VAT on Private School Fees from January 2025

VAT will be due on private school fees from 1 January 2025 onwards, and any advance payments made on or after 29 July 2024 for education in 2025 onwards will also be subject to VAT.

Following the Chancellor’s speech in Parliament on 29th July 2024, Policy papers were released including

•    An HM Treasury Technical Note   
•    Draft legislation to amend the VAT Act 1994   
•    A Policy Explanatory Note

In this article we will pull out the key points announced. 

Key points

Please note that a public consultation period has been opened, and the draft legislation will be debated prior to enactment, so there could be amendments, but the headline changes and policy points are as follows:

• VAT on Private School Fees from 1 January 2025: The headline change is to introduce a new Exception to the Education VAT Exemption in the VAT Act 1994, so that private school fees and boarding fees are subject to VAT at the standard rate (currently 20%) with effect from 1 January 2025.
• Definition of a private school: The draft legislation defines the term ‘private school’ as fee-paying education for compulsory school age children up to 19 (but excludes FE Colleges and Academies, including state boarding schools).
• The Exception wording includes clauses so that education and boarding provided by an alternative body connected to the private school are also subject to VAT at the standard rate.
• Fee-paying Nursery provision remains VAT Exempt, whether by a Nursery attached to a private school, or a standalone private Nursery.
• Charges for extras provided to students remain Exempt: Other goods and services closely-related to education for the use of pupils remain VAT exempt (e.g. meals, transport, books and stationery).
• Fees in Advance paid on after 29 July 2024 will be subject to VAT: There is a clause introducing anti-forestalling provisions that will apply to prepayments of private school fees and boarding fees on or after 29 July 2024 making them subject to VAT at the standard rate where they pertain to education to be provided on or after 1 January 2025.

Key Policy additional announcements:

• Educational after school and holiday clubs at Private Schools will be subject to VAT, however wrap-around care such as breakfast clubs or holiday clubs that just consist of childcare will remain VAT Exempt under the welfare exemption.  
• Fees for Pupils with Special Educational Needs (SEN) with EHCPs places funded by the Local Authority will be subject to VAT, but the paper says the Local Authority will be able to reclaim that VAT.   
• Fees in Advance arrangements and payments already made before the announcement (29 July 2024) are likely to be scrutinised by HMRC and the Technical Note gives an example of challenging unallocated pre-paid fees, where the payment wasn’t specific to terms fees that had already been set.   
• VAT registration: HMRC will be putting in place measures to ensure that all private schools are VAT registered ahead of 1 January 2025, and will be providing specific VAT guidance for the sector.

VAT recovery

There is commentary in the Technical Note around private schools being able to recover VAT and expected off-set feeding into the level of fee increases they pass on to parents. 

In our experience, this will vary school by school and will be impacted by the mix of standard-rated income (school fees and boarding) and continuing exempt income (nursery, extras related to education, childcare charges and some sports lettings etc). 

It will also be impacted by how much the school spends on its campus and facilities, which often includes large VAT-bearing costs, and which may result in larger off-set of recoverable VAT on costs.

Contact us

We are already in contact with our clients on these changes, and our VAT Team will be happy to discuss these changes with you further.