point rules and, if not, discussing with parents any VAT that may be due.
- Suitable partial exemption methods (HMRC will be issuing further guidance regarding the operation of a partial exemption scheme for schools).
It has also been confirmed that business rates relief will be removed from April 2025.
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