It was confirmed last week that VAT will be charged on private school fees across the UK. This will take place from 1 January 2025. In addition, business rates charitable relief for private schools in England will cease. The tax changes will also enable private schools to recover VAT they have incurred on their expenditure.
The announcement was made by Rachel Reeves, Chancellor of the Exchequer as she delivered a statement to the House of Commons on the immediate public spending pressures facing the Government, although this tax had always been on the new government’s cards. The announcement was made at this point (ie ahead of the budget) ‘to provide clarity to those schools and families who will be impacted by these changes’.
The lead reason for the introduction of VAT on private school fees is the government’s commitment to ‘breaking down barriers to opportunity, ensuring every child has access to high-quality education’. The aim is that the policy will help to raise revenue to fund improvements to state education.
Detail on payment dates
In a bid to stop any avoidance by pre-payment, measures have been announced with effect from 29 July. Fees for the first term of the new school year can be paid up until 30 October 2024, and will be exempt from VAT up until this date. Fees paid from 29 July 2024 for the term starting in January 2025 (and onwards) will be subject to VAT.
What will VAT be applied to?
> Fees for education – integral schooling hours
> Additional education that is provided, including out-of-hours activities
> Holiday clubs
> Board and lodging
What will be exempt?
> Goods and services provided for direct use of the pupils will remain exempt, provided they are supplied by an ‘eligible body’. An eligible body refers to most regulated, publicly funded, or not-for-profit education providers.
> Nursery classes provided at private schools will remain exempt from VAT. This is defined as providing education for children below the compulsory school age for the UK.
> Special needs – if a pupil receives funding for education that the state sector cannot provide, then ‘their funder will be compensated for the VAT they incur’.
Reclaiming VAT
As with all VAT-registered businesses, private schools will be able to reclaim VAT paid on ‘all goods and services used in the production of their taxable supplies’.
Business rates charitable relief for private schools in England
Around 50% of private schools in England have a charitable status. Subject to the Parliamentary process, the business rates relief for these schools will cease from April 2025. They have received charitable rates relief of 80%, with a further (discretionary) 20% relief from their Local Authority (LA).
Contact
If you would like to discuss any queries with our VAT expert, please call our Leicester office on 0116 254 9262, or Loughborough office on 01509 263500. Alternatively, our contact form is here.
(Sources: HM Treasury)