The Chancellor confirmed on 29 July 2024 that VAT will be payable on private school fees from 1 January 2025:
- VAT will apply to private school fees and boarding fees, but not to nursery schools/nursery classes.
- VAT will also be chargeable on any payments made after 29 July 2024 in relation to terms starting in 2025.
Draft legislation has been published and a technical consultation about the draft legislation is open until 15 September.
VAT registration: HMRC has indicated that schools should apply to register for VAT from 30 October 2024, although schools can VAT register earlier if they make taxable supplies.
VAT recovery: as VAT will be chargeable on fees, schools will be able to reclaim VAT on some costs, and it would make sense for schools to identify vatable costs from now on.
As schools will be able to recover VAT on some costs, schools may not have to pass on the whole 20% increase in fees to parents.
Partial exemption: schools which make both vatable and exempt supplies (for example schools with nurseries) will be “partially exempt” and will only be able to recover a proportion of the VAT they incur on costs.
Special needs: where local authorities or government pay private school fees for children with special educational needs, the local authority/government body can reclaim the fees
An HMRC technical note gives more details about these changes.
Further announcements are expected on UK Budget Day on 30 October 2024.
Contributor
Director of Corporate Tax
