Government confirms 20% VAT on Private School Fees will be effective from January 2025
The Government recently made an announcement which confirmed the introduction of 20% VAT on private school and boarding fees, which we now know will take effect from 1 January 2025. This change will also apply to the pre-payment of fees after 29 July 2024.
The Chancellor, Rachel Reeves, has now confirmed that the Autumn Budget will take place on 30 October 2024 and the government has released a technical note addressing the new tax policy for private schools. This note clarified several critical aspects of the VAT on private school fees, including the treatment of pre-payments of fees, other services provided by private schools, and the provision of education for children with special education needs and disabilities.
VAT on private school fees – applied to pre-payments
The government specified that the 20% VAT on private school fees will not only commence on 1 January 2025, but will also cover any pre-payments made after 29 July 2024, for terms starting on or after 1 January 2025. This anti-forestalling measure ensures that fees paid on or after 29 July 2024 in advance for 2025 terms are also subject to VAT.
Alex Raynes VAT Manager at RPGCC added “…as a result of the introduction of this anti-forestalling measure, parents can no longer make payments in advance for 2025 fees in order to avoid the VAT. It is possible that a few schools out there had taken the risk and taken prepayment of fees one or even two years in advance before this announcement was made and they may have successfully circumvented the VAT liability. We had been expecting this change, so it comes as no surprise, but nevertheless it will have an impact. We will monitor this ongoing development and provide an update once further legislation and HMRC guidance is released.”
Interestingly, the policy intention is for nurseries (both standalone nurseries and those attached to a private school) to remain exempt from VAT.
Impact on Special Educational Needs
The government has confirmed that the VAT measures announced are not intended to impact pupils with acute special needs if their special needs can only be met in the private schools sector. In cases where local authorities fund these placements, they will likely be able to reclaim the VAT charged to them by the private school. However, for parents and those providing care choosing private schools when state alternatives are available, VAT will indeed apply to the fees which is certain to impact a parent’s decision to send their child with special educational needs to a private or state school. There may also be problems for parents of children with special educational needs who now need to seek Local Authority funding for their children’s education. If there are delays in this process, then this is likely to lead to VAT costs for parents.
Clarification on VAT for other services
The government also addressed concerns regarding the VAT treatment of other services.
The 20% VAT will apply only to tuition and boarding fees charged by private schools. At great relief to many, the Chancellor announced that there will be no changes to VAT treatment for services like nursery care, wrap-around childcare, school meals, holiday clubs, and part-time classes operated by third parties within schools. However, it is important to note that exemption also applies to connected parties where they deliver educational services – this is aimed at ensuring that private schools cannot avoid the new rules by using different entities to provide education.
State boarding fees will remain unaffected. Kelly Eland, RPGCC’s VAT Partner added “adding VAT to many of the additional childcare service would have had a large impact on families that already struggle with the expense of having children in day nurseries whilst they are at work and additional care setting such as holiday clubs and after school clubs. This clarification was a welcome relief to many families I am sure.”
If you would like to speak to a member of our VAT team regarding private school fees and VAT, please contact us on 020 7870 9050.
We will be preparing a full Budget Report on 30 October which summarises the announcement made by the chancellor If you would like to receive a copy of this report as a PDF direct to your inbox on 31 October, please register below.
