ICAS responds to the technical consultation on VAT on private school fees
By Susan Cattell, Head of Tax Technical Policy
16 September 2024
Read our response to the technical consultation on charging VAT on private school fees, and discover why specific guidance and adequate HMRC resources are vital to avoid negative impacts.
The King’s Speech on 17 July included the expected confirmation that the government will impose VAT on private school fees. Subsequently, on 29 July, a technical consultation was published explaining how the policy will be implemented. A previous article discussed the consultation in detail.
Summary of the new rules
From 1 January 2025, the fees charged for all education services and vocational training provided by a private school (or a ‘connected person’), will be subject to VAT at the standard rate of 20%, as will any fees for closely related boarding services. The provision of other services closely related to education, such as school meals, transport, and books and stationery will remain exempt from VAT, but the consultation makes it clear that HMRC will challenge any schools that try to use ‘value shifting’ (ie artificially assigning greater value to the exempt fees, rather than education and boarding fees) to avoid VAT.
Nurseries (both standalone nurseries and those attached to a private school) will remain exempt from VAT, as will non-maintained special schools (approved under section 342 of the Education Act 1996).
The five consultation questions dealt with the definitions of ‘private schools’ and ‘connected persons’ set out in the draft legislation (also published on 29 July), and whether the proposed approach would achieve the intended policy aims (outlined in the first chapter of the consultation) across all four UK nations.
The ICAS response
We did not have any detailed comments on the five specific consultation questions. Instead, our response concentrated on queries and practical issues raised with us relating to implementation and the application of the VAT rules.
The consultation (and the related Revenue and Customs Brief) included a welcome commitment that HMRC will produce specific guidance for schools. This is a significant change to the VAT system, affecting one sector. We understand that there will be little experience or knowledge of VAT in many schools because of the current exemption from VAT – although some will have had trading subsidiaries registered for VAT.
Suggestions for guidance
We identified several areas where it would be helpful for HMRC to provide tailored guidance:
- Operation of the Capital Goods Scheme: How CGS will operate for schools registering now, where they have incurred relevant capital expenditure within the last ten years.
- Closely related services: Clarification of various issues arising from the approach to services closely related to education.
- Partial exemption: This will be a significant and complex area for schools (which many will not have had to deal with before).
- Bursaries, discounted fees, and other forms of support with fees (provided by schools themselves or by others): The treatment will depend on the precise arrangements but guidance on common scenarios would be helpful.
Practical issues
We also welcomed the commitment to ensuring a smooth registration process for schools from 30 October. However, HMRC service levels are already the key concern raised with us by members, so we stressed the need for HMRC to be given adequate resources to enable it to cope with the increased volume of registrations. This is vital to avoid a negative impact on schools trying to register – or on other taxpayers, if resources had to be diverted from other services.
We also commented that it would be useful for HMRC to email private schools with details of (and links to) any bespoke guidance it publishes, as well as any existing guidance that would be relevant and helpful.
Let us know your views
We respond to tax consultations and calls for evidence and attend meetings with HMRC at which service levels, delays and other issues you raise with us are discussed. We welcome input from members to inform our work; email tax@icas.com to share your insights and feedback.
