The Government has published draft legislation to charge VAT at 20% on education and boarding services provided by private schools for a fee. The new law will bring in the following key changes:
a. VAT on Education Services: From 1 January 2025, all education services and vocational training provided by private schools or connected persons will be subject to 20% VAT.
b. Boarding Services: Boarding services closely related to education and vocational training will also be subject to 20% VAT from 1 January 2025.
c. Retrospective Legislation: Fees paid from 29 July 2024 for terms starting in January 2025 or later will be subject to VAT.
d. Business Rates for Charitable Schools: Private schools with charitable status will no longer receive business rates relief and must pay full business rates.
e. Exempt Services: VAT will apply only to “education services and vocational training,” while goods and services directly used for delivering education, such as school meals, transport, books, and stationery, will remain VAT-exempt.
The legislation will apply to fees paid from 29 July 2024 in relation to the term starting in January 2025 and future terms.
Pre-paying school fees to avoid VAT will also not possible. Any fees paid from 29 July 2024 for terms starting January 2025 or later will be subject to VAT. The government is aware of schemes allowing pre-payment to avoid VAT and has stated that HMRC will scrutinise these schemes to ensure proper VAT payment.
The Government has addressed concerns raised during the proposal’s inclusion in Labour’s election manifesto, particularly for pupils with specific needs funded by government bodies. In such cases, the funders will be compensated for the VAT on those pupils’ fees.
Further details include:
a. Nursery School Fees: These will remain VAT-exempt.
b. Private Sixth Forms: Education and vocational training will be subject to VAT.
c. State Schools: Education and boarding provided by state schools, including academies, will continue to be VAT-exempt.
d. Extra-Curricular Classes: Classes such as performing arts and sports lessons will be subject to VAT.
The draft legislation can be found here. The Government has also published a technical note on the new rules, along with guidance for private schools on registering for VAT.
The Government has invited comments on the draft legislation and technical note by 15 September 2024.
Author
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law, Tax, Human Resources, Immigration & Employment Law.
Gill is a Multiple Business Owner and the Managing Director of Prof Services Limited - a Marketing & Content Agency for the Professional Services Sector.
