Government plans to impose VAT on private school fees
Jonathan Main · Posted on: July 5th 2024 · read
The Labour administration now needs to implement one of its key tax plans, to impose VAT on private school fees. This article provides an update on the Government’s plans immediately following the General Election. We will keep you regularly updated with any further developments in the run up to and beyond the Budget, to be announced on 30 October.
What do we know so far?
The Government has made it clear that VAT will be imposed on private school fees. We understand that the change will be made as soon as parliamentary time allows and will apply to full-time education provided to children of compulsory school age, in line with the Department of Education’s definition of regulated independent schools.
When might we know more?
An announcement and potential timetable to introduce VAT on private school fees may be made in the King’s Speech at the State Opening of Parliament to take place on 17 July 2024. This is likely to be the first point at which we may receive further detail.
The next date to have in mind is the first Budget. This is unlikely to be before September 13, according to the Institute for Government, as the Labour Party has committed to including a forecast from the Office for Budget Responsibility, which requires 10 weeks’ notice.
The Labour administration now needs to implement one of its key tax plans, to impose VAT on private school fees.
The detail matters
The Labour administration has previously made it clear that VAT will be imposed on boarding fees. It would be reasonable to conclude that VAT will also be imposed on other services which HMRC already consider are closely related to the provision of education. This would include:
- Catering
- Transport
- School trips
- Field trips
An Educational, health, and care plan (“EHCP”) is for children and young people aged up to 25 who need more support than is available through special educational needs support. EHCPs identify educational, health and social needs and set out the additional support to meet those needs.
The Labour administration has previously confirmed that the changes to the VAT treatment of private school fees will not apply to children and young people with an EHCP. Fees paid for educating pupils with an EHCP will therefore remain exempt from VAT. We assume this will only apply to the extent to which the school receives payment from a local authority.
How will the change be made?
HM Treasury (“HMT”) will need to redefine the extent to which education will remain exempt from VAT. As a minimum, it will need to remove the entitlement to VAT exemption from a defined group of independent schools.
Although at face value it appears straightforward to identify fee paying independent schools and require them to pay VAT on their school fees, there are layers of detail which we assume will be clearer once HMT and HMRC publish draft legislation and accompanying guidance. This will hopefully include:
- Whether private school fees for a child with an EHCP remain exempt from VAT.
- Whether VAT will be imposed on fees paid to specialist schools which support pupils with special educational needs but who may not have an EHCP.
- If the school receives top up payments from a local authority, whether fees will only be partially liable to VAT.
- Whether VAT will be imposed on fees for independent schools funded by the public sector.
- How to treat fees paid for a child or young adult who is not of compulsory school age.
- As the definition of compulsory school age differs in the devolved nations, will it be cheaper to send my child to school in Scotland, Wales, or Northern Ireland?
We will provide more clarity, as more detail is made available. Watch this space!
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