Private Schools: Changes to VAT and Business Rates Relief

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28th August 2024

On 29 July the government published the Technical Note, via HM Treasury, “Applying VAT to Private School Fees and Removing the Business Rates Charitable Rates Relief Private Schools” Technical_Note_-_DIGITAL.pdf (publishing.service.gov.uk)

The change in VAT policy will affect the whole of the UK, whereas the change in business rates policy will only affect private schools in England as the latter is a devolved policy.

VAT

As of 1 January 2025, all fees for education and vocational training services charged by private schools will be subject to VAT at the standard rate of 20%. Fees for boarding services that are closely related to the supply of education will also be subject to VAT. However, other closely related goods and services supplied, such as school meals and transport, will remain exempt from VAT. Fees for extra-curricular activities, such as sports lessons or performing arts tuition, will be subject to VAT, although before-and-after school childcare or childcare-based holiday clubs will remain exempt, provided no education services are offered, by virtue of the fact that welfare services are exempt from VAT.

Fees charged and/or payments made after 29 July 2024 (the date of publication of the Technical Note) pertaining to the term starting in January 2025 will be subject to VAT. This measure is to prevent the avoidance of VAT through fees being charged or paid in advance of the legislation coming into force. This will also cover payments in advance under existing schemes that schools may have where the details of the educational supply that the payment is purchasing is not determined at the time the money is paid (ie payments that do not relate to specified terms’ fees).

Private schools are defined as those providing full-time education for pupils of compulsory school age by the Education Act 1996 in the case of England and Wales, the Education (Scotland) Act 1980 and the Education and Libraries (Northern Ireland) Order 1986. The ages are 5 to 16, except in the case of Northern Ireland where the ages are 4 to 16. The definition also includes private schools and private sixth form colleges which provide education services to above compulsory school age pupils below the age of 19. However, nurseries, including those attached to private schools, remain exempt. State schools, including academies, are not affected.

The government is considering options for pupils with special educational needs that can only be catered for by private schools. Where pupils are placed in private schools by local authorities, because their needs cannot be met by the state sector, the VAT incurred by the local authority will be recoverable in the normal way through the Section 33 refund scheme.

Because private schools will now be making VATable supplies, input tax will now be recoverable on goods and services purchased in relation their taxable supplies. The input VAT on any goods or services relating wholly to exempt supplies cannot be reclaimed. Where goods and services are purchased that relate partly to taxable and partly to exempt supplies will only be partly recoverable under the partial exemption arrangements. Partial exemption (VAT Notice 706) – GOV.UK (www.gov.uk)

Private schools that are not currently VAT registered must register with HMRC from 1 January 2025. Those schools not already making any taxable supplies will be able to register from 30 October 2024 whereas those which do currently make taxable supplies can register before this date. The government will be publishing bespoke guidance on registration ahead of 30 October.

Business rates

The existing mandatory business rates relief of 80% for private schools with charitable status will end, although property, or parts of property, used solely for disabled persons will remain exempt from business rates (this is determined by the Valuation Office Agency).