School finance teams now have to face the reality of implementing VAT on school fees, with only a few months to prepare. It is important that you source the expert guidance you need to get it right and avoid the potential pitfalls. Our specialist team can help and support you now and, in the months ahead, with the following:

• VAT registration process
• Guidance on VAT treatment of income
• Preparing or reviewing VAT returns
• Preparing and reviewing partial exemption calculations
• Maximising recovery under the Capital Goods Scheme
• Structuring advice to ensure efficient VAT recovery
• Cash flow modelling
• Training
• Post implementation VAT reviews

We have set out below some of the ways our specialist team can help and support you now and in the months ahead.

Impending changes

The Treasury has released a Technical Note and draft legislation which confirm that the legislation introducing VAT on school fees will apply from the date of the Budget and to VAT on school fees from 1 January 2025. In other words, whilst the legislation took effect from 30 October 2024, it only applies to supplies relating to terms commencing on or after  1 January 2025, which could include things like registration fees taken in advance of 1 January.

The change is being implemented by introducing an ‘exception’ to the VAT legislation which introduces a definition of ‘private school’ and excludes private schools  from exempting their supplies of education.

Fees in advance

Anti-forestalling legislation applies to all payments made from 29 July 2024 in respect of supplies made from 1 January 2025. This means that fees in advance payments made after 28 July 2024 are no longer effective in setting a tax point. The papers also say that some fees in advance schemes may be challenged if HMRC consider they are ineffective in setting a tax point.

The only detail given is “the scheme involved paying a lump sum to the school in advance, but the details of the supplies that the money was not buying were not determined at the time the money was paid” (i.e. if the money paid did not relate to specific terms’ fees that had already been set).

Boarding and special education needs

The papers confirm that VAT will also apply to boarding services and that both education and boarding services are caught if the supplies are made by a “connected person”.

Where pupils with special education needs (SEN) are placed by their parents in a private school, VAT will apply, but where they have been placed there under an Education Health and Care Plan (EHCP) funded by the Local Authority (LA), devolved government or non-departmental public body, then the LA will be able to reclaim the VAT. When pupils with an EHCP that could be covered in a state school have been placed by their parents in a private school out of choice, then VAT will apply.