Background 

On 29 July 2024, the government published draft legislation which charges VAT at 20% on education and boarding services provided by private schools. The measure applies to fees paid from 29 July 2024 in relation to the term starting on or after 1 January 2025. Further details were provided in a technical note published alongside the legislation.  

HMRC's guidance 

HMRC has now published guidance which explains: 

• who must register for VAT. The normal tests apply meaning that the educational provider must register for VAT if its total taxable turnover:
  • exceeds £90,000 for the last 12 months; or
  • is expected to exceed £90,000 in the next 30 days.

Guidance is provided on how to apply the tests to the circumstances. It is possible to register for VAT voluntarily; 

• when to register for VAT. Education providers will be able to register from 30 October 2024. However, the exact date when they will need to register will depend on the value of school fee payments they receive and when they receive them. The education provider should not charge VAT or produce VAT invoices until they have registered for VAT; 
• how to register for VAT. The education provider should follow the normal process for registering for VAT. It should enter ‘private education provider’ in the ‘business activity’ section of the application and select the correct standard industry classification code;
• how to determine if VAT is chargeable on goods, services and payments. Guidance is provided on a range of circumstances, including where education services include other elements (eg, school meals) and the VAT treatment of grant payments; and
• how to reclaim VAT on supplies. Once registered for VAT, the educational provider may reclaim VAT incurred on the goods and services used to make its taxable supplies. Guidance is provided on a number of areas, including partial exemption and how to recover VAT incurred pre-registration.   

The guidance is based on the legislation and technical note published on 29 July 2024. HMRC says that it will be updated if any policy or legislative changes are announced at the Budget on 30 October 2024. 

Nurseries and universities 

ICAEW’s Tax Faculty responded to the consultation on the draft legislation in September 2024. In its response, the faculty commented that the definition of “private school” may apply more widely than intended, for example to nursery schools and universities in some circumstances. This point is addressed to some extent in the guidance.  

For nursery classes provided by private schools, the guidance states that only “classes made up wholly of children below compulsory school age remain exempt from VAT”, and that “if the nursery contains children of compulsory school age who you receive a fee for, the whole of the class will be subject to VAT”. 

For universities, the guidance states that “education that is normally targeted at students over 19 years old (for example, undergraduate and postgraduate education) will not be affected by these changes”. 

ICAEW’s view 

In its response to the consultation, the faculty also expressed concern that many independent schools are not currently VAT-registered and will be required to register before 1 January 2025. This could place unnecessary strain on HMRC and might not give those schools sufficient time to seek professional advice regarding their registration. ICAEW urged the government to delay the measure so that it instead applies to terms starting, say, on or after 1 August 2025. 

Further information 

• HMRC’s guidance: Check if you must register for VAT if you receive private school fees
• HMRC’s guidance: Charging and reclaiming VAT on goods and services related to private school fees
• ICAEW’s Economy explainer: Private schools and VAT
• Budget to be delivered on 30 October | ICAEW