Removal of VAT exemption on private schools

At Westcotts we previously reported that in its manifesto, the Labour government said that it would remove the VAT exemption for supplies of education by private schools in the first 12 months of winning the General Election.

The new Labour Government has confirmed it is moving ahead with the policy. On 29 July, the Government published a technical note, its draft legislation and has opened a consultation on the matter. The technical note outlines the changes from 1 January 2025.

Becky Hayes, Partner and Head of VAT at Westcotts, shares the details of this technical note and what it might mean for you.

Key points on the VAT exemption removal

The implementation date for this exemption removal will be from 1 January 2025. At this point, VAT will be due on private school fees including closely connected board and lodging fees.

The draft anti-forestalling legislation brings any advance payments made from 29 July 2024 relating to the supplies made from the January term into the scope of VAT. HMRC may also challenge any ‘pre-payment’ schemes in place prior to 29 July 2024 to ensure that schools pay the correct VAT.

Private schools may register for VAT immediately if they are already making taxable supplies, for example supplies of facilities. Otherwise, HMRC is putting measures in place to allow schools to register for VAT from 30 October 2024.

What supplies are affected by the change?

The changes affect supplies of education, vocational training and closely related boarding and lodging fees made by:

• Private schools – ‘Private schools’ are defined as schools at which full-time education is provided to pupils of compulsory school age, and
• Institutions which provide full-time education to students under 19, for example a sixth form college, and
• Supplies made by ‘closely connected persons’, for example a trading subsidiary that is closely bound to a private school by financial, economic and organisational links.

The changes do not affect:

• Supplies of other closely related goods and services that are provided by the private schools for the direct use of their pupils and that are necessary for delivering the education to their pupils. For example, school meals and stationery.
• Before/after school clubs that fall within the welfare exemption.
• Supplies made by nurseries even if they are attached to a private school
• Other suppliers of education and vocational training where the suppliers are an eligible body and state schools and academies.

Schools will be able to recover VAT incurred on costs that relate to taxable supplies. However, as some supplies made by private school remain exempt, partial exemption calculations will be required.

The consultation on the draft legislation

The Government has launched a consultation on the draft legislation. It is open for 7 weeks and invites comments on the draft legislation. It specifically asks 5 questions:

1. Does the above definition of private schools capture all private schools across the UK?
2. Does this definition inadvertently capture any organisations that this policy does not intend to capture?
3. Does the above “connected persons” test capture the relationships that exist between private schools and third parties?
4. Does this “connected persons” test inadvertently capture any relationships that it is not intended to capture?
5. Does this approach achieve the intended policy aims across all four UK nations?

How can Westcotts help? 

The changes will undoubtably cause concern for schools that have not had to consider VAT before. At Westcotts, we can provide support and advice on the VAT registration process. We can also consider how the changes will affect your finances. This will allow you to determine any increase to your school fees. We also offer bespoke training on VAT compliance and VAT recovery.

In addition, we welcome private schools to share views on the consultation questions before 15 September 2024.

Get in touch with Becky Hayes, Partner and Head of VAT, to see how she can help you by calling 01392 288555 or email becky.hayes@westcotts.uk.