VAT on Private School Fees: A Complete Guide
A practical approach to the imposition of VAT on school fees
It is too early to claim that the dust has settled but we can at least start to see the road ahead. With that in mind, this article provides practical guidance to deal with the challenges for your school.
Private Schools
VAT legislation uses the term “private school” to define the institutions which are subject to VAT. A “private school” is defined as an institution which provides full-time education or vocational training for a fee paid to educate a specific student. The legislation makes no distinction on the person paying the fee. For example, the fee is subject to VAT whether paid by a parent or a local authority.
In addition, a “private school” is an “institution”, such as a sixth-form college, which is wholly or mainly concerned with charging fees for teaching students from school leaving age until the day before their 19th birthday. It must provide full-time education for that cohort of students. HMRC guidance repeatedly refers to 16-19 year olds, whereas the draft legislation refers to students under the age of 19.
A private school is not a nursery school or an independent training or learning provider.
These changes impact independent schools and colleges, special schools including non-maintained special schools, and specialist colleges.
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VAT Rules for Private Schools
What is subject to VAT?
The provision of education and boarding by a private school is subject to VAT. This includes extra-curricular education provided to pupils of that private school. If the school charges a single fee for education and related goods and services provided to its students, the whole fee is subject to VAT.
The legislation requires a sixth form college which is mainly concerned with teaching students over compulsory school age (or school age in Scotland) and under 19 to charge VAT to all fee-paying students regardless of their age. This is subject to the limitations on higher education mentioned below.
What is not subject to VAT?
Fees for nursery education, higher education, or teaching English as a foreign language are not subject to VAT. Of particular interest in HMRC guidance is a test to establish that nursery fees are exempt from VAT if at least 90% of the children in a particular class are below compulsory school age.
Welfare services remain exempt from VAT. If you provide education and care services for a single fee, you need to confirm the main purpose of the service you supply. This is most relevant to special schools, specialist colleges, and providers of combined residential care and education.
What about “closely related” goods and services?
The legislation preserves the existing VAT exemption for “closely related” goods and services. If a school charges separately for the following goods and services, they remain exempt from VAT
- Catering
- Transport
- School trips
- Field trips
- Stationery
These goods and services have a close and subservient relationship with a principal service which is subject to VAT. You should pay close attention to the way in which they are held out for sale, as that is key to securing exemption from VAT.
VAT Private School Registration
The following section assumes that all receipts are for terms starting after 1 January 2025.
Before 29 July
Exempt from VAT if the parent paid in full for a term or academic year.
Between 29 July and 29 October
VAT is due on the later of 1 January or the start of the relevant term.
From 30 October
Subject to VAT when received.
The VAT registration threshold is £90,000 per year. The school will either need to register on the basis of taxable turnover in the preceding 12 months or the start of any 30 day period in which it expects to exceed the threshold. To illustrate, if a school expected to receive more than £90,000 in tuition fees in December 2024 for the Spring term starting on 7 January 2025, it should have registered for VAT on 8 December 2024.
VAT Recovery
Your school is likely to make supplies which are subject to VAT and other supplies which continue to benefit from VAT exemption. The school will be partially exempt and require a partial exemption method to determine its eligibility to recover VAT. This can be a method based on respective levels of taxable and exempt turnover or some other method which more accurately determines a school’s use of its costs and its entitlement to recover VAT. Whichever method you use, the school’s accounting records should itemise VAT incurred on costs and support the allocation of costs to both taxable and exempt supplies.
Your school may have an entitlement to recover VAT on costs incurred prior to VAT registration. This will be property related expenditure above £250,000 (due to increase to £600,000 later in 2025) within the last ten years and more generally all costs incurred in defined periods prior to VAT registration.
VAT Invoicing
Your school is only required to issue a VAT invoice to a VAT registered customer, for example education, and health care plan (“EHCP”) fees charged to local authorities. If you itemise charges to parents to support the VAT payable on school fees, it would be far simpler not to issue a VAT invoice with a somewhat complicated VAT analysis.
VAT Returns on Private Schools
Your school will submit VAT returns once a quarter using software compatible with making tax digital (“MTD”). The first payment to HMRC following the imposition of VAT would have been in early 2025, one month and seven days after the end of the first VAT period. For example, if your school registered for VAT on 8 December 2024 and chose a VAT return stagger to coincide with its August financial year end, it is likely to have had a first return ending on 28 February 2025 with a due date for filing and payment of VAT of 7 April 2025.
Our Private School VAT Specialists
How MHA can help
In our experience, every school is different and should review the rules published by HMRC in detail to determine its own requirement to pay VAT and its entitlement to recover offsetting input tax against income subject to VAT. We have the expertise to help you navigate a path to be both compliant and ensure that you remain as competitive and financially viable as possible.
