On 29 July 2024, the government published draft legislation which charges VAT at 20% on education and boarding services provided by private schools for a fee. The measure will apply to fees paid from 29 July 2024 in relation to terms starting on or after 1 January 2025.   

ICAEW’s Tax Faculty has responded to the consultation on the draft legislation and accompanying explanatory and technical notes. The faculty’s response is based on input from members who are VAT specialists and members who have experience of working within the finance teams of private schools.   

Practical issues 

In addition to answering the specific questions from the technical note, the faculty has raised a number of practical issues caused by the legislation that need to be considered in more detail.  Although most of the issues are not insurmountable from a VAT perspective, they are challenging given the start date of 1 January 2025.   

A key concern is 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.  

Schools that are not currently VAT-registered are unlikely to have their accounting systems set up to comply with VAT and may need to update their accounting systems before January. This is a very short timeframe for such a project and could therefore lead to poor VAT compliance in the early months of this change.  

Therefore, ICAEW strongly recommends that the government considers making the change so that it instead applies to terms starting, say, on or after 1 August 2025.

Technical issues

The faculty has identified the following issues with the draft legislation: 

• the definition of “private school” may apply more widely than intended, for example to  nursery schools, sixth forms and universities in some circumstances;   
• the “connected persons” test may not stop all possible arrangements to avoid the VAT charge;
• the decision to keep other “closely related” goods and services other than boarding exempt from VAT is likely to cause legislative and administrative issues; and
• the decision not to restrict VAT recovery under the capital goods scheme is likely to lead to fairly significant VAT reclaims.

Further information

ICAEW has published an explainer which sets out the background to, and implications of this policy in simple terms.