In her statement on 29 July, UK Chancellor Rachel Reeves announced a series of economic reforms. Her tax announcements included confirmation of the Labour Government’s plan to apply VAT to private school fees.
From 1 January 2025, VAT exemption for private school fees will be removed. Any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT.
The VAT changes in detail
- As of 1 January 2025, all education services and vocational training supplied by a private school, or a “connected person”, for a charge will be subject to VAT at the standard rate of 20%.Boarding services closely related to such a supply will also be subject to VAT at 20%.
- Any fees paid from 29 July 2024 pertaining to the term starting in January 2025 onwards will be subject to VAT.
- Where pupils are placed in a private school because the state sector can’t meet their needs, and their places are funded by their Locally Authority (LA), a devolved government, or a non-departmental public body, their funder will be compensated for the VAT incurred on these pupils’ fees.
- The policy intention is for the fees of children in the first year of primary school in a private school upwards to become taxable. This is the year in which children turn compulsory school age.
- Education and vocational training provided either at sixth forms (those attached to private schools or standalone private sixth form colleges) will also be subject to VAT.
- Private schools will need to charge VAT on any additional supplies of education that they charge a fee for after school hours or during holidays. Sports lessons and extracurricular performing arts classes are examples of this. This change will mean that VAT is applied in the same way when these supplies are made by private schools as when they’re made by other third-party providers who are not eligible bodies.
VAT exemptions
The policy intention is for nurseries (those attached to a private school and standalone nurseries) to remain exempt.
Education and vocational training provided by further education colleges, which are classified as public sector institutions, will not be subject to VAT. This is to ensure that the training these institutions provide remains accessible to a wide range of people, thereby supporting the government’s objective to increase labour market activity.
The policy intention is to capture only education services and vocational training supplied by a private school, or a “closely connected person”, and closely related boarding services. As a result, other “closely related” goods and services other than boarding (i.e. goods and services that are provided by a private school for the direct use of their pupils and that are necessary for delivering the education to their pupils, e.g. transport, school meals, books and stationery) will remain exempt from VAT.
Any before/after school childcare, or childcare-based holiday clubs, that just consist of childcare and that fall outside the definition of education as outlined above, will remain exempt from VAT by virtue of the fact that welfare services are exempt from VAT.
What the terms mean
As defined in HM Treasury’s Technical Note:
Private schools
‘Schools at which full-time education is provided for pupils of compulsory school age or, in Scotland, school age (whether or not such education is also provided for pupils under or over that age), or an institution at which full-time education is provided for persons over compulsory school age but under 19 and which is principally concerned with providing education suitable to the requirements of such persons (for example, a sixth form college), and where fees or other consideration are payable for that provision of full-time education.’
Compulsory school age, pupil, school, school age
‘Broadly speaking, in each piece of legislation, these terms take their everyday meaning. With regards to “compulsory school age” and “school age” – in England, Wales, and Scotland, this refers to children aged 5 to 16. In Northern Ireland, this refers to children aged 4 to 16.’
How BKL can help
We’ll bring you further clarification that emerge from later announcements, including Autumn Budget 2024 on 30 October.
If you have a connection to private education and are concerned about the effect of these changes, our specialists in schools and VAT would be pleased to discuss your situation and offer you guidance. Get in touch to find out how we can help you.