On 7th August of last year we discussed the upcoming changes to the VAT position for Independent Schools. Now we are in the New Year, what can we say about the implementation of these changes?
The Budget announced by the Chancellor in October 2024 confirmed the end of tax breaks for independent schools beginning in 2025. The policy paper, which was published and updated on November 2024, confirmed from the 1st January 2025, “all education and boarding services provided by a private school or connected person will be subject to VAT at the standard rate of 20%”.
The charge will be imposed on the total of everything received by independent schools in return for providing a student with education. This includes extra-curricular activities that are in their nature educational, e.g. sports. The government have provided a scope for ‘welfare services’, such as holiday clubs, to be exempt from the VAT charge. Other ‘closely-related’ items such as school meals, books and transport services can continue to be exempt as long as independent schools charge for these items separately.
The policy paper also states the aim of the changes was to advance the education sector and enhance the quality of education across the board, including state-provided education. The intention is to create a system which is fair for all users which private school users pay their “fair-share”. According to The Institute for Fiscal Studies (IFS), the VAT alone is estimated to generate an average of £5,900 per paying student, to be given directly to the education sector. With the changes only in their first month, we hope it will in fact generate the expected advancements in the education sector.
As we inferred in our August article, the policy paper confirms that any pre-payments received on or after 29th July 2024 relating to the school terms starting on or after 1 January 2025 will be subject the to the VAT changes charged at the standard rate.
As previously discussed, from April 2025, the government will also remove the charitable business rate relief available for independent schools. After our article dated August 2024, there have been no further legislation approved by parliament to impose this. We eagerly wait for how this will be imposed in practice.
To find out more details; we welcome you to read the following government paper Private school fees — VAT measure - GOV.UK (www.gov.uk).
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