From 1 January 2025, all education services and vocational training supplied by a private school or a 'connected person', for a fee, will be subject to VAT at the standard rate of 20%. This also applies to boarding services closely related to this type of supply.
This is a freeview 'At a glance' guide.
At a glance
The government is ending tax breaks for private schools saying this would help raise revenue to fund state education priorities. The changes will be confirmed in the Budget on 30 October.
Anti-forestalling
The announcements include an anti-forestalling measure meaning that any fees paid from 29 July 2024 that relate to terms starting from January 2025 onwards, will be subject to VAT.
Special Educational Needs
Children with Special Educational Needs (SEN), who attend a private school because their needs cannot be met by the state sector, will not be affected. Where places are funded by the Local Authority, the funder will be compensated for the VAT incurred.
Children with SEN whose needs can be met in the state sector but whose parents/carers nevertheless choose to send them into private education will be charged VAT. The government recognises the potential impact on SEN pupils and is considering how to address this where private school provision has been specified for pupils through an Education, Health and Care Plan (EHCP).
Registering for VAT
The government has set out the design, scope and expected impact of the policy in a Technical note. It has also published a Revenue and Customs Brief for private schools on registering for VAT with full guidance to come in due course. Private schools that are not currently VAT-registered will need to register with HMRC under the normal VAT rules from 1 January 2025 but will have the option of registering from Budget Day, 30 October.
Removal of business rates charitable rates relief
The technical note also provides an overview of the government’s plans to remove the eligibility of private schools in England to business rates charitable rates relief. It is expected this measure will apply from April 2025.
VAT policy is reserved for the UK government so the policy change affects schools across the UK. However, business rates policy is devolved so the change to business rates only impacts private schools in England. The business rates policy change will be legislated for through a Local Government Finance Bill introduced following the Budget.
Consultation
A consultation will run until 15 September 2024. It asks questions about the definition of private schools and the 'connected persons' test.
Useful guides on this topic
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?
Partial exemption & input VAT
How do you calculate the amount of input tax you can recover under the VAT partial exemption rules? What are the de minimis rules?
Business Rates: What's new?
Business rates continue to evolve. There are new rules for the Empty Property Relief 'reset' period. Abuse of the system is so bad that a General Anti-Abuse Rule (GAAR) is being developed. Rogue agents often tie businesses into expensive and onerous contracts. This is a rolling tracker of developments in business rates.
External sources
