The UK Government has confirmed plans to implement a 20% VAT on tuition and boarding fees at private schools, a policy set to commence from the 1st of January, 2025. The VAT, which will also be applicable on pre-payment of fees, signifies the government’s intention of ending existing tax breaks for private schools.
This announcement came not long after the Chancellor confirmed the Autumn Budget on the 30th of October. The government’s flagship policy on private school fees has certainly raised some questions and discussions within the education community, particularly regarding the VAT treatment of other services and special education needs.
VAT: What’s the Catch?
From the 1st of January, 2025, VAT on private school fees and boarding will come into effect. Any fees related to the term starting on or after this date will also be subject to VAT. This announcement makes it clear that advance payments for fees relating to the year 2025 are not a viable means of escaping the tax rise.
Private Schools and Special Educational Needs
A significant concern was the continuity of the VAT exemption for particular target sectors such as disabilities. The government confirmed that the tax measure would not affect students with acute special needs whose educational needs can only be met in private schools.
However, where parents and carers with SEND children choose to send them to a private school despite their needs being met in the state sector, the VAT will apply to their fees.
VAT on Other Services
The government eluded that the charge will only apply to tuition and boarding fees charged by private schools. Other services provided by private schools, such as nursery care, wrap-around childcare, school meals and part-time classes operated by third parties within schools, will not be subject to any changes. Also, state boarding fees will remain unchanged.
Additionally, the government plans to conclude the business rate relief for private schools, thus ending their eligibility for charitable rates relief. This measure is set to take effect in April 2025.
What’s Next?
The forthcoming Autumn Budget, set for the 30th of October, will reveal further plans concerning the VAT exemption’s ending.
The government also aims to remove the domicile status from the tax system in April 2025, implying that anyone tax resident in the UK for over four years will pay UK tax on their foreign income and gains.
As the UK government braces itself for these major changes, now is the time for private educational institutions to review their strategies and recalibrate their plans to align with the impending policies.
Stay tuned for our update after the Budget on the 30th of October for the final details.
