The government has now confirmed that private school fees will no longer be exempt from VAT from 1 January 2025.
It has published draft legislation on applying VAT to private school fees and boarding fees across the UK and removing the business rates charitable rates relief for private schools in England.
The new tax will apply immediately to any fees for the school term beginning January 2025. The government has introduced an anti-forestalling measure covering all fees paid from 29 July up to 30 October, preventing parents from avoiding the additional cost by paying up front. HMRC will scrutinise payment of fees for any advance payment made prior to 29 July to ensure the VAT tax point rules are met.
Where special needs pupils receive funding to attend a private school because their needs cannot be met in the state sector, their funder will be compensated for the VAT they incur on these pupils’ fees.
Nursery classes provided at private schools will remain exempt from VAT, which is defined as schooling of children below the compulsory school age for the UK. The exemption relating to other closely related supplies (other than boarding fees) will also remain exempt. This will bring private schools into the partial exemption regime for VAT accounting and where a private school is not already VAT registered, registration will be required from 1 January 2025.
In addition to ending the VAT exemption on school fees, the government will also end business rate relief for private schools which is set to take effect from April 2025. Previously, independent schools were eligible for an 80% charitable rates relief.
A consultation will run for seven weeks until 15 September. More information on the draft legislation and details of how to comment or ask the government questions can be found on the gov.uk website.
Like all VAT-registered businesses, private schools will be able to reclaim the VAT they pay on “goods and services used in the production of their taxable supplies”. Working with professional advisers can help schools identify VAT-recoverable expenses and manage their financial obligations effectively, alongside understanding the complexities of partial exemption.
For advice, guidance and support on VAT issues please get in touch with our experienced, specialist team today.
