HM Treasury has published a response to its technical consultation on VAT and private school fees, that ran until 15 September 2024. Several technical amendments to the draft legislation will be made, with several new exemptions from the policy being introduced.
Background
On 29 July 2024, the Chancellor announced that from 1 January 2025, all education services, vocational training and boarding services supplied by a Private school, or a connected person, will be subject to VAT at the standard rate of 20%.
A technical note 'Applying VAT to Private School Fees and Removing the Business Rates Charitable Rates Relief for Private Schools' was published, with the Government welcoming comments from interested stakeholders on its questions and the draft VAT legislation, to ensure it achieved the stated policy objectives.
Response
The consultation received 17,502 responses.
- A number of representations were made to exclude specific categories of schools from the VAT charge.
- The Government's response indicates that many schools will remain within the scope of VAT, including faith schools and international schools. Some exemptions will be introduced (see below).
- Concerns were raised that the policy would lead to increasing private school fees and that not all families who send their children to private schools could afford those higher fees.
- Many respondents argued that the mid-academic year VAT implementation date was disruptive for pupils who would have to move into the state sector. Representations were made that it could be challenging to find state schools that would accept pupils mid-academic year and it was noted that private schools typically require a term’s notice to withdraw pupils.
- The Government response notes that it expects private school fees to go up by around 10% as a result of the introduction of VAT and that it is confident that the vast majority of parents will be able to keep their child in private school, even if fees increase.
Following the consultation, a number of amendments will be made to the draft legislation published in July 2024. These are:
- Higher Education (HE) taught at schools that are otherwise in the scope of the policy (e.g., performing arts schools) will be carved out.
- To ensure that education provided by Further Education (FE) colleges remains exempt from VAT, the second limb of the definition of a private school will be amended so that only institutions that are wholly or mainly concerned with providing education suitable for 16-19 year-olds, and where the majority of 16-19 year-old pupils are charged fees are within the scope of the policy.
- Independent Training Providers and Independent Learning Providers (ITPs and ILPs) will be carved out of the legislation.
- ITPs and ILPs are defined as “an institution at which education or training suitable to the requirements of persons over compulsory school age (or, in Scotland, school age) but under 19, and where the consideration for [that provision] is payable by the relevant contracting authority under that contract”.
- A relevant contracting authority means the Secretary of State, Medr (Commission for Tertiary Education and Research), the Department for the Economy in Northern Ireland, or Skills Development Scotland.
- The definition of a nursery class will be changed to "a class that is composed wholly (or almost wholly) of children who are under compulsory school age or, in Scotland, school age, and would not be expected to attain that age while in that class".
- Teaching English as a Foreign Language (TEFL) courses taught by private schools, or connected persons, will be carved out of the policy.
- The connected persons test set out at Note (2)(a) in the draft legislation will be removed.
- Non-Maintained Special Schools (NMSS) will be brought within the scope of the policy, but will only be required to charge VAT on placements paid from 30 October relating to terms starting in January 2025 onwards.
- The power to amend the anti-forestalling provisions outlined at 2(3) in the draft legislation will be removed.
Useful guides on this topic
Private school fees and VAT
On 29 July 2024, the Chancellor announced that from 1 January 2025, all education services, vocational training and boarding services supplied by a private school, or a connected person, will be subject to VAT at the standard rate of 20%. What does this mean?
Education & VAT
What rate of VAT applies to education? What sort of services are classed as education? What do you do if you have multiple supplies including education? What cases are there on VAT and education?
Registering for VAT
When should a business register for and charge VAT? What are the VAT registration thresholds? What penalties might HMRC issue for late notification of registration? When do you need to file a VAT return?
Time of supply (Tax Point)
The time of supply of goods or services determines the date on which VAT becomes due. There are a number of different rules which must be considered.
Input VAT: What constitutes a valid claim (& VAT invoice)?
What is Input VAT? Who can claim it? What is needed for a valid claim? What needs to be included on a VAT invoice and can you make a claim without one?
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