We are sharing this update from ACCA, our professional body, for the interest of clients and contacts. The content is (c) ACCA
A summary of the changes coming in from 1 January 2025
As of 1 January 2025, all education services and vocational training supplied by a private school, or a ‘connected person’, for a charge will be subject to VAT at the standard rate of 20%.
This means that all education services and vocational training supplied by a private school, or a ‘closely connected person’ (see S.1122 CTA 2010 for the connected person test), will be subject to VAT at the standard rate of 20%. Boarding and lodging closely related to such supplies will also be subject to 20% VAT.
The policy intention is for nurseries (both standalone nurseries and those attached to a private school) to remain exempt, and for the fees of children in the first year of primary school in a private school upwards to become taxable. This is the year in which children turn compulsory school age, often referred to as ‘reception’ in England and Wales, ‘Primary 1’ in Scotland, and ‘Year 1’ in Northern Ireland.
Education and vocational training provided either at sixth forms attached to private schools or standalone private sixth form colleges will also be subject to VAT. This is to ensure parity of tax treatment between further education supplied at sixth forms attached to private schools catering to children of compulsory school age (which are captured by the above definition of a private school), and those private sixth form colleges that only provide education to pupils aged 16-19. The legislation is also drafted in this way to ensure that private schools are not incentivised to artificially separate their sixth forms from the parts of their school catering to children of compulsory school age.
However, education and vocational training provided by further education colleges, which are classified as public sector institutions, will not be subject to VAT. This is to ensure that the training these institutions provide remains accessible to a wide range of people, thereby supporting the government’s objective to increase labour market activity.
Education and boarding provided by state schools (including academies) are not affected by this policy change, meaning they will continue to be exempt from VAT. This reflects the fact that state schools and academies will continue to be ‘eligible bodies’.
The government recognises that other goods and services ‘closely related’ to education, such as school meals, transport, and books and stationery, are integral to children accessing education. As a result, other ‘closely related’ goods and services other than boarding (ie goods and services that are provided by a private school for the direct use of their pupils and that are necessary for delivering the education to their pupils) will remain exempt from VAT.
Private schools will, however, need to charge VAT on any additional supplies of education that they charge a fee for after school hours or during holidays. For instance, extra-curricular performing arts classes and sports lessons. This change will mean that VAT is applied in the same way when these supplies are made by private schools as when they are made by other third-party providers who are not eligible bodies.
In some instances, private schools (if they are VAT-registered) may already be charging VAT on extra-curricular clubs that are not educational in nature. For instance, football clubs, where children are supervised whilst playing football with their peers, but where they are not being formally trained. The VAT treatment of extra-curricular clubs that are not educational in nature will not be affected by this policy change.
Any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT.
Private schools that are not currently VAT-registered will need to register with HMRC in line with the normal VAT rules from 1 January 2025. Schools that do not currently make any taxable supplies (such as the hiring out of their facilities) will be able to register with HMRC from 30 October, which is when the Budget will be taking place.
Schools that do currently make taxable supplies can voluntarily register for VAT ahead of 30 October. If schools opt to do this, they should be aware that they will need to begin charging VAT on all of their taxable supplies straight away (this does not include education and boarding services, which are currently still exempt when provided by a private school), and they will need to comply with their obligations as a VAT-registered business, including submitting VAT returns and keeping relevant records.
Further guidance
VAT on Private School Fees & Removing the Charitable Rates Relief for Private Schools