When it comes to educational institutions, the application of VAT is a topic of considerable importance, but also complexity. It is also a hot topic in politics, with varied positions expressed by political parties. As such, the status of VAT on school fees is subject to be reviewed, and possibly changed, over the coming years.
For now, however, this article will explain what you need to know about VAT and private school fees in 2023 and 2024.
Is VAT charged on private school fees?
As things stand, under UK VAT law, education provision by eligible bodies is an exempt supply for the purposes of VAT. Registered independent (private) schools currently fall into this category. Private/independent school fees are, therefore, VAT-exempt.
Further to this, services related to the provision of education, such as school catering, transportation, accommodation for boarding purposes, and school trips, are also exempt.
However, VAT incurred on expenditure cannot be reclaimed by schools, which only make exempt supplies of education.
Charities which provide education are also eligible bodies, and charges made by a charity for education and training are exempt from VAT.
Do private schools have charitable status?
In 2022, around half of UK independent schools were registered as charities. The government defines a charity as an institution “established for charitable purposes only, and subject to High Court jurisdiction”. Private schools seeking to advance education may qualify as charities, providing they can demonstrate that they exist for the public benefit.
In addition to not having to charge VAT on school fees, charitable status provides schools with notable tax benefits, including tax exemptions, reduced business rates, and Gift Aid on donations. The charitable status of private schools is also a current topic in UK politics.
Is VAT exemption for school fees likely to be reversed?
The Labour Party announced their intention to remove the VAT exemption for independent school fees should they be elected in the next UK General Election. They then plan to use this revenue to increase spending on state schools.
Although adding VAT to independent school fees would, in theory, raise additional revenue, it would also enable independent schools to register for VAT and reclaim the VAT incurred on expenditure. There is a danger that independent schools would delay incurring significant expenditure until the VAT is recoverable from HMRC. As with all things political, this is a hot topic that is evolving over time.
The incumbent Conservative government intends to keep the exemption in place should they win.