Autumn Budget 2024: VAT on Private School fees clarifications and questions

What we know: 

• The changes will be effective (for school terms) from the 1 January 2025, as expected, despite various calls for this to be delayed.

What’s changed? (since the publication of the draft legislation)

• Further Education Colleges that are not wholly or mainly concerned with providing education suitable for 16-19 year olds, and where the majority of these pupils are not charged fees, don’t fall within the definition of a “Private School” and don’t have to charge VAT on their fees.
• Higher Education providers such as Universities (as opposed to Art Schools) are going to be excluded from having to charge VAT (but it is not clear how the legislation reflects this).
• The definition of nursery classes has been updated so that nursery fees for the whole class do not become subject to VAT as soon as one child reaches compulsory school age. As we reported in our last update, this was an area that required clarification, however, it may require further clarification  as the new legislation refers to “wholly (or almost wholly)” in the new definition but with no explanation of how a class is considered to be “almost wholly” below compulsory school age. The technical note suggests this should be a majority, but a question remains, do they mean in terms of time, number, more than 50% of all pupils?
• Providers of Teaching English as a Foreign Language courses have been excluded from the definition of a “Private School”, so their fees will continue to be exempt from VAT. This aligns with the intention to provide an incentive to deliver these services even when profit making. 
• The anti-forestalling provisions will not extend to before 29 July 2024, however, HMRC still intend to investigate payments made before this date. 
• Non-maintained special schools will effectively not be subject to the anti-forestalling rules for any payments made before 30 October 2024. 
• The connected persons tests have been updated to remove where an eligible body and the private school are closely bound to one another by financial, economic and organisational links, this is probably something that was superfluous given the other tests for connected persons.  
• Where school meals are separately charged for and there is a genuine choice as to whether they are taken up, the technical note suggests that these costs can be exempt from VAT.

What we still don’t know and is open to interpretation:

• What constitutes a “closely related” supply of education? 
• What constitutes a single supply and what can be charged for separately and be treated as being exempt?
• How to treat and apportion the recovery of pre-registration input VAT? 
• Will the standard method override apply to VAT recovery (Capital Goods Scheme)?
• Will Private Schools have to apply the Tour Operators Margin Scheme? 
• Welfare vs Education – After school clubs vs Football classes? 

As VAT registration applications can be made from today, the final question may be, are HMRC ready?

To help you prepare and to provide a road map for the next steps we’re holding a webinar to discuss some of these issues and share some insights on Thursday 7 November 2024, 10:00 – 11:00. You can sign up for the event here.

We are also intending to hold a more detailed ‘in person session’ in the New Year and will assist schools with bespoke training when required. 

In the meantime, please contact our VAT Partner Socrates Socratous or our VAT Director Kamlesh Chauhan if you require assistance.