Private School fees & VAT update

VAT recovery on pre-registration costs 

Once registered, schools may be able to recover a proportion of VAT on goods and services purchased before registration depending on the extent of taxable use. In this respect most schools would have been using any goods mainly for exempt use before the proposed changes to legislation but will be using the same goods for mainly taxable use after 1 January 2025. As long as the goods are still being used after 1 January 2025, there may be some VAT recovery achievable for goods purchased before registration. The VAT recovery should be apportioned according to the economic life of the goods. HMRC guidance suggests that life of the asset for apportionment calculations should usually be five years. 

Capital Goods Scheme adjustments 

Capital Goods Scheme adjustments can be carried out in relation to VAT incurred on capital items before the school was registered for VAT. This will apply to capital item costs (for VAT purposes) which are less than 10 years old such as land, property and refurbishment projects exceeding £250k.

VAT liability for school services 

When a package of education is provided for a single fee, for example with catering and transport, it will be considered a single supply. The VAT liability will be determined by the principal supply of education, making it liable to VAT. If the catering or transport is optional and subject to a separate fee, these services may be exempt, treated as services closely related to education. HMRCs position here appears to contradict some of its previous guidance. 

When education is provided alongside welfare services, schools must determine whether the welfare is a main supply and therefore exempt. If the main supply is one of education, then the whole supply will be standard rated. Ultimately it is necessary to consider what the parent believes is being purchased education or welfare. 

Grants or bursary payments for a specific pupil will be standard rated, but if the bursary comes from the school, it will be outside the scope of VAT.

VAT liability for nursery services 

Nursery services to children below compulsory school age will be exempt, but if there are children of compulsory school age the services will be standard rated. HMRC has stated that if the nursery contains children of compulsory school age, the whole of the class will be subject to VAT. This requires further clarification, as it is unclear whether the whole class fees will be subject to VAT as soon as one child reaches compulsory school age part way through a year, or whether the normal tax point rules should apply on a child-by-child basis. 

Further education and other fees 

Further education colleges charging fees for 16-19-year-olds will have to charge VAT. Additionally, board and lodging fees provided by private schools will be subject to VAT.

Ongoing uncertainty and other changes 

There may be further changes following the Autumn Budget on 30 October, as the current guidance contains many areas that are unclear, and it will be necessary for schools to consider their position based on their own circumstances. In addition, there will be practical issues in registering at the correct time and HMRCs guidance on single/multiple supplies and pre-registration input tax is not entirely clear and will likely lead to challenge and uncertainty. 

The above is a summary of HMRCs guidance which can be found at the links below 

Check if you must register for VAT if you receive private school fees - GOV.UK (www.gov.uk)

Charging and reclaiming VAT on goods and services related to private school fees - GOV.UK (www.gov.uk)

Next steps 

To support private schools, manage these complexities, 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: Buzzacott | VAT on private school fees webinar

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 feel free to contact our VAT Partner Socrates Socratous or our VAT Director Kamlesh Chauhan if you require assistance.