New Guidance on VAT for Private School Fees: What You Need to Know

HMRC has released updated guidance on VAT for private schools, addressing critical aspects of the new VAT regime set to apply from 1 January 2025. This shift will end the VAT exemption currently enjoyed by private educational institutions, impacting how they account for VAT on various services.

Key Areas of the New Guidance

1. Who Needs to Register for VAT

One of the main clarifications addresses which entities within private schools must register for VAT. Many schools operate through multiple legal entities for distinct services, and the guidance highlights how these separate entities should approach VAT registration.

2. Timing for VAT Registration

There was previously ambiguity about when private schools could start registering for VAT. The latest guidance confirms that schools are expected to be registered by the 1 January 2025 deadline, providing a clearer roadmap for compliance.

3. Handling Payments Before and After the VAT Change

The new guidance clarifies how to treat payments received before and after the government’s VAT exemption removal announcement. This includes details on transitional arrangements for fees paid in advance of the January 2025 start date.

4. Registration Thresholds and Voluntary Registration

Private schools are given additional information on applying the £90,000 VAT registration threshold, including advice on voluntary registration before this limit is reached. Schools are also advised that VAT group registrations may be possible, provided they meet HMRC’s standard conditions.

Complexities and Challenges for Private Schools

The second part of HMRC’s guidance addresses specific concerns raised by private schools and their advisors, including:

• Separation of Services: HMRC advises that schools should avoid artificially separating educational services from other services, such as welfare, in attempts to benefit from different VAT treatments.
• Nature of Supply: Schools that provide both education and welfare services may face challenges in defining the VAT status of combined supplies.
• Impact of Grant Income: The guidance outlines how grant income might affect VAT calculations for educational services, an important factor for schools receiving external funding.
• VAT Recovery and Partial Exemption: HMRC provides further insight into VAT recovery rules for private schools, including implications for partial exemption calculations and capital goods.

Ongoing Complexity and Expected Updates

While this guidance brings some welcome clarifications, it’s clear that the VAT landscape for private schools remains intricate. Schools will need to navigate the complexities of combining exempt and taxable supplies, which may require regular consultation with VAT specialists to ensure compliance. The guidance references rules applicable to not-for-profit entities engaged in taxable activities, but it falls short of addressing the specific challenges faced by private educational institutions.

Deeks VAT Consultancy is here to support private schools as they transition to this new VAT regime.

For more guidance on these changes or assistance with VAT compliance, reach out to our expert team at Deeks VAT Consultancy.

Jane Deeks

07710553831

jane@deeksvat.co.uk

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