VAT on school fees from January 2025

As the Chancellor was speaking in the House of Commons the Treasury published draft legislation on VAT for private school fees with forestalling measures from October

It is now confirmed that private school fees will now no longer be exempt from VAT from 1 January 2025 under Schedule 9 of the Value Added Tax Act 1994.

As well as the policy coming in from 1 January 2025 anti-forestalling provisions are in force from 29 July. This will run up to 30 October, meaning any pre-paid fees for the first term of the year paid in this time will still be exempt from VAT up until this date. If fees are paid within this time for January and beyond, this will still be legible to VAT charges

The rate will also be applied to board and lodging fees which will be confirmed at the Budget which has been announced to take place on 30 October 2024. However, ‘all other closely related goods and services provided for direct use of the pupils remain exempt,’ as well as when these goods are supplied by ‘another eligible body’.

Nursery classes provided at private schools will remain exempt from VAT, which is defined as schooling of children below the compulsory school age for the UK.

If a pupil is receiving funding due to special needs which state schools cannot deal with then ‘their funder will be compensated for the VAT they incur’ which will keep charitable organisations keen on aiding children with special needs.

Four principles are the motive for this change in VAT rules, the first being to raise revenue to support public finances to meet promises made regarding the education sector.

Secondly, Labour wants to ensure every child is receiving high-quality education, followed by being ‘fair’, ensuring users of private schools are paying their fair share. The last motive is to minimise administrative burdens for taxpayers and HMRC while solidifying the policies so they are not ‘open to abuse’.

As well as the integral schooling hours being subject to VAT from 1 January 2025, private schools will have to also charge VAT on additional education that is provided and out of hours activities, as well as school holiday clubs. However, before and after school childcare will remain VAT exempt.

Private schools that are not already registered with HMRC can do so from 30 October, and schools that already make taxable supplies can voluntarily register for VAT before this date.

As with all VAT registered businesses, private schools will be able reclaim VAT paid on ‘all goods and services used in the production of their taxable supplies’. Additionally, the Treasury does not expect fees to increase due to VAT being applied to fees but expects schools to ‘take steps to minimise fee increases’.

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