A new government means change, and that often means a shake-up of the tax and VAT landscape. To date, plans that were confirmed in the King’s Speech on July 17th, indicate the education sector is one of the most significant to be affected. Here, we look at the proposed changes.
VAT on Private Schooling
Traditionally, private school fees have not incurred VAT charges. The Labour Party announced this would change should they come into power and since winning, they are planning to follow through on their manifesto promise. This additional cost to already pricey schooling caused great debate in the election and is likely to cause further concern to many faced with the increase.
Why was it VAT exempt
The provision of all education in the UK, including private education, has traditionally been VAT exempt. This is because schools have charitable status. Labour plans to draw a line between State and Private education in order to level the playing field, using the money from this tax to fund 6500 new teachers in the state sector.
The Timeline
Speaking at The Times CEO Summit, Rachel Reeves, the former Shadow Chancellor and now Chancellor of the Exchequer, indicated it wouldn’t be until 2025 at the earliest. This is in part because the academic calendar means those responsible for paying the fees would have already committed to a September start and therefore would have also budgeted for the year ahead. Plus, making changes part way through a year has its challenges for the government.
Additional Considerations
It’s not just the fees that will increase. Although there’s no confirmation yet, it is possible that boarding school fees, school uniforms and equipment will also be considered for VAT. Plus, there’s the issue that schools would be able to recover input VAT on supplies which they haven’t previously been able to do.
Business Rates for Private Schools
It’s not just those paying private school fees facing new charges, the schools themselves are also at risk of a change to their business rates relief. Scottish private schools have been subject to these rates since 1 April 2022 so it’s perhaps unsurprising that England and Wales are proposed next. There has been concern that the exemption would be applied to other schools that fall within the remit, bit it has been confirmed that the rates relief applied to academies, voluntary aided schools and foundation schools will remain unchanged under the new process.*
Private Tuition for Extracurricular Activities
Currently, private tuition for extracurricular lessons including dance classes is also VAT exempt. This is providing the lessons or classes align with a number of educational requirements. They must be a subject that is commonly taught in schools or universities, they can’t be purely recreational, and they must be an actively taught lesson i.e. include the transference of knowledge or skills. Some sports coaching, music lessons and dance classes fall within the current VAT tax exemption. It is unclear if these will fall in line with the private school fees increase.
The Timeline
It has been mooted that changes will come into effect from September 2025.
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