Private school fees – Autumn Budget 2024

Since the Chancellor’s announcement on 29 July 2024 that VAT will be introduced on Private School fees and boarding services from 1 January 2025, bursars had hoped for both clarification on certain matters by HMRC and that the Chancellor’s Budget may announce a stay in proceedings to give further time for systems implementation.

On 10 October HMRC issued further guidance. Although being rather general, this helped to clarify certain matters, such as the timing of registrations and when to account for VAT on advanced fees for school terms after 1 January but received between 29 July 2024 and the Budget on 30 October. But it left some doubt, such as to the definition of “board and lodging”, simply saying this was not defined in legislation, and what that included. It also led to some ambiguity as to whether schools could treat catering and transport, for example, as ‘closely related’ items and so exempt from VAT as initially announced, or instead subject to VAT as announced on 10 October, where ancillary to a predominant supply of education. The guidance suggested that simply charging a separate fee might usually indicate that catering, for example, is closely related rather than part of the education and so be exempt.

Whilst the Chancellor’s announcement in the Budget on 30 October did not please bursars and announce a delay – VAT will apply to private school fees and boarding from 1 January 2025 – there was a response to the period of consultation during August and September. The Government has stated that it will make concessions and adjustments to the draft legislation, carving out certain types of school or relaxing definitions in the legislation. For example, the amendments include, but are not limited to:

• Higher Education taught at affected schools, such as at performing arts schools, will be carved out.
• To ensure FE colleges remain exempt from VAT, only those private schools that are wholly or mainly concerned with educating 16 to 19 years olds, and where the majority of those are charged fees, will fall within the scope of the legislation.
• To be exempt from VAT, nursery classes will not now need to consist only of pre-school age children but must be composed “wholly or almost wholly” of children under the compulsory school age, and that will not be expected to reach that age while in the class.
• Teaching English as a Foreign Language courses (EFL) taught by private schools will also be carved out of the legislation.
• Non-maintained Special Schools will be brought into the scope of the policy but only having to charge VAT on placements since 30 October for terms after 1 January.

What is interesting in the Government’s response to the consultation is that they have included further comments in respect of school meals. They say that when these are sold separately, i.e. they are “itemised separately on invoices and parents have a choice as to whether or not they purchase them…” they will remain exempt from VAT. Schools will need to consider whether their catering, transport and other goods and services supplied to pupils are in fact separate and exempt, or part of the fee charged for the education.

Watch our Autumn Budget 2024 question time webinar

Following the Autumn Budget 2024, our panel of experts examined the announcements made by The Chancellor, discussing what these changes mean for you. They also answered questions from our live audience. This webinar is now available to watch on demand here.

Alternatively, if you would like any further information or guidance on this topic, get in touch with your usual Kreston Reeves contact or contact us here.