The government has confirmed the introduction of VAT on private school fees, with VAT to apply from the January 2025 academic term. It has also confirmed anti-forestalling measures, meaning any advance payment of school fees made on or after the 29 July 2024 will attract VAT at 20%. VAT will apply to both school and boarding fees.
The Government has also included the provision of education by connected parties. For incorporated schools (including Charity Incorporated Organisations) the term “connected person” is the same as for Corporation tax. However, schemes that may involve teachers providing education as individuals will also be caught as it catches persons bound together by “financial, economic and organisational links”. The guidance then goes on to say that the connected persons rule also applies to “the provision by the eligible body is a result of arrangements (including any agreement, understanding, scheme, transaction, or series of transactions, whether or not legally enforceable) the main purpose, or one of the main purposes, of which is to secure that the provision is an exempt supply.”
The government confirmed that it will remove the relief private schools currently have from business rates, including those that are charities and benefit from charitable rates relief.
Pupils with the most acute special educational needs that cannot be met in the state sector and where education costs are funded by a local authority under an EHCP or similar will attract VAT, but that VAT will be reclaimable by a local authority. The parents of such children will not, therefore, be impacted.
Parents who choose, however, to send their children to a private school to meet specific needs and where those needs can be met by state schooling will be charged VAT, leading to allegations that SEND education has not been safeguarded.
Nursery schools for children under the age of four will also be exempt as these fall under the welfare exemption and not the education exemption.
Before and after school clubs run by private schools will also be exempt provided that they fall under the welfare exemption (i.e. are regulated by OFSTED) and are not education.
Anti-forestalling measures mean that parents who have paid school fees in advance of 29 July 2024 may avoid VAT (but it is not clear), but those that have not will now have no option to pay VAT on those fees, unless schools choose to absorb the increased costs themselves.
The government recognises that education policy is a devolved issue, meaning education policy in Scotland, Wales and Northern Ireland can differ from the UK. VAT is, however, not and will apply to all independent schools across the UK.
Some “closely associated” services that are delivered alongside boarding and education will also be exempt from VAT. These include transport, school meals and books and stationery. Extra-curricular services, such as sport lessons and performing arts classes, that take place outside of normal school hours will attract VAT.
HMRC challenges
A technical guidance note published by the government hints at the proactive approach it expects HMRC to adopt. It points to reports of schemes that encourage parents to pre-pay school fees. It suggests that unless those advance payments relate to a specific tax point, ie payments relating to specific term dates, they will be challenged.
Parents and schools concerned about the implications of VAT on school fees are encouraged to seek advice.
