VAT on private education arriving sooner than expected

Parents and schools need to act quickly to prepare for fee changes

With the new Government’s VAT on private educational fees being implemented earlier than anticipated, schools and parents must prepare now for fee changes.

Gabby Donald, Partner said:

The new Labour Government’s legislation to remove the VAT exemption from private education has been widely discussed and was to be expected, but the effective date of 1st January 2025 will come as a surprise to many.

Schools will now be in a race against time to work out the amount of VAT they can deduct on their own costs due to this policy change – this will be an important step in working out how much cost will need to be passed on to parents when the VAT inclusive price for fees for terms from 1st January is recalculated.

The VAT deductible by the schools will mean that the increase in fees to parents should be less than 20%, but with pressures on family finances coming sooner than expected, parents and schools will benefit from having conversations about likely fee levels sooner rather than later.

Those pressures could include the fact that boarding fees and private education fees to parents of pupils with Special Educational Needs (‘SEN’), where the Local Authority (‘LA’) is not responsible for funding the pupil’s place at the private school are now both subject to VAT. The impact of removing the VAT exemption part way through the academic year on non-LA funded SEN pupils and their parents is a concern given the early implementation of this policy.”

However, we now have confirmation that nursery fees, including those attached to private schools, will retain VAT exemption. As will before school, after school and holiday clubs where a childcare service is being provided rather than education. Also, certain supplies closely related to education will continue to be treated as VAT exempt e.g. transport, school meals etc.

This announcement is coupled with the immediate introduction of anti-forestalling measures. Meaning that prepayments made after or on 29 July 2024 that relate to terms starting after or on 1 January 2025 will be subject to VAT. The Government has confirmed that HMRC ‘stands ready to challenge’ the validity of prepayments received by private schools prior to the introduction of these anti-forestalling measures. So, schools and parents will need to act quickly to ensure they are ready for the VAT changes quickly coming their way.