The government has announced that, as of 1 January 2025, all education services and vocational training supplied by private schools will be subject to VAT at the standard rate of 20%.
What key changes are the government introducing?
The key changes are as follows:
- From 1 January 2025, all education services and vocational training supplied by a private school (or a connected person) will be subject to VAT at 20%.
- From 1 January 2025, boarding services that are closely related to the supply of education services and vocational training will also be subject to VAT at 20%.
- The legislation will be retrospective so that any fees paid from 29 July 2024 that relate to a term starting in January 2025 onwards will be subject to VAT.
- Private schools that have charitable status will no longer be eligible for business rates charities relief and will be required to pay their full business rates liability.
VAT will only need to be charged in relation to “education services and vocational training” but goods and services that are provided by a private school for the direct use of their pupils and are necessary for delivery the education to their pupils will remain exempt for VAT. For example, the government has suggested the provision of the following will be VAT exempt: school meals, transport, books, and stationery.
If private school fees are pre-paid before January 2025 – is VAT still due?
As noted above, the legislation will have retrospective effect so that any fees paid from 29 July 2024 that relate to a term starting in January 2025 or later will be subject to VAT. So, it isn't possible to pre-pay school fees now for terms that start in January 2025 or later such that no VAT is due.
The government have noted they're aware of reports of increased numbers of parents utilising schemes that enable pre-payment of private school fees, seemingly “in an attempt to avoid those fees being subject to VAT” and have said that “HMRC will be carefully scrutinising the detail of these schemes to ensure that schools pay the correct VAT where it is due”.
Details you might have missed
The government has addressed some of the issues that were raised when the proposal to introduce VAT on private school fees was included in Labour’s election manifesto. For example, some have pointed out that certain pupils are placed in private schools due to their specific needs and have their place funded by a government body, such as a local authority. The government has said that, in those cases, their funder will be compensated for the VAT incurred on that pupil’s fees.
The following details are also worth noting:
- Nursery school fees will remain exempt from VAT
- Education and vocational training provided by private sixth forms will be subject to VAT
- Education and boarding provided by state schools (including academies) will continue to be exempt from VAT
- Certain extra-curricular classes will be subject to VAT, such as performing arts classes and sports lessons
If you need assistance in relation to the above, please contact Katie Harman.
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