On 29 July 2024, the new UK Labour Government announced that from 1 January 2025, all education services, vocational training, and boarding services supplied by private schools (or connected persons) will be subject to VAT at the standard rate of 20%.
An anti-forestalling measure will also be introduced, applying 20% VAT to pre-payments of fees from 29 July 2024 to 30 October 2024 for school terms starting on or after 1 January 2025. This prevents parents from avoiding the additional VAT cost by paying fees in advance. HMRC say that advance payment of fees made before that time needed to be earmarked to trigger an early tax point. The government has published draft changes to VAT legislation and an Explanatory Note for technical consultation, which runs from 29 July 2024 until 15 September 2024.
Certain supplies by private schools, such as school meals, transport, and books and stationery, may still be VAT exempt as "closely related" goods and services. Private nurseries also remain VAT exempt.
The newspapers have reported different proposed fee structures. Some schools are passing on the full VAT cost at 20% to parents, but others are only passing on part of the VAT, presumably acknowledging they are now in a VAT recovery position.
Conclusion
Private schools now need to register for VAT. They must classify VATable and exempt services correctly and consider measures to maximize VAT recovery on costs to mitigate the financial impact on both the schools and the parents they serve.
Reference
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