On 29 July 2024, the Government published a technical note, draft legislation and an explanatory note outlining the new 20% VAT charge on private school fees across the UK.
What are the new rules?
Under the new rules, from 1 January 2025, all charges for education services and vocational training supplied by a “private school” (or a “connected person”) will be subject to VAT at the standard rate of 20%.The 20% VAT charge will also apply to related boarding and lodging services as well as additional supplies of education after school hours and during holidays.
If private school fees are pre-paid before January 2025 – is VAT still due?
The legislation will have retrospective effect so that any fees paid from 29 July 2024 that relate to a term starting in January 2025 or later will be subject to VAT. Therefore, it isn’t possible to pre-pay school fees now for terms that start in January 2025 or later such that no VAT is due.
The Government has noted that there are reports of an increased number of parents utilising schemes that enable pre-payment of private school fees, seemingly in an attempt to avoid those fees being subject to VAT. In response they have said that “HMRC will be carefully scrutinising the detail of these schemes to ensure that schools pay the correct VAT where it is due”.
Exemptions
There are some important exceptions and exclusions contained within the draft legislation. The following will continue to remain exempt from VAT:
- Nursery school fees (both standalone and attached to a private school);
- Essential services other than boarding, such as school meals, books and stationary.
- Education and vocational training provided by further education colleges, which are classified as public sector institutions;
- Non-educational before/after school childcare or childcare based holiday clubs;
- Special Educational Needs (SEN) pupils who have been placed in a private school because their needs cannot be met in the state sector.
Key action points
Private schools that are not currently VAT registered will need to register with HMRC in line with the normal VAT rules from 1 January 2025. Schools who do not currently make any taxable supplies will be able to register with HMRC from 30 October 2024 – but note, they will have to charge VAT from the date they receive their VAT number (although the education and boarding services will remain exempt until 1 January 2025).
At the moment, the Government’s explanatory note explicitly states that private schools should not yet register for VAT, and instead await further guidance.
If you would like to find out more please contact our Corporate Team who would be happy to assist you.