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VAT on independent school fees – what we know so far

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The new Labour Government is proposing to apply VAT to independent school fees. Both independent schools and independent school parents are advised to start anticipating the change and plan for additional costs. 

What does removing the VAT exemption from school fees mean in practice?

Currently, independent schools, and those schools registered as a charity, qualify as an ‘eligible body’ and are exempt from charging VAT for their services. This exemption also covers activities related to the provision of education, such as school trips, meals, and boarding.  The proposed change will remove the definition of a ‘eligible body’ from independent schools so that all independent school students being educated in the UK would be charged fees at the 20% VAT rate.

Why is VAT being applied to school fees?

By levying VAT on school fees, it is predicted that around £1.6 billion additional tax revenue will be raised. The current plan is to spend this additional amount on recruiting 6,500 new teachers in key subjects to the state school system.

When will VAT be applied to school fees?

Applying VAT to independent school fees was mentioned in the recent King’s Speech at the State Opening of Parliament. It stated that the VAT exemption will be included in the post-election budget in the Autumn, with the measure passing into law in the next finance bill. We do not know whether the it will come into effect in April 2025, at the start of the next tax year, or in September 2025 at the start of the new academic year.   

Will VAT charges apply to international students?

According to UK law, VAT is chargable if the education supplier is based in the UK. This means that VAT could also be charged on fees for international students looking to study in the UK.

Will VAT be charged on fees for children with an EHCP?

The Labour Government has previously confirmed that the changes will not affect children and young people with an Educational, Health, and Care Plan (EHCP).   

How can schools mitigate the impact of increased costs for parents?

There are still many unknowns about the plan, however, it appears likely that VAT exemption will happen as this was a key part of the Labour manifesto and it was mentioned in the King’s Speech.

It may be possible for schools to mitigate some of the 20% VAT charge by claiming expenses, such as on purchasing text books, food, and other assets. This is still to be confirmed and we will not know more until the details of the plan are shared. Schools shoud be cautious about giving parents too much advice on potential mitigations. 

It is important that both parents and schools monitor the situation and take expert advice as more detail is released by the government.  

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The information contained above is for general guidance purposes only. Whilst every effort has been made to ensure the contents are accurate, please note that each individual has different circumstances and it is essential that you seek appropriate professional advice before you act on any of the information contained herein. HB Accountants can accept no liability for any error

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