VAT on Private School Fees – What’s New?

Last week the government confirmed that VAT will be applied to private school fees as part of the Autumn Budget announcements. We previously reported on HMRC’s draft legislation on the removal of the VAT exemption on private school fees back in July 2024. Since then, HMRC received 17,502 responses to its consultation on the matter. Following the Autumn Budget the government published its response to the consultation together with a revised version of the draft legislation and guidance.

Becky Hayes, VAT Partner at Westcotts, explores the changes in the draft legislation and what this could mean for you.

The changes in the draft legislation

The revised draft legislation removed fees charged by non-maintained schools from the exemption. The fees charged by these schools are often paid by local authorities who are able to recover VAT charged. This means that there is little impact other than the schools being able to recover VAT incurred on costs.

The revisions also provide further clarity on the providers of higher education that fall outside the exemption. The legislation confirmed the definition of nursey education that will continue to be exempt from VAT.

Although the legislation is still in draft form, the goals of the policy seem fairly defined with VAT accounted for on private school fees from 1 January 2025.

Reaction to the changes

We reported earlier in the year in our article VAT on private school fees that many schemes were being suggested to pay fees in advance, to avoid paying VAT. As expected, the government will introduce anti-forestalling rules to bring advance payments within the scope of VAT.

Separately, the Independent Schools Council has announced that it is taking legal action against the government’s decision to bring private school fees into the scope of VAT. We will be following this case with interest.

What’s next for private schools affected? 

Private school affected by the changes can now register for VAT. They should ensure that:

• An analysis of income sources is undertaken to establish the VAT treatment as some income may still remain exempt.
• Finance systems should be updated to account for VAT on income and expenses.
• VAT recovery methods should be in place. Schools are likely to still receive exempt income and will need to undertake partial exemption calculations to determine VAT recovery.
• Consider VAT incurred historically, in particular in respect of capital expenditure on IT systems and property. The capital goods scheme may allow partial recovery of previously unrecoverable VAT. The pre-registration input VAT rules may also be beneficial.
• Seek specialist VAT advice and training for your finance teams.

At Westcotts, our team can offer personalised, friendly advice to support you over this transition period. If you would like to know more, contact Becky Hayes at becky.hayes@westcotts.uk or call 01392 288555.