VATWatch - November 2024
Charging and Reclaiming VAT on Goods and Services
Related to Private School Fees
HMRC have issued new guidance regarding the charging and reclaiming of VAT related to private school fees for pupils up until 6th form and effective from the 30th October for terms starting on or after the 1st January 2025.
VAT will be due on the total sum received in return for providing private education for a pupil. If a number of goods and services are supplied, it will be necessary to know where VAT applies to either the whole or part. If the service is provided as a package this will usually be recognised as single supply. Where the school provides other services or elements for an additional fee, this will usually be recognised and 2 different supplies.
Where welfare services are supplied in addition to, or in support of education, some services may fall into the welfare exemption as a primary supply of welfare rather than education.
There will be an impact for charities running private schools, as with the new policy each activity will need to be considered to establish if it is subject to VAT. However, goods and services supplied for the direct use of the pupil, student or trainee that are necessary for the delivery of the education provided are classed as closely related to the supply of education and will remain exempt from VAT.
It may be possible to reclaim VAT incurred on the goods and services used to make taxable supplies such as education and boarding. However, the VAT incurred on purchases that are used exclusively for non-business purposes cannot be reclaimed.
Private schools will likely be providing taxable and exempt supplies, and this may make them partially exempt businesses incurring VAT on taxable and exempt supplies.
To work out how much VAT can be reclaimed, it will be necessary to perform an apportionment.
If a school ‘buys’ in travel services relating to a school trip the VAT may need to be accounted for under the Tour Operators Margin Scheme.
The guidance outlines many circumstances and provides many links to other schemes, notices and internal HMRC manuals.
E-invoicing Consultation
Chancellor Reeves also outlined a package of reforms to improve the UK’s tax system to help fix the foundations of the UK economy.
As part of the package, HMRC will soon launch a consultation on electronic invoicing (e-invoicing) to promote its wider use across UK businesses and government departments.
The introduction of e-invoicing can significantly reduce administrative tasks, improve cash flow, boost productivity, introduce automation, and reduce errors in tax returns – all helping to close the tax gap. The consultation will gather input from businesses on how HMRC can support investment in and encourage e-invoicing uptake.
This was a key topic at the International VAT Association Conference I attended last week. The EU are bringing it in from 2030, with some countries, such as Poland, already trialling it. In their system, every invoice is reported to the tax authorities as it is raised.
Full details of the consultation have not yet been released but I think it is really important that we get involved, and make sure that all types of business are heard.
Autumn Budget 2024
Not many mentions of VAT in the budget (thank goodness!).
So few, in fact, that I’ve reproduced them below in their entirety! Mostly private school fees, that we already knew about.
2.62 The government is committed to ensuring that every child has access to high-quality education. To secure additional funding to help deliver commitments relating to education and young people, the government will introduce 20% VAT on education and boarding services provided for a charge by private schools from 1 January 2025. The government will also remove business rates charitable rate relief from private schools in England from April 2025. Together, these policies are expected to raise £1.8 billion per year by 2029-30. The impact on the state education system as a whole is expected to be very small.
2.63 To support pupils with special educational needs that can only be met in a private school, local authorities and devolved governments that fund these places will be compensated for the VAT they are charged on those pupils’ fees. Private schools which are “wholly or mainly” concerned with providing full time education to pupils with an Education, Health and Care Plan will remain eligible for business rates charitable relief.
5.68 VAT on private school fees – From 1 January 2025, to secure additional funding to help deliver the government’s commitments relating to education and young people, all education services and vocational training provided by a private school in the UK for a charge will be subject to VAT at the standard rate of 20%. This will also apply to boarding services provided by private schools. The government has published a response to its technical consultation on this policy. To protect pupils with special educational needs that can only be met in a private school, local authorities and devolved governments that fund these places will be compensated for the VAT they are charged on those pupils’ fees.
The government greatly values the contribution of our diplomatic staff and serving military personnel. The Continuity of Education Allowance (CEA) provides clearly defined financial support to ensure that the need for frequent mobility, which often involves an overseas posting, does not interfere with the education of their children. Ahead of the VAT changes on 1 January, the MOD and the FCDO will increase the funding allocated to the CEA to account for the impact of any private school fee increases on the proportion of fees covered by the CEA in line with how the allowance normally operates. The MOD and FCDO will set out further details shortly.
5.90 VAT treatment of private hire vehicles – The government is considering the responses to the recent consultation on the VAT treatment of private hire vehicle services, as well as the impact of the recent Court of Appeal judgment, and will respond to the consultation in due course.
Total anticipated VAT receipts in 2025/26 £214 billion!!
Thank you for taking the time to read this VATwatch round-up.
