New Guidance On VAT On Private School Fees

HMRC has published new guidance (please see here and here) for education providers that will no longer be able to apply the educational VAT exemption (please see more details on the removal of the exemption here).

The first piece of new guidance addresses some points that were not mentioned in the previous announcement and concern mostly the procedural aspect of the VAT regime for private schools. This includes:

• Who is required to register – we note there were ample discussions around this topic as separate legal entities can be incorporated by private schools in order to provide different services.
• When private schools will be able to register – the previous announcement lacked any indication of when private schools could start applying for a VAT registration, even though they were meant to have one in place by 1 January 2025 when the rules are meant to change.
• More details on how payments should be treated depending on whether they were received before or after the Government’s announcement that they will remove the exemption.
• Clarifications around the VAT registration process – this includes comments on the application of the £90,000 exemption threshold and voluntarily registering before the threshold had been breached. There are also further points around the registration process and stating that VAT group registrations are possible if standard conditions are met.

The second set of comments and guidance from HMRC deal with more contentious points that were raised by private schools and advisors around the way the new rules are mean to be applied. Some of the points addressed by HMRC include:

• The potential separation of certain types of supplies from the main service which consists of educational services. HMRC states that private schools should not attempt to artificially split the packages of educational services in order to achieve a better VAT outcome.
• Issues around determining the exact nature of a supply if both education and welfare services are provided together.
• How grant income can impact the VAT treatment of educational services.
• VAT recovery rules for private schools and how they will interact with partial exemption calculations and capital goods items.

While the above clarifications are welcomed, there is still a lot of uncertainty on the matter as the interaction between the (still) exempt services carried out by private schools and the new taxable supplies will add a new layer of complexity to their existing set up.

We also note that significant parts of the new guidance published by HMRC includes existing comments that were applicable to not for-profit entities that also carried out taxable activity. While it is true that these rules and guidance will also apply to private schools, they are quite general and are not bespoke to the challenges the private educational sector faces. We expect further clarifications and/or amendments to the rules and guidance to be required.

For any questions on the above or should you need any support with the new rules please feel free to reach out to us.