VAT Impact on Private School Fees - July 2024 Update

Rachel Reeves, the new Chancellor announced in a speech in Parliament earlier this week the timing for the removal of the VAT education exemption for private schools. From 1 January 2025, private school fees will become VAT standard rate. Fees received in advance from 29 July 2024 to 31 December 2024 for 2025 terms and beyond will also be VAT standard rate. However fees paid in advance, received by a school before 29 July will remain VAT exempt. Education contracted out to “closely connected persons” by a school will also be caught by these changes.

The treatment of “closely related” services provided by private schools will have different VAT treatments. Boarding fees to school pupils will be VAT standard rate, but other services such as school trips will remain VAT exempt. Fees for before and after school clubs (unless they are within the VAT welfare exemption), summer schools and specialist teaching (arts classes or sports for example) will also become VAT standard rate.

The removal of the VAT exemption also applies to boarding accommodation let by private schools, typically to EFL providers of summer schools. This income is currently VAT exempt (subject to certain conditions), but will also become VAT standard rate.

For those schools that are not currently VAT registered, HMRC will provide further guidance, but they must register by 1 January 2025 at the latest. HMRC are introducing special bespoke registration procedures for these schools to ensure that the process is as smooth as possible.

Students with Special Education Needs (SEN) who attend private schools where the fee is paid by the Local Authority (because the state sector cannot fully meet the pupils needs) will not be disadvantaged because HMRC has announced that the LA will be able to recover the VAT in full.

Fees for nurseries attached to private schools will remain VAT exempt.

The experienced Indirect Tax team at James Cowper Kreston is able to assist with VAT registration, partial exemption calculations and recovery of historic un-claimed VAT due to the removal of the exemption for schools that are already VAT registered.

If you wish to discuss this issue further please contact me using the details below or contact another member of the James Cowper Kreston Indirect Tax team.